Finweek English Edition - - INVESTMENT -

within three years and it’s rev­enue (trad­ing) longer and it’s for cap­i­tal growth (in­vest­ing), and the dif­fer­ence is huge.

In­vest­ing for growth means that prof­its are taxed as a cap­i­tal gains tax (CGT), which is 33% of your mar­ginal tax rate (max­i­mum in 40%) mak­ing the top end a 13.3% tax on prof­its. Fur­ther, the first R30 000 of cap­i­tal gain is ex­empt from tax. An­other im­por­tant point is that CGT came into ef­fect 1 Oc­to­ber 2001, and if you bought a share be­fore that date the price on 1 Oc­to­ber 2001 will be used as the pur­chase price. As al­ready men­tioned, tax is only li­able when you sell so that stock sit­ting on a mas­sive gain is not tax­able un­til you sell.

Trad­ing is a lit­tle more com­pli­cated and ex­pen­sive. Es­sen­tially it is deemed to be of rev­enue or in­come and so is taxed at your mar­ginal tax rate (max­i­mum 40%). But as it is rev­enue you are able to deduct the costs which would be any ex­penses in­curred in achiev­ing the in­come. This could in­clude bro­ker­age, ad­min fees, losses in­curred in in­di­vid­ual trades and the like. Here you need to keep solid records of all costs, which you would deduct from your prof­itable trades leav­ing the fi­nal tax­able amount.

An­other im­por­tant point is how funds are taxed. If you buy into a unit trust, ex­change-traded fund, hedge fund and the like, you are taxed when you sell. The ben­e­fit is that the fund does not pay any tax on its trans­ac­tion and the ul­ti­mate tax li­a­bil­ity is yours when you exit (as­sum­ing it is at a profit). This means that not only do you ef­fec­tively de­fer the tax pay­ment, but if you hold for three years while the fund is trad­ing, it means that you would still only pay CGT on the prof­its. This is a huge ad­van­tage as the aver­age trader is pay­ing the higher mar­ginal tax rate ev­ery year.

A last point is that the onus is on you to de­clare your prof­its from trad­ing and in­vest­ing when you sub­mit your tax re­turn, and as al­ways ex­cel­lent records are very im­por­tant – as is solid ad­vice from an ex­pert or SARS of­fi­cial.

Si­mon Brown is a Fin­week con­trib­u­tor and heads ju­s­, a free re­source of fi­nan­cial in­for­ma­tion and in­vest­ment ed­u­ca­tion.

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