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Online Share Trading

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Question on tax avoidance

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HiSo
Frequent Contributor
Hi. Could someone that knows about tax please advise about the following scenario. Lets say for a particular tax year you have made 100k trading which is obviously taxable. Now just before the tax year ends some company is issuing a special dividend and you invest enough cash so that you receive 100k in dividends which is tax free as far as I know. Now the day after the dividend if the share price drops by the dividend amount and you sell out, hence losing 100k on the trade, does that mean your trading gains for the year are zero (100k profit plus the new 100k loss) and you have managed to turn a tax liability into a tax free situation ? I know nothing about tax systems so I'm sure I'm missing something here. Tx.
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5 REPLIES 5
Woeste
Contributor
Section 42 of the income tax act (eight schedule) basically states that if you dispose of a share at a loss within 45 days of the date you purchased the shares, the base cost (for Capital gains tax purposes) will be equal to the proceeds of the shares. Thus no deductible capital gain, thus your plan will not work - wrt being taxed under normal tax (thus you being a share trader), I don't know what the consequences are. Hope this helped.
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john_1
Super Contributor
so if you hold it for 46 days your are fine... that why 80% of traders lose money only 20% who make money are not doing this.
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john_1
Super Contributor
PS, i know nothing about tax .
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CHATTYCHAT
Super Contributor
IMIO: Woeste you deal with capital gains tax - the question refers to a trader, so his trading position is affected on an ongoing basis... which renders him in a situation that he will succeed. However, his question refers to a "special dividend" - and this might create a problem... will have to read up. The link provided elsewhere in this post to follow SARS's practice note on share deals is invaluable.
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