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Tax certificates

Tax certificates

Frequently Asked Questions

Disclaimer
This document does not constitute financial, tax or investment advice or services. The document has been prepared to assist you with questions you may have regarding your tax certificate and other tax-related questions. We will not be liable for any loss or damage which you may suffer as a result of relying on information in this document. You must consult your own tax practitioner in this regard.

General questions

1. Who needs to register for income tax?
SARS requires everyone who receives taxable income above the tax threshold (i.e. the amount above which income tax becomes payable – see 5 below) to register for income tax.

2. When does the tax season for 2018 start/when can I submit my tax return?
Tax season starts in July and closes during October (depending on whether you are registered for eFiling or not) for individuals and trusts. During this period, you will need to submit an income tax return to SARS. If you are a provisional taxpayer registered on eFiling, the tax seasons usually ends in January of the following year.

3. What is PSG’s reporting obligation to SARS as a financial institution?

In terms of the SARS requirements, financial institutions (such as PSG Wealth and PSG Asset Management) are required to submit third-party data on taxable income to SARS.

We report the following information to SARS:
  • local and offshore investment income (e.g. dividends, interest and other income) from funds and securities
  • capital gains or losses from the sale of local and offshore investments (funds and securities)
  • living annuity income
  • withdrawals and transfers from retirement annuity/provident preservation/pension preservation and living annuity funds
  • retirement annuity fund contributions
  • tax free investment plan information
4. Do I need to pay tax?
You have an obligation to pay tax and submit a tax return to SARS if you earn taxable income above the tax threshold in most circumstances (see 7 below). More information is available on the SARS website.

Examples of amounts an individual may receive, and from which the taxable income is determined, include:

  • remuneration (income from employment), such as, salaries, wages, bonuses, overtime pay, taxable (fringe) benefits, allowances and certain lump sum benefits
  • profits or losses from a business or trade
  • income or profits arising from an individual being a beneficiary of a trust
  • director’s fees
  • investment income, such as interest and foreign dividends
  • rental income or losses
  • income from royalties
  • annuities
  • pension income
  • certain capital gains

Source: SARS


5. What are the tax thresholds?

For the 2018 year of assessment (1 March 2017 to 28 February 2018) the tax thresholds are as follows:
  • R75 750 if you are younger than 65 years
  • R117 300 if you are 65 years of age or older (and younger than 75)
  • R131 150 if you are 75 years and older
6. What is an income tax return?
An individual’s income tax return is a declaration of all the income earned, capital gains or losses realised, and all allowable deductions claimed in a tax year. SARS calls it an ITR12 return.

7. Do I need to submit an income tax return?
If your total salary before tax from your only employer is less than R350 000 for a full year, and you have no other sources of income (for example, interest or rental income) and no deductions that you want to claim (for example medical expenses, travel or retirement annuities), then you don’t need to submit a return. More information is available on the SARS website.

8. How do I submit a tax return?
You have to register as a taxpayer first by visiting your closest SARS branch (first time registration can only be done in person at a SARS branch). Once you are registered, you can submit your tax return via eFiling or by visiting your closest SARS branch (please note that e-filling registration is a separate registration). Please take note of the documents you will require to register as a taxpayer.

9. Where do I source information for completing the investment information in my tax return?
Each financial service provider you are invested with should provide you with tax certificates if relevant, which is used to complete your tax return. SARS may require you to submit the tax certificates as supporting documents to your tax return.

10. Do I pay tax in South Africa even if I am non-resident?
As a general rule, South Africa has a residence-based tax system, which means residents are, subject to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned. By contrast, non-residents are taxed on their income from a South African source. Non-residents pay tax on their income from a South African source, which may further also be subject to the application of a double taxation treaty. Read more about double taxation agreements and protocols on the SARS website.

11. Is the tax return I submit the only record that SARS receives?
No. Certain financial institutions like us, submit a third-party data file on all your taxable income derived from products held with that financial institution directly to SARS.

12. Can I compare my investment statement to my tax certificate?
It will be difficult to compare your monthly or quarterly investment statement to your income tax certificate. The purpose of the monthly or quarterly investment statement is to report the market value of your investment, taking into consideration market movements, actual and pending transactions, and realised and unrealised (or accrued) income or returns from your investments (e.g. dividends and interest, capital gains and losses). The purpose of the tax certificate is to disclose to SARS the source and nature of the returns on your investment and for that reason it only discloses realised taxable income. You will not see any market movements or unrealised (or accrued) income on your tax certificate.

