The South African Revenue Service (SARS) has warned it is an offence not to declare all trades in unit trusts or any other financial instruments in a tax year to avoid capital gains tax.
In response to inquiries from Personal Finance readers whether it is permissible for only the net effect of trades between the beginning of the tax year and the end of the year to be taken into account, Franz Tomasek, the assistant general manager for legislation at SARS, says all trades in financial instruments must be declared. "Anything less than this is a contravention of the reporting requirements. If the capital gain a taxpayer declares in his or her income tax return is understated as a result, the taxpayer has a problem."
The potential not to report all trades on which there could be capital gains implications exists with investments made through linked investment product companies and where financial advisers have the discretion to make trades on behalf of clients.
For example, an investor owns 100 units in Investment X with a value of R20 000 at the start of the tax year. In March, the investor sells all 100 units for R24 000 and realises a capital gain of R4 000. In June, the investor buys 200 units of Investment X for R40 000. In September, the investor sells 100 units for R45 000 and realises a capital gain of R25 000.
Although, at the end of the year, the investor has the same number of units as he or she had at the beginning of the tax year, the investor must declare a capital gain of R29 000 (R4 000 + R25 000).