How harsh? Investors may be forced to sell some of their units to fund the new tax burden. Picture: Shutterstock
Webber Wentzel partner Joon Chong says the proposal would result in unit holders being subject to income tax annually on all net income of the CIS. “I can imagine that investors will be disincentivised to invest in CISs. This is unfortunate given our low savings rate. The proposals are negative.” The injustice of the proposed change is that capital gains will now be taxed as revenue in the hands of the investors.
One reason is to rebalance a fund when capital flows in or out of the fund. The effect of the proposal is that investors will be punished with a higher tax burden when gains are generated because of a rebalancing exercise.There will be an annual income tax charge as well as an additional capital gains tax when the investor disposes of their units in the fund.