There are two types of tax levied on unit trusts.

The first type is levied on interest income from any source.

All unit trusts have an interest component, whether they are growth, income, money market or gilt funds. Equity-based unit trusts funds are obliged to hold 5% of total assets in the form of cash. This money earns interest and is added to the investment. At the end of the year, unit trust companies calculate the interest component of an investor's portfolio. This amount should then be included on the investors IT3(b) form and submitted with the tax return. Equinox.co.za automatically generates an IT3(b) for investors at year-end.

The second type of tax, Capital Gains Tax is levied when equity-based investments are sold. Investors are obliged to pay Capital Gains Tax at their marginal rate on 25% of the total capital gain to SARS. Trusts and companies are obliged to pay Capital Gains Tax on 50% of the total capital gain to SARS.
An exclusion rate of R10 000 has been set for natural persons. This means that if a natural person has had a capital gain of R40 000, tax will be levied on R30 000.

Calculation of the base price There are actually four different methods which can be used to calculate a base price. These methods are explained in an article written in October 2001, when CGT was first introduced. LISPs are obliged to use the Weighted Average Base cost method. See here for more details.

Timing. Capital Gains Tax legislation enables investors to decide when they wish to become liable for CGT, allowing them to defer and plan their investments appropriately. Furthermore losses can be offset against gains. Calculations for gains and losses that are made in the tax year are added together to determine an overall gain.

The introduction of CGT has affected the Wrap Fund industry quite severely. The cost of administering the new tax inside the complexities of a wrap structure has seen the conversion of many wrap funds to the less admin-intensive Funds of Funds model. However, a few companies continue to offer wrap funds.