Question:
What would be my tax liability on R700 000, invested in a unit trust for 5 years with dividends reinvested?
Answer:
Alex,
You would pay annual income tax on any interest earned by your unit trust. The first R23 800 of your annual interest income is exempt. This interest would be paid-out and re-invested and added to your base cost. You would also incur a 15% withholding tax on your unit trust's dividend income; this dividend would also be paid-out and re-invested. The interest and net dividend is paid out and re-invested so that it can be added to your base cost and is not taxed again when you sell your unit trust. After five years, if you sold, you would pay capital gains tax on the difference between your realised value and your base cost. One-third of the gain would be included in your income, and, depending on your marginal tax rate, you would pay tax up to 40% on that (ie an effective tax rate of 13.3%). The first R30 000 of your capital gain that year would be excluded from tax.
As to what these amounts will add up to, we have no idea. We have no way of knowing what your asset allocation will be, we cannot predict future market
returns, we have no idea how your fund managers will perform, what fees they charge, what your marginal tax rate is and what future tax rates will be.
