Publications
Partners
[http://www.shutterstock.com]
A Fin24 user is worried that he might have triggered capital gains tax when he moved some funds around. He writes:
I recently retired and draw an income from a unit trust based living annuity.
I moved some funds during the year and think I might now have triggered a capital gains tax.
I understand that the gains in my normal unit trust funds will be liable for this tax, but my understanding was that growth in a living annuity was tax free.
Am I right in this assumption?
Marius Fenwick, chief operating officer of Mazars Financial Services responds.
The short answer is that no capital gains tax (CGT) is levied within a living annuity.
Pension funds, provident funds, retirement annuities, preservation funds and living annuities are all exempt from all forms of taxes.
This means that changes can be made to the portfolios within these products without incurring CGT and all growth including interest earned within these products are non-taxable.
Income earned form the living annuity will obviously be taxed in the same way as a salary is taxed.
You correctly state that normal unit trust growth is subject to CGT, but only when a unit is sold.
All the adjustments within a unit trust are not taxed. In other words, when the share portfolio within a unit trust changes no CGT is levied.
The underlying instruments are ignored and CGT is levied on the unit price.
CGT is not a withholding tax, meaning that the unit trust company will not withhold CGT - unlike dividend tax which is withheld.
On the sale of units the unit trust administrators will issue a CGT certificate indicating the gain or loss made during the holding period of the unit trust.
This declared gain or loss will be used to determine the inclusion rate that will be added to the investors taxable income.
- 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 recently retired and draw an income from a unit trust based living annuity.
I moved some funds during the year and think I might now have triggered a capital gains tax.
I understand that the gains in my normal unit trust funds will be liable for this tax, but my understanding was that growth in a living annuity was tax free.
Am I right in this assumption?
Marius Fenwick, chief operating officer of Mazars Financial Services responds.
The short answer is that no capital gains tax (CGT) is levied within a living annuity.
Pension funds, provident funds, retirement annuities, preservation funds and living annuities are all exempt from all forms of taxes.
This means that changes can be made to the portfolios within these products without incurring CGT and all growth including interest earned within these products are non-taxable.
Income earned form the living annuity will obviously be taxed in the same way as a salary is taxed.
You correctly state that normal unit trust growth is subject to CGT, but only when a unit is sold.
All the adjustments within a unit trust are not taxed. In other words, when the share portfolio within a unit trust changes no CGT is levied.
The underlying instruments are ignored and CGT is levied on the unit price.
CGT is not a withholding tax, meaning that the unit trust company will not withhold CGT - unlike dividend tax which is withheld.
On the sale of units the unit trust administrators will issue a CGT certificate indicating the gain or loss made during the holding period of the unit trust.
This declared gain or loss will be used to determine the inclusion rate that will be added to the investors taxable income.
- 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.
