The taxman normally taketh away, but occasionally he giveth. In the unit trust industry he is trying to do both at the moment that is apart from the additional VAT charge.
On the one hand he is attempting to find ways of imposing a new tax on your investments in the increasingly popular gilt and income unit trust funds .
On the other hand, Personal Finance can reveal he has now agreed to drop the 12,5 percent Secondary Tax on Companies (STC) on some aspects of dividend payments on general equity unit trust funds. His change in attitude is backdated to March 1993. But, not all of the unit trust companies agreed they should pay the tax in the first place.
Some unit trust funds paid the STC, while others did not, preferring to keep the money in reserve.
Those funds which have paid the tax will be getting the money back from the taxman and it will be paid out to investors. But these investors are worse off because the taxman seldom pays interest on refunds. Against this, those which held money in reserve have been earning income for their investors.
While many investors will score from this change of heart, the taxman is trying to find a way of taxing you on earnings you have not yet received and may never receive from income and gilt unit trusts.
This may sound like Greek, but it works like this: When unit trust companies invest in bonds (loans to government and parastatals) they are often bought at a discount to the price declared on the bond. In other words when government borrows money from institutions like the unit trust companies, it issues a bond certificate. The certificate may be worth R100 but government will issue it for R98. The R2 is what is known as the discount.
When the loan is due, the government repays R100.
The unit trust companies pay out this discount to investors when the cash is actually received, some years in the future.
Unit trust funds are not taxed. All income earned by the funds must be distributed to investors, who then pay the tax.
The taxman says the funds should distribute the discount as well even though it is "phantom" income.
You would have to pay tax even though you have not received the money.