CIS Tax Blow Looms

GAINS: POTENTIAL EROSION OF SAVINGS IN COLLECTIVE INVESTMENTS

- Amanda Visser

Another rather nasty surprise in this year's proposed amendments to the Income Tax Act is a change to the taxation of collective investment schemes (CISs).

Tax specialists note that investors in these unit trust schemes are facing an unexpected tax bill on their holdings – even if they have not sold any units.

The National Treasury believes that, while the existing tax framework for CISs and corporate reorganisations serves an important purpose, the transfer of shares to a CIS without tax implications has allowed for "unintended tax avoidance" during changes of shareholdings in listed companies. The realised gains on the shares are not taxed upon transfer.

The Treasury now wants to scrap the tax-neutral treatment of fund mergers or amalgamations and the roll-over relief for asset-for-share transactions will also be removed.

Another proposal is to treat any distribution from a CIS that is not income as a capital gain, taxable in the hands of the investor.