While you are invested
With a unit trust:
You pay tax on the growth and the income from your investment, even if that income is not paid into your bank account, but reinvested in the fund. There are four types of tax that you need to pay attention to:
Dividend Withholding Tax (DWT):
For SA resident companies and non-resident companies listed on the JSE, DWT at a rate of 15% is levied on dividends declared. The tax is subtracted from the dividend and automatically paid to SARS on your behalf. You will therefore not pay a separate tax on these dividends, but you still need to declare the dividends shown on the annual tax certificate from your unit trust management company when filing your tax return.
Income tax on foreign dividends:
Dividends from non-resident companies enjoy an exemption of 62.5%, but you’ll pay income tax on the remainder. You need to declare the foreign dividends (shown on your tax certificate from your unit trust management company) to SARS.
Income tax on interest earned
With regards to local interest earned, if you’re under the age of 65, you don’t have to pay income tax on the first R23 800 of the interest that you earned from your unit trust investment. If you’re 65 years and older, the exemption amount is R34 500.
Interest earned from foreign sources is fully taxable – no exemptions apply.
You have to declare all your interest earned to SARS when filing your tax return.
Capital Gains Tax (CGT):
You’re not taxed when the fund manager buys and sells the assets inside your unit trust fund. But a CGT event is triggered when you disinvest from a fund, whether that is by withdrawing money or switching between funds (see details below.)
With an RA:
You don’t pay any income tax, DWT or CGT while you remain invested in the retirement fund, which makes the RA a tax-efficient way to save for retirement.