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Thursday, March 1, 2012
Investor impost

A unit trust portfolio distributes income monthly, quarterly, biannually, or annually depending on its mandate. The income is made up of an interest and dividend component. Up until now investors were only taxed on the interest component of each income distribution, which was disclosed at the end of each tax year and included in their tax return.

“This will change from the 1st April 2012 with the implementation of Dividend Withholding Tax (DWT) of 15%,”says Sean Segar, of Nedgroup Investments. “This will require certain investors, depending on their status, to pay tax on the dividend component of each income distribution.
DWT replaces to 10% Secondary Tax on Companies (STC), which was a tax payable by the company paying the dividend. DWT is a tax payable by the investor receiving the dividend, thus moving responsibility from the company to the tax payer. This change is aimed at bringing South Africa in line with international tax practice.
The DWT is applied to dividend income received by the following investors:
• Local individual investors;
• Foreign individual and legal entity investors; however, these clients may be eligible for a reduced DWT if the following criteria are met:
o the investor must be a non-resident of South Africa; and
o South Africa must have a double taxation agreement with the investor’s country of residence.

The reduced rate will depend on the double taxation agreement and the investor must provide with the correct rate.
When the unit trust portfolio distributes income to investors, SARS requires the administrator of the unit trust portfolio to withhold the applicable percentage of tax from the dividend portion of each income distribution prior to the balance being paid out or reinvested. The company then pays the DWT portion over to SARS on the client’s behalf.
According to Craig Aitchison of OMAC a rough calculation, assuming a retirement fund with 60% of its assets invested in dividend earning equity, and an average dividend yield of 3%, would suggest an increased investment return of 0.18%, assuming companies did not change the level of dividends they declared.

Copyright © Insurance Times and Investments® Vol:25.3 1st March, 2012
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