The Personal Finance series with Warren Ingram

There are many ways to minimise capital gains tax

A regular listener of Bruce Whitfield’s The Money Show asked Galileo Capital Personal Financial Advisor Warren Ingram the following three-part question about capital gains tax:

Part 1

For years I have invested in the rand based Allan Gray Orbis Global Equity Feeder Fund.

Recently I decided to invest in the same product, but the dollar version of it.

A benefit that your listeners may not be aware of is that you do not pay capital gains on the deprecation of the rand!

For example:

At R10/$ I buy R100 000 into the rand based fund.

I also buy the equivalent of $10 000 into the dollar based fund.

Should the rand change to R25/$, but the underlying value of the fund does not change, both purchases are still the same in rand terms (i.e. R250 000)

But, if I sell, the capital gains on the rand fund would be R150 000 whilst the dollar fund would have a capital gain of $0 as the value of the dollar fund has not changed.

Should this be the preferred way of investing offshore, instead of using the rand based offshore funds, especially as the inclusion rate for capital gains is now at 40% and it is becoming a significant tax?

Part 2

Capital gains tax seems unfair.

About 14 years ago I took out an investment for R52 000 with Stanlib.

It has not done well compared to other investments and is now worth about R180 000.

If I sell now I have a capital gain of R128 000 but, in real terms (i.e. considering inflation), it has probably made a capital loss!

Yet, I still have to pay tax on what is perceived to be a gain by the tax man – this is a bitter pill to swallow.

In order to minimise paying this tax I already max out my RAs and tax free savings.

I also switch out and back into a unit trust fund each year to get the capital gains exclusion amount (currently at R40 000 ).

Are there other ways of minimising capital gains tax?

I thought of putting more money into RAs over and above their thresholds.

I therefore would not get a tax deduction for it, but I assume the investment is free of the capital gains tax that unit trusts are subject to.

I am not sure if that is a good idea given that it would now be locked into the RA until retirement.

Would you advise that I sell out of badly performing assets and take the capital gain hit (my marginal rate is now painfully at 45% ) or wait until I am retired at which time my marginal tax rate will be a lot less?

Part 3

I am putting away an amount each month in my young son’s name to use when he is older for his education or for setting up a business.

I make use of the tax free savings account as well as unit trusts to do this.

How does capital gains tax work for him?

I also switch between unit trust funds each year to the capital gains exclusion amount, but see no reason why I can’t switch more than the allowed amount since he is not earning anything and his marginal rate is therefore 0%.

So, he would not liable for capital gains tax – is that correct?

Listen to Ingram’s answer in the audio below (and/or scroll down for quotes from it).

What he’s doing is very smart!

Warren Ingram, Galileo Capital Financial Advisor

You don’t want to become a trader in Sars’ eyes.

Warren Ingram, Galileo Capital Financial Advisor

Tax Free Savings Accounts – especially for young children – are no brainers.

Warren Ingram, Galileo Capital Financial Advisor

Click here (then“like” the page) to follow Bruce on Facebook.

Enter your email address in the form below to receive a newsletter containing the most-read articles of the week from Bruce Whitfield’s The Money Show every Friday morning in your inbox.

Subscribe to our Business Wrap Newsletter

Article brought to us by Old Mutual.

Read More
Where to invest your overseas capital

Where to invest your overseas capital

With the political climate as volatile and rife, the US might not be the best country to keep your overseas capital.

Women are better investors than men

Women are better investors than men

Warren Ingram explains why it is that women clearly outperform men.

Worried about SA? How to invest offshore (in a low-cost ‘index tracker’)

Worried about SA? How to invest offshore (in a low-cost ‘index tracker’)

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

How to know if your investment's fees are fair (and how to negotiate them down)

How to know if your investment's fees are fair (and how to negotiate them down)

Do you know what you’re paying, and how much you should be? Personal financial advisor Warren Ingram explains…

Super-saver Julia is human after all! She's struggling to keep it up...

Super-saver Julia is human after all! She's struggling to keep it up...

Bruce Whitfield interviews super-saver Julia and her advisor Warren Ingram. Is she keeping it up? Because life (and kids!) happen…

Is Julia still a supersaver? Because life (and kids!) happen…

Is Julia still a supersaver? Because life (and kids!) happen…

Listeners of Bruce Whitfield’s The Money Show may be familiar with Julia, the savings superhero. There’s been “developments”…

Popular articles
CoCT 'Water Resilience Plan' to produce 500 million litres of water per day

CoCT 'Water Resilience Plan' to produce 500 million litres of water per day

City of Cape Town Mayor, Patricia de Lille held a media briefing to share the City’s 'Water Resilience Plan' on Thursday.

"I bumped into Anoj Singh and Eskom's Prish Govender at the Hyde Park Hotel"

"I bumped into Anoj Singh and Eskom's Prish Govender at the Hyde Park Hotel"

Sikhonathi Mantshantsha says surely as Anoj Singh is on suspension, he should not be talking to Eskom employees.

Journos walk out of Bathabile Dlamini's briefing after 2 hour wait

Journos walk out of Bathabile Dlamini's briefing after 2 hour wait

EWN's Gia Nicolaides says journalists walked out of the media briefing on social grants after waiting for hours for her to arrive.

Grace Mugabe used normal passport and can't enjoy diplomatic immunity

Grace Mugabe used normal passport and can't enjoy diplomatic immunity

Shadow Minister of International Relations says Mugabe's case should not be debated any further as she can't enjoy any privileges.

Snow turns parts of SA into winter wonderland

Snow turns parts of SA into winter wonderland

Parts of the Northern Cape, Eastern Cape and Western Cape are covered in snow as a strong cold front sweeps SA.

Grace Mugabe invokes diplomatic immunity as Zim-SA relations get tense

Grace Mugabe invokes diplomatic immunity as Zim-SA relations get tense

Grace is still in South Africa and her husband, Zimbabwean President Robert Mugabe, is due to land in the country this afternoon.