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PSGKonsult TAX and Your Investment
PSGKonsult TAX and Your Investment
as well as all dividends, but the foreign interest and dividends that exceed R3 500 would be taxable together with the local interest. Lets use a comprehensive example: Income Received: Local Interest Local Dividends Foreign Interest Foreign Dividends Tax calculation: Total Income Exempt Income: Local Dividends Foreign Dividends + Interest Local Interest (R21 000 R3 500) Taxable Income R50 000 R 3 500 R17 500 R71 000 R14 000 R85 000 R25 000 R50 000 R 5 000 R 5 000
There are times when the interest you receive is not taxed in your own hands, but in the hands of someone else. Most investors believe that the investment they do via their endowment policies and/or retirement annuities are tax free. This thought is only partly correct, because interest and rental income that accrued in an endowment are taxed in terms of the four fund approach. This merely means that the taxes are paid at different tax rates. The individual policy holder fund (this is the fund where the investor is a natural person) is taxed at a rate of 30%. All interests and rental income accrued to a retirement are tax free. It is important to understand this concept, because it is not necessarily true that it is more tax effective to invest your monies via a policy structure like an endowment. Should you take the cost implications of a policy structure into consideration you will find that the structure is only effective for the person with a very high average tax rate. Since the introduction of Capital Gains Tax (CGT), with effect from the 1 of October 2001, the investment environment has changed dramatically. One has to understand that this is not a separate tax. th CGT is levied and charge in terms of the 8 Schedule of the Income Tax Act. Only the disposal of an asset activates the liability for CGT. Disposal is defined as any event, act, forbearance or operation of law which result in the creation, variation, transfer or extinction of an asset For our purposes we will consider the sale of a share or unit trust as an event for purposes of CGT. In a very simplistic manner, the difference between the selling price and the buying price (base costs) of such asset, would be represent the gain or loss. A percentage (25%) of this gain or loss, less a rebate of R17 500 per annum would be added to your taxable income.
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Lets take the following example: Original Investment in a Unit Trust Investment Value at redemption Gross Capital Gain Rebate Nett Capital Gain Inclusion rate @ 25% R500 000 R750 000 R250 000 R 17 500 R232 500 R 58 125
Therefore R58 125 would be included to your other taxable income to determine your tax payable. The administration for these two issues could be cumbersome, therefore it is recommended to contact your financial advisor for assistance.