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!
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?
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?
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
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