 |
 |
 |
 |
 |
 | ||||
|
Tax threat to unit trusts as state's ten... Court case raises scary scenario for bro... Unit Trust :INVESTEC GROWTH FUN... What matters most is your investment fli... Why IT shares are a good be... Mr Manuel, let us invest more offshor... A time-share scheme for luxury car... Ups and downs and run-arounds of pension... Your retirement is a whole lot closer th... |
Tax threat to unit trusts as state's tentacles probe industry
Tax commission chair Michael Katz confirms investigation into trusts' share profits, writes LUCIENNE FILDTaxing the profits of a unit trust fund from sales of shares would reduce investment returns to unitholders
THE tax-free days of your unit trust fund could be numbered. Money learnt this week that the Katz Commission is investigating whether or not unit trust funds should be taxed on their profits from shares.
Until this week, when Money uncovered the investigation, it was classified as top secret. This is understandable, as the implications are so huge that fierce opposition from unitholders and the unit trust industry is feared.
Taxing the share profits of a unit trust fund would reduce returns to unitholders. Unit trusts would also lose appeal as effective tax-free investment vehicles.
Confirming the investigation this week, chairman of the tax commission Michael Katz said the probe was prompted by suggestions that the playing fields of the various investment industries weren't level.
He said the commission was in the process of collecting all the facts. Katz declined to comment further, saying only that the investigation was in its infancy.
The tax target under investigation is the gain made by the unit trust fund when it sells shares at a profit. Such gains are usually re-invested by the unit trust fund, thus increasing the value of its share portfolio. A rise in this value translates into a higher unit price - and the higher the price, the higher a unitholder's return.
A tax on the realised share gains at the corporate tax rate of 30% will significantly reduce returns.
The unit trust industry was shocked at the news this week.
"It would kill us," says Anton Kok, chairman of the Association of Unit Trusts.
Players in the unit trust industry believe that the investigation was prompted by the life insurance industry. Life investment products attract tax on their investment income at 30% for individuals.
Kok says unit trusts are attractive investment and savings vehicles because their returns are tax free. He says careful consideration should be given to SA's low savings rate before one of the most attractive savings vehicles is tampered with.
According to Kok, a fund manager trades in shares for a myriad of reasons, depending on the fund's mandate. A flexible fund, for example, is mandated to actively trade between various asset classes and their stocks, he says.
Implementing tax on unit trusts will not be easy, he adds. After all, how do you tax a fund manager when he is forced to sell shares because of huge outflows?
And the playing field between local funds and offshore funds registered in tax havens will then once again not be level if local funds are taxed.
Jeremy Gardiner, head of unit trusts at Investec Guinness Flight, agrees. He says unit trust funds should not be taxed because they are long-term savings vehicles. "Unit trusts are one of the few vehicles that encourage saving in this country," he says.
Unit trusts in the UK have not come under attack from revenue authorities, says Gardiner, for exactly that reason.
But Ian Hamilton, head of Futuregrowth Unit Trusts, says it is almost inevitable that unit trust funds will be subjected to tax. And once that happens, fund managers will have to review the way they manage their funds.
Their choices will have to be more exact and long-term, says Hamilton, in order to minimise tax liability.
The industry feels that if some form of tax is on the cards, it should fall on the individual investors who actively switch or trade in unit trusts.
This would be similar to the tax levied on the gains of investors who actively trade or speculate in shares. The simplest way to escape tax is by holding onto a share for five years or longer.
|