Unit trusts remain one of South Africa’s most popular investment options, offering everyday investors access to diversified portfolios managed by professionals. But while the returns can be rewarding, understanding when you’re liable for Capital Gains Tax (CGT) is essential.
When a fund manager buys or sells shares within the unit trust portfolio, these internal transactions do not trigger CGT for investors. Paragraph 61 of the Eighth Schedule to the Income Tax Act ensures that capital gains or losses within the portfolio are disregarded, preventing double taxation.
However, when you sell your units, CGT becomes payable on any profit made. Your capital gain is the difference between your selling price and the “base cost” of the units — usually their purchase price or the average cost if you’ve been investing monthly or reinvesting dividends. Investors who bought units before 1 October 2001 can use the market value on that date as their base cost.
It’s also important to note that Section 9B of the Income Tax Act, which allows listed share proceeds to be treated as capital after three years, does not apply to unit trusts. The key determinant remains your investment intention — long-term investment gains are generally capital, while frequent trading may be viewed as revenue.
Need help calculating your CGT or structuring your investments efficiently?