For the full guidelines related to the completion and declaration of investment income in the ITR12 return for individuals, please visit the SARS website.
Please note that the questions below are intended as guidelines. If you need special tax advice, please consult an independent tax consultant who will assist you to complete your tax returns. SBG Securities Proprietary Limited (“SBG Securities”) and The Standard Bank of South Africa Limited (“Standard Bank”) do not provide tax advice to clients.
QUESTION 1: Where and how do I disclose the investment income on my IT3 tax certificate in my IT12 tax return?
The first page of the ITR12 return consists of a number of questions. Your ITR12 return will be customised according to your responses to these questions.
On the first page of your electronic return, you will be asked the following questions relating to investment income:
If you received investment income, it is important that you indicate your marital status correctly on the first page of your return as it may impact the calculation of your assessment. The total amount of your investment income must be declared even if you are married in community of property as SARS will do the necessary apportionment.
QUESTION 2: Where do I need to disclose local interest in my IT12 return?
The total amount received or accrued in respect of gross local interest income must be reflected under source code 4201.
QUESTION 3: Where do I need to disclose foreign interest in my IT12 return?
Your client statement will disclose any gross foreign interest income that you may have received or accrued, followed by an amount described as “Tax paid – foreign”. This refers to the withholding tax paid on foreign interest received. You should declare the total gross foreign interest income in the “Foreign interest” field (source code 4218) and the “Tax paid – foreign” amount in the field “Foreign tax credits on foreign interest” (source code 4113).
QUESTION 4: Where do I need to disclose local dividends in my IT12 return?
With effect from 1 April 2012, Dividends Tax (“DWT”) of 20 percent applies to dividends declared by South African resident companies, subject to the exemptions listed in sections 64F and 64FA of the Income Tax Act No. 58 of 1962 (“the Act”). There are generally no exemptions available to South Africa individual shareholders. The DWT is paid on your behalf by the company declaring the dividend or by a Regulated Intermediary, such as your broker or central securities depositary participant (“CSDP”). You must declare the total gross dividends received or accrued in the field “Exempt local and foreign dividends” in the section of the return headed “Amounts considered non-taxable”. You do not declare the “DWT” that has been paid on your behalf, in your return.
QUESTION 5: Where do I need to disclose foreign dividends in my IT12 return? (Only applicable to Webtrader clients)
Your client statement will disclose any gross foreign dividends received, followed by an amount described as “Foreign Dividend Withholding Tax”. The foreign dividend should be declared in the field “Gross foreign dividends subject to normal SA tax” (source code 4216). The exemption (section 10B(3) of the Act) will be applied automatically by SARS.
If any foreign DWT was paid on the foreign dividend received (disclosed on your client statement as “Foreign Dividend Withholding Tax”), this should be declared in the field “Foreign tax credits on such foreign dividends” (source code 4112). The gross amount of foreign DWT should be declared.
QUESTION 6: Where do I need to disclose dividends from dual / inward listed foreign companies in my IT12 return?
Your client statement will disclose gross dividends received from companies that are listed on both a foreign stock exchange and the JSE. Any foreign dividend (i.e. a dividend declared by a foreign company listed on the JSE) is exempt from income tax in South Africa under section 10B(2) of the Act. It should be noted that although such dividends are defined as “exempt income”, they are still potentially subject to the DWT percent (which is further discussed below). This amount must be declared in the “Amounts considered non-taxable” section of the return, in the field called “Exempt local and foreign dividends”.
Your client statement will disclose any DWT levied by a foreign country in respect of the dividends from foreign companies that are listed on the JSE and a foreign stock exchange. This amount may be described as “Foreign Tax – Instrument”. As these dividends are treated as “exempt income” for income tax purposes (discussed above), SARS will not allow a tax credit for the foreign DWT suffered. However, section 64N of the Act will provide relief from double tax where both South African and Foreign DWT is levied. A rebate is allowed against DWT in South Africa equal to the amount of foreign DWT suffered up to a maximum of the South African DWT rate, being 20 percent. For example, to the extent that the investor has suffered foreign DWT of 20 percent** or above, no DWT will be levied in South Africa. If foreign DWT was suffered at 10 percent, for example, South Africa will levy DWT at 10 per cent. Where no foreign DWT is levied by the foreign company, the JSE will levy DWT at 20 percent. Any foreign DWT in excess of 20 percent is a cost to the taxpayer, unless reclaimable directly from foreign revenue authorities as a result of the application of a Double Tax Treaty between countries. You still do not declare the SA DWT on your tax return. The Section 64N rebate is applied automatically by the JSE.
The amount of the Section 64N rebate is limited to the maximum rate prescribed in any Double Tax Treaty. In the example above where the South African investor has suffered 20% foreign DWT, but the Double Taxation Treaty prescribes a maximum rate of 15%, Section 64N will only grant a rebate to the maximum Treaty rate i.e. 15%. SA will continue to levy an additional 5% SA DWT under our domestic tax law. The foreign tax imposed that is in excess of the Treaty rate, is recoverable from the foreign tax jurisdiction.