13. What is an IT3(s) certificate?
Twice a year, we provide SARS with the following information regarding your Tax Free Investment Plan:
  • total contributions for the tax year
  • total amounts withdrawn for the tax year
  • total amounts transferred per tax year
  • total net returns on investment, for example: realised gross return received for the period less costs and fees applicable for the period
We provide our investors with this information by issuing an IT3(s) Tax Free Investment Plan certificate annually.

14. Why do I receive a tax certificate for my Tax Free Investment Plan?
It is a SARS requirement to submit information in respect of Tax Free Investment Plans to enable SARS to collect data on these types of products to evaluate tax payers’ compliance with the tax benefit requirements.

15. What is the purpose of the IRP5/IT3(a) tax certificate?
The IRP5/IT3(a) is the tax certificate relating to the earnings received from, amongst others, your living annuity investment with us. It is issued to you at the end of each tax year detailing all employer (e.g. PSG Wealth)/employee (you) related incomes, deductions and related taxes.

16. What is the purpose of the IT3(b) tax certificate?
The IT3(b) is a tax certificate that provides you with a summary of any investment income such as interest and dividends - both local and foreign - that you have earned by having money invested with a financial institution.

17. What is the purpose of the IT3(c) tax certificate?
The IT3(c) is a tax certificate that provides you with a summary of any capital gains or losses realised from disposals selling or otherwise disposing of holdings in investments with a financial institution.

18. What is the purpose of the IT3(f)?
Contributions to a retirement annuity must be disclosed to SARS in order to benefit from the allowable tax deduction. The IT3(f) certificate serves as proof of the amount you contributed during the applicable tax period.

19. What is dividend withholding tax (DWT)?
Dividend withholding tax is a tax that is withheld from dividends earned by you as an investor shareholder, and paid over to SARS. You, however, remain ultimately responsible to pay DWT on cash dividends should we or any other withholding agent, fail to or don’t withhold the correct amount of tax. The current rate of DWT is 20% (subject to certain exemptions and reduction under an applicable double tax treaty for non-residents).

20. Are there any exemptions to dividend withholding tax (DWT)?
SARS does allow certain exemptions from DWT (e.g. a local resident South African company) however the exemptions do not apply automatically. If you qualify for an exemption you must first complete a declaration form which you can obtain from PSG Wealth, before you are entitled to the exemption. More information is available on the SARS website.

21. Can you claim PSG fees as a deduction against capital gains tax or interest income?
In terms of Section 11(a), read together with section 23(g) of the Income Tax Act No. 58 of 1962, expenditure and losses of a capital nature and which are not incurred in the production of income and for the purposes of trade, may not be allowed as a deduction from a taxpayer’s income. Where your investment is of a capital nature or the expenditure is not incurred in the production of income (e.g. exempt divided income) or not for purposes of trade, it cannot be deducted from your taxable income (i.e. from capital gain or interest income).

22. I am only invested in the PSG Wealth Enhanced Interest Fund, how can I have a capital gain?
Capital gains are relevant to all instruments with a fluctuating unit price and which are capital in nature. The unit price for the PSG Wealth Enhanced Interest Fund is not fixed at R1 per unit as traditional money market funds and therefore, although very little, there can be a capital gain (or loss).

23. How is my investment in a unit trust taxed?
Generally, where the unit trust (collective investment scheme) distributes the income earned (e.g. interest, dividends and rebates paid by investment managers that are used to buy additional units in the funds) to the investor within a period of 12 months, you will be taxed on such income (subject to applicable exemptions) as well as on gains or profits made when you sell units.

24. Why didn’t I receive a tax statement for my endowment?
The endowment is issued under the PSG Life licence. That means that you invest into an endowment policy issued by the life company and the life company owns the underlying assets. Therefore, you got a claim against the life company for the market value of your investment. As a result, the life company is taxed on the return on the investment/underlying assets and the return you received from the life company is net of taxes. The life company has to submit a tax return and pay the tax on the endowment, not you, as the proceeds received by you on your original endowment policy (held as a capital investments) is exempt from capital gains tax.

25. Can I decrease my tax payable on the ELLA product?
Taxpayers would need to apply to SARS for a tax directive which SARS may grant in certain circumstances. We suggest you consult a tax practitioner for advice and assistance on this application.

26. Does PSG Wealth submit my IRP5/IT3(a) on my behalf directly to SARS?
We do submit IRP5/IT3(a) information to SARS electronically. However, you are still required to complete and submit an income tax return with the same information to SARS.

