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A Fin24 user wants to know the tax implications of cashing out part of his unit trust earnings. He writes:
I have invested R350 000 in unit trust 13 years ago and it's now worth R1 500 000. I want to take out R350 000 and invest in a different unit trust company. What is the tax implication or capital gains?
Stephen Katzenellenbogen, a CFP® Professional, Director of NFB Financial Services Group, responds:
There are a number of taxes to consider when investing in a unit trust as you can earn a return from a number of sources.
The first potential tax is Income Tax. Taxable income can be earned through interests on cash; bond coupons and property distributions. This type of return accumulates throughout the year and tax is payable annually irrelevant if the income is being paid to you or accumulating within the investment. You do have an annual interest exemption of R23 800 that can offset against interest earned through a unit trust or any other qualifying investments.
The second type of taxable return is dividend. Dividends are earned when a share held within the unit trust pays a dividend; typically companies pay an annual dividend. South Africa has in the last while moved over to a Dividends Withholding Tax regime and you receive the net dividend after 15% has been withheld.
The third and last type of taxable return is capital gain or in some instances loss. Capital gain is earned through the increase in price of any shares, bonds or property held within the unit trust resulting in an increase in the unit price of the particular unit trust. Capital Gains Tax (CGT) is only payable on a capital gain event or deemed event. An example of a capital gain event would be a redemption; and an example of a deemed event is death.
The answer to your question would then be that if you have made a capital gain when redeeming the investment you will be liable for the capital gains tax in the tax year in which the redemption takes place. Like interest income you do get a small annual exclusion which is currently set at R30 000. The capital gain will essentially be the difference between the base cost and the proceeds realized and the actual calculation is normally provided by the unit trust management company.
An advantage of a unit trust, versus for example a direct share portfolio, is that the manager of the fund can buy and sell instruments within the fund without triggering CGT. It is only when units of the fund itself are sold that the tax becomes due.
As this cannot be construed as formal financial advice it would be in your interests to contact an independent financial advisor who will be able to provide professional guidance with regards to your entire financial plan.
- 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 have invested R350 000 in unit trust 13 years ago and it's now worth R1 500 000. I want to take out R350 000 and invest in a different unit trust company. What is the tax implication or capital gains?
Stephen Katzenellenbogen, a CFP® Professional, Director of NFB Financial Services Group, responds:
There are a number of taxes to consider when investing in a unit trust as you can earn a return from a number of sources.
The first potential tax is Income Tax. Taxable income can be earned through interests on cash; bond coupons and property distributions. This type of return accumulates throughout the year and tax is payable annually irrelevant if the income is being paid to you or accumulating within the investment. You do have an annual interest exemption of R23 800 that can offset against interest earned through a unit trust or any other qualifying investments.
The second type of taxable return is dividend. Dividends are earned when a share held within the unit trust pays a dividend; typically companies pay an annual dividend. South Africa has in the last while moved over to a Dividends Withholding Tax regime and you receive the net dividend after 15% has been withheld.
The third and last type of taxable return is capital gain or in some instances loss. Capital gain is earned through the increase in price of any shares, bonds or property held within the unit trust resulting in an increase in the unit price of the particular unit trust. Capital Gains Tax (CGT) is only payable on a capital gain event or deemed event. An example of a capital gain event would be a redemption; and an example of a deemed event is death.
The answer to your question would then be that if you have made a capital gain when redeeming the investment you will be liable for the capital gains tax in the tax year in which the redemption takes place. Like interest income you do get a small annual exclusion which is currently set at R30 000. The capital gain will essentially be the difference between the base cost and the proceeds realized and the actual calculation is normally provided by the unit trust management company.
An advantage of a unit trust, versus for example a direct share portfolio, is that the manager of the fund can buy and sell instruments within the fund without triggering CGT. It is only when units of the fund itself are sold that the tax becomes due.
As this cannot be construed as formal financial advice it would be in your interests to contact an independent financial advisor who will be able to provide professional guidance with regards to your entire financial plan.
- 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.
