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What are the tax implications of unit trust investing?

by , 20 March 2014

Most investors think figuring out which is the best unit trust to invest in is the only thing they need to consider. But that's not true! Before getting involved in any investment, you need to consider how the tax on it works. When it comes to unit trust investing, these two taxes apply…

SARS levies two taxes on all forms of unit trust investing

As the experts at Equinox explain, there are two types of tax that apply to all unit trust investing:

#1: Income tax

It doesn’t matter what type of unit trust you invest in, every single generates some income.

Take equity funds, for example. Their fund managers have to hold at least 5% of their total assets in cash. This money earns interest which is added to your investment.

This is where the taxable income comes in. And it’s why unit trust companies send you an IT3B form each year so that you can state the interest on your annual tax return.

SARS taxes this income on your personal tax rate.

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#2: Capital Gains Tax (CGT)

CGT applies every time you sell out from a unit trust investment. In this case, you’ll pay SARS CGT on a tax rate of 25%.

Note that an exemption of R10,000 applies for individuals. So if you sell R75,000 worth of unit trusts, you’ll only pay CGT on R65,000.

Now that you know what taxes you’ll have to pay when your strategy includes unit trust investing, you’ll be able to work out your real rate of return and work with your financial planner to minimise the tax risk.

What are the tax implications of unit trust investing?
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