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A Fin24 user has an investment in unit trusts and wants to know how capital gains tax will affect a withdrawal on his investment. He writes:
I am currently a student, who has never been employed before. I will hopefully be employed in 2015.
Currently I have about R100 000 invested in unit trusts that was given to me.
What would the implications be in terms of capital gains tax (or any other tax) if I withdraw my investment while still being a student, compared to if I were employed and wanted to withdraw the money in four years’ time, for example?
Marius Fenwick, chief operating officer of Mazars Financial Services, responds.
CGT is calculated as the total gain, minus R30 000, and multiplying this amount by 33.33%. This amount is included in your taxable income.
If you are not a taxpayer, like the average student, then CGT will not have any impact on your tax situation unless of course the capital gain is in excess of R67 111.00 (the tax threshold).
Once you become a taxpayer through interest earned or through rental income or earning an income of any sort, then the capital gain will have an impact on your overall tax.
For example, if you earn R150 000 taxable income per year, your tax payable will be R27 000 if we ignore rebates. If you sold an asset and achieved a capital gain of say, R80 000, then R16 666 [(R80 000 minus R30 000) x 33.33%] will be added to your taxable income.
This means that your tax will now be calculated on R166 666 income, resulting in tax of R29 999.
This means that your capital gain of R80 000 will result in tax of R2 999.00. This figure will obviously change, according to your marginal tax rate.
Be mindful though that unit trusts are made up of different components, all resulting in different taxes.
Where the unit price increases as a result of capital growth, CGT will apply on redemption but dividend tax will also be withheld by the fund administrators.
Dividend tax has no effect on individual tax liabilities (similar to value added tax). Wherever a unit trust has exposure to interest in the form of cash or bonds, the growth on the interest component will be taxed as income, in a similar way to having cash in the bank.
Property unit trusts attract tax similar to interest earned on the portion of growth that was a result of rental income flows.
Some unit trusts will attract all the above taxes, while others may only attract one of the mentioned taxes. Generally more than one tax will be applicable.
On all the above mentioned taxes, the standard abatements apply i e R30 000 deduction from any capital gain, and rebates of R23 800 for persons under 65 (R34 500 for persons over 65) on interest earned.
I hope this helps with your query. Most importantly, I want to bring to your attention that you are in a fortunate position to have such a good amount of money saved and would urge you to consider preserving your savings if you can.
The earlier you start accumulating savings, the longer you have for your money to grow. Remember, it will take a long time to save up another R100 000 once you are earning.
I am also concerned that a young person would want to disinvest early just to save CGT; sooner or later CGT will be paid, and really the choice of which unit trusts you are invested in is more important than CGT.
I would encourage you to make the most of this fantastic start to your savings, which can only continue to grow. I strongly recommend you stay invested for as long as possible to reap the rewards of starting to save early.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
I am currently a student, who has never been employed before. I will hopefully be employed in 2015.
Currently I have about R100 000 invested in unit trusts that was given to me.
What would the implications be in terms of capital gains tax (or any other tax) if I withdraw my investment while still being a student, compared to if I were employed and wanted to withdraw the money in four years’ time, for example?
Marius Fenwick, chief operating officer of Mazars Financial Services, responds.
CGT is calculated as the total gain, minus R30 000, and multiplying this amount by 33.33%. This amount is included in your taxable income.
If you are not a taxpayer, like the average student, then CGT will not have any impact on your tax situation unless of course the capital gain is in excess of R67 111.00 (the tax threshold).
Once you become a taxpayer through interest earned or through rental income or earning an income of any sort, then the capital gain will have an impact on your overall tax.
For example, if you earn R150 000 taxable income per year, your tax payable will be R27 000 if we ignore rebates. If you sold an asset and achieved a capital gain of say, R80 000, then R16 666 [(R80 000 minus R30 000) x 33.33%] will be added to your taxable income.
This means that your tax will now be calculated on R166 666 income, resulting in tax of R29 999.
This means that your capital gain of R80 000 will result in tax of R2 999.00. This figure will obviously change, according to your marginal tax rate.
Be mindful though that unit trusts are made up of different components, all resulting in different taxes.
Where the unit price increases as a result of capital growth, CGT will apply on redemption but dividend tax will also be withheld by the fund administrators.
Dividend tax has no effect on individual tax liabilities (similar to value added tax). Wherever a unit trust has exposure to interest in the form of cash or bonds, the growth on the interest component will be taxed as income, in a similar way to having cash in the bank.
Property unit trusts attract tax similar to interest earned on the portion of growth that was a result of rental income flows.
Some unit trusts will attract all the above taxes, while others may only attract one of the mentioned taxes. Generally more than one tax will be applicable.
On all the above mentioned taxes, the standard abatements apply i e R30 000 deduction from any capital gain, and rebates of R23 800 for persons under 65 (R34 500 for persons over 65) on interest earned.
I hope this helps with your query. Most importantly, I want to bring to your attention that you are in a fortunate position to have such a good amount of money saved and would urge you to consider preserving your savings if you can.
The earlier you start accumulating savings, the longer you have for your money to grow. Remember, it will take a long time to save up another R100 000 once you are earning.
I am also concerned that a young person would want to disinvest early just to save CGT; sooner or later CGT will be paid, and really the choice of which unit trusts you are invested in is more important than CGT.
I would encourage you to make the most of this fantastic start to your savings, which can only continue to grow. I strongly recommend you stay invested for as long as possible to reap the rewards of starting to save early.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