** The 20% DWT rate can be reduced by a Double Tax Agreement between SA and the foreign jurisdiction
QUESTION 7: Where do I need to disclose dividends from a Real Estate Investment Trust (REIT) in my IT12 return?
REITs are companies listed on the JSE that manage a portfolio of immovable property assets. Dividends distributed by a REIT are subject to normal income tax in the hands of the shareholder, but are exempt from DWT.
Your client statement will disclose gross taxable local dividends if you received distributions from a local (SA) REIT. The total gross taxable dividend amount should be declared next to source code 4238. It should be noted that distributions from REIT’s do not qualify for an interest exemption.
If you received distributions from a foreign REIT (i.e. an offshore company that is not a REIT for SA tax purposes), these distributions are “foreign dividends” subject to offshore DWT. These foreign dividends would need to be declared under source code 4216 on your tax return. If any foreign DWT was paid on the foreign dividend received (disclosed on your client statement as “Foreign Dividend Withholding Tax”), this should be declared in the field “Foreign tax credits on such foreign dividends” (code 4112). OST clients (not trading Webtrader) will not receive foreign REIT dividends unless the company is dual / inward listed.
QUESTION 8: Where do I need to disclose my Tax-Free Investments movements in my IT12 return?
A TFI is a financial instrument or product offered to natural persons or a deceased/insolvent estate of a natural person, and administered by a person designated by the Minister of Finance (for e.g. banks).
If you have invested in a TFI, you will be issued with an IT3(s) client statement that disclose the transactional information for the financial year 1 March 2018 to 28 February 2019.
The following fields need to be completed in your return:
QUESTION 9: Why does my IT3 certificate not include any expenses or cost incurred on my trading account?
The IT3(B) tax statements are only applicable and issued in instances where income is earned (e.g. interest rental income, dividends, other income etc). In accordance with the South African Revenue Service's ("SARS") requirements, the bank has to report this income (i.e. gross amounts) to SARS on an annual basis. Therefore, tax statements are issued in line with information reported to SARS.
QUESTION 10: Can I claim any expenses or costs reflecting on my account statement against investment income in my Tax Return?
SARS does not automatically allow for interest or other expenses to be claimed as a deduction for tax purposes. The deductibility of interest or other expenses is determined under the Act and any onus of proof resides with the taxpayer. No deductions are allowed for expenditure to produce foreign dividends. Clients are advised to obtain professional tax advice in this regard.
QUESTION 11: What is the base cost of the units disposed of during the year? Can I rely on the information provided in the Report of Gains and Losses?
There are different methods for calculating the base cost of the units in terms of the Eighth Schedule of the Act. The weighted average method of determining the cost/base cost of the assets has been applied and disclosed in the Report of Gains and Losses, based on information available to the broker.
You may however determine the value of your portfolio based on the specific identification or first-in first-out method. To the extent that a method of determining the cost/base cost of assets has been chosen, this method should be used for your entire equity portfolio. It is thus of the utmost importance that you should consult your financial or tax advisor before making the election as it may have a significant effect on your tax position. Clients are reminded of their responsibility to update or verify information relating to the base cost of the units, with the broker.
QUESTION 12: What happens to an individual’s Tax-Free Investment (‘TFI’) upon death?
Upon death, the TFI will form part of the deceased estate. The amounts received / accrued to the deceased estate in respect of the TFI are also exempt from tax in terms of Section 12T(2) of the ITA.
QUESTION 13: Where should I disclose any ceded dividend income in my IT12 return?
Ceded dividends received by an individual will retain its nature as a normal / exempt dividend subject to Dividend Tax. Any ceded dividend income will be disclosed, together with other local dividends, in the field “Exempt local and foreign dividends” in the section of the return headed “Amounts considered non-taxable”. You do not declare the “DWT” that has been paid on your behalf in your return. (Note that ceded dividends that are received by a company is regarded as taxable in terms of section 10(1)(k)(i)(ee) of the Income Tax Act).
QUESTION 14: Where should I disclose any manufactured dividend income in my IT12 return?
As manufactured dividends received are not ‘dividends’ as defined in the Act, these manufactured payments under for e.g. a Contract for Difference (CFD) or Securities Lending Arrangement, are not subject to Dividends Tax in SA. These amounts will be disclosed as ‘Other Income’ on your IT3(B) certificate, constituting taxable income in the hands of a South African investor.
Please note that SBG Securities Proprietary Limited and The Standard Bank of South Africa Limited do not provide tax advice to clients. The above does not constitute tax advice and only serves as a guideline. Clients are advised to engage with their own professional advisors with regards to any and all tax matters.