There’s a fundamental principle of the tax system: if you make money on something, it’s taxable!
This is worth bearing in mind when you’re thinking of how to invest or save. There are a lot of regulations and some exceptions, and it’s worth consulting an expert financial advisor to make sure you don’t put a foot wrong, with the South African Revenue Service (SARS) or by losing out on exemptions through making poor investment choices.
Some info to bear in mind on tax and investments:
Capital gains tax (CGT)
“All capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions.” (ABC of Capital Gains Tax for Individuals, SARS, April 2013) If you sell an asset, you’ll be taxed on the difference between what it cost you to acquire the asset and the price you earned at the time of sale.
There is, however, a CGT tax rebate of R30,000, so you’ll only be taxed on any profit of more than R30,000.
The good news is this doesn’t apply to your winnings on the lottery or any other gambling or competition (so long as it’s held under South African law)!
It also doesn’t apply to:
- Your personal belongings such as furniture and appliance
- Small boats and little aeroplanes
- “Lump sum payments from pension, pension preservation, provident preservation and retirement annuity funds (approved retirement funds),” says Sars.
- Proceeds from an endowment policy or life insurance policy (but not if it is a second-hand policy or a foreign policy) and
- Compensation from personal injury or illness.
And CGT attracts a nice fat rebate of R2m on the sale of your primary residence (the home in which you live most of the time) – you’ll only get taxed on any profit above that threshold (Click here for more info on CGT).
Equities
Recently, the Secondary Tax on Companies (STC) was replaced by the Dividend Tax. This is a ‘withholding tax’: the payer of the dividend is responsible for withholding the tax of 15%. So if you earn a dividend of R100 000, the company will withhold R15 000 to pay to SARS and pay you the balance of R85 000.
Unit trusts
There are two possible taxes on unit trusts. First, tax on income earned in the form of interest and dividends. At the end of the tax year, you will be issued with a form, an ITB3 certificate, giving the details of what you’ve earned, which you must include with your tax return.
Second, if you sell your unit trusts – even if you switch between two unit trust funds – you will be disposing of an asset and therefore you are subject to Capital Gains Tax. So you need to bear that tax in mind when you consider jumping ship and going to fund that you feel will bring in better returns.
Other investments
There is a rebate on all interest earned from South African sources. So if you earn interest form a bank deposit, the first R23 800 is tax-free. If you are over 65 years, this rebate increases to R34 500.
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