IT3(B) TAX CERTIFICATE FOR UNIT TRUSTS / ETFS

Investing & Money
piece written on the 23rd March 2015 by  

The world of tax is complicated and getting a thorough understanding of what you pay tax on is not a simple process. Furthermore, finding the most tax efficient way of doing things is even more complex and based on my research, to find someone to assist you is not going to be easy. Unfortunately, these aren’t really topics I’m equipped to explain, perhaps one day I will be, but today I want to chat about something else.

This evening I received an IT3(b) tax certificate for a unit trust account I have and a friend recently asked me about this so I wanted to do some research on the topic and explain as best as I can as to why you’d receive an IT3(b) tax certificate. Most people know that with Retirement Annuities (RAs) you get a tax break.. you’d fill this out when submitting to SARS or hand it over to your accountant. It makes sense to get at IT3(b) tax certificate for an RA, but why would you need one for a unit trust (or ETF for that matter)?

The answer is quite simple: With any investment, when you make a profit you have to pay tax. To the same effect, if you sell said asset, you will have to pay Capital Gains Tax (CGT) on the growth of said asset.

So with your unit trust there are two taxes:

  1. The first form of tax to come into play is tax that is levied on interest income through your investment. Unit trusts earn interest and dividends, these amounts must be included in your annual tax return prior to submitting to SARS. In other words, you’ve earned money (profit) and therefore you pay tax to SARS. I believe that the tax rate is 15% on interest income.
  2. The second form of tax, as mentioned, is Capital Gains Tax (CGT). This second type of tax only comes into play when you sell your asset (like with property). As a person you’ll be charged 25% of the total capital gained or if the investment is through a trust you’ll pay 50%.

It’s unfortunate that we’re paying such high amounts on any form of equity growth but that’s just how it goes in South Africa and most countries for that matter. If you’d like to dig deeper into the different types of income and how to provide SARS with what they require I recommend reading this page on the SARS website.