27. Does switching between different fund fee classes of the same unit trust trigger capital gains tax (CGT)?
When you switch between fund fee classes of the same unit trust you are not disposing of your units in the unit trust. The switch occurs underlying in the unit trust itself and no CGT is triggered.

28. Does selling units to pay advice fees trigger capital gains tax (CGT)?
Any disposal of units in a unit trust triggers CGT, even if the sale of units is used to fund advice or platform fees.

29. Why would my proceeds look overstated or do not agree to the amount I sold during the tax period?
Capital gains tax could be triggered by two events namely ʻunit sells’ and ʻunit switches’. When units are sold, a capital gain/loss is realised. With unit switches, should you have switched from one asset into another asset (i.e. exchanged one asset for another) it also constitutes a disposal for capital gains purposes, even though no money was paid to you in the process.

30. Why are the tax implications of the natural person investing directly into offshore securities via the asset swap structure of PSG Securities different from investing into unit trusts by means of the PSG Life asset swap structure?

In the case of an offshore investment through the PSG Life asset swap structure, the underlying assets are held in a wrapper. This means that PSG Life becomes the registered owner of the underlying assets and the individual has a claim against PSG Life for the value of the underlying assets.

In the case of the asset swap structure facilitated through PSG Securities, no wrapper exists. The asset swap share investment facilitated through PSG Securities is held in the name of the investor, although the nominee structure prevents access to the foreign assets as per South Africa Reserve Bank requirements. As a result, the asset swap structure of PSG Securities will result in the same tax implications for natural persons, trusts and companies (bearing in mind the different ‘conversion’ to rand treatment). We recommend you consult a tax practitioner to better understand the impact it may have on you.

31. What foreign currency conversion method is used to calculate the taxable capital gain or loss for direct offshore investments?
In the instance of an individual and a non-trading trust, the capital gain or loss on the disposal of the investment is calculated in the relevant foreign currency and thereafter translated to rand by applying the official closing rate as published by Iress (previously BFA MacGregor) on the date of disposal (spot rate).

In the instance of a company, the expenditure (base cost) and proceeds are converted into rands at the official closing rate as published by Iress (previously BFA MacGregor) on the date of disposal (spot rate) and the capital gain determined once it has been converted into rand.

We strongly recommend you consult with a tax practitioner in determining your taxable income.

32. Is there a capital gain exemption? If so, how does it apply?
Each individual has an annual capital gain exemption of R40 000 for 2018 tax year. It applies automatically when the individual submits his/her return. It however increases to R300 000 in the year of the individual’s death.

33. How are dividends on dual-listed shares for local PSG Securities tax certificates treated?
Based on external expert advice, PSG Securities is including dividends (other “dividends in specie”) from dual-listed shares under “Gross Foreign Dividends Exempt Locally” (no code), with no amounts included under “Foreign Withholding Tax on Dividends” (code 4112).

Dividends in specie are included under “Gross Foreign Dividends” (code 4216), with withholding taxes (if applicable) included under “Foreign Withholding Tax on Dividends” (code 4112).

34. What are switches?
  • Switches result from the change of instruments from one fund to another.
  • Switches are regarded as a disposal of instruments for capital gains tax purposes and therefore instructing a switch of funds on your portfolio will result in a capital gain or loss for income tax purposes.
35. Why is income from my living annuity disclosed under code 3603?
As part of our annual tax certificate process, we have again taken direction from the latest SARS Business Requirements Specifications and sought external expert advice on the tax codes that should be used. Based on that PSG Life is including income from living annuities under code 3603, which is appropriate for taxable pensionable income.

36. How do I query the values on my tax reporting if I think they may be incorrect?
Please contact us at PSGWealth.tax@psg.co.za and inform us of your concern. We will investigate and take steps to correct the information with SARS if it is necessary. Keep in mind that tax treatment may differ from one person to the next due to differing personal tax circumstances. We suggest you always consult your tax practitioner.

37. If I have any other questions on my tax certificates, who do I contact?
You can email PSGWealth.tax@psg.co.za if you have any technical tax-related questions. We remind you that we cannot provide you with any tax advice and recommend that you consult a tax practitioner for assistance in completing your tax returns.
Copyright © PSG Konsult Ltd (1998-2018), All Rights Reserved. FAIS affiliates of the PSG Konsult Group are authorised financial services providers.