Cash Club: A question on investment club tax

In Cash Club, Latest by Njabulo Nsibande

With tax season looming, I’ve been thinking about the tax declarations I need to make, including the interest gained in our investment club. And then things started to get confusing.

So I’ve detailed our club’s investment journey and asked the Just One Lap tax experts for advice.

Assumption 1

Say we bought an ETF at an average purchase price of R65 in 2008. Today, 10 years later, it’s trading at R100. This means a capital gain of R35, which, as I understand, would be liable for tax. Assuming capital gains tax (CGT) at 18%, we will pay R6.30 tax per ETF unit we hold. To keep things simple, let’s assume this index tracking fund is the only ETF we have been buying.

Assumption 2
Every member of our five-member cash club has been contributing R1,000 a month for five years. From this monthly contribution of R1,000 (no increases), R900 went into buying the ETF. This means everyone would have contributed R60,000, from which R54,000 went into purchasing 4153.8462 ETF units.

Assumption 3
After five years, we stopped contributing to the fund but remained invested for another five years, creating a 10-year investment duration. Now it’s time to liquidate our investment.

The value of the cash club’s investment is sitting at R415,384.62 (R83,076.92 per member), with an average purchase price base of R270,000 (R54,000 per member). The capital gain is R145,384.62. Maximum CGT is 18%, meaning a tax liability of R26,169.23 at most.

Assumption 4
After liquidating our investment, we will use the capital to invest in a new business venture.

Bear in mind that the members of our cash club are still invested in the club and haven’t accumulated any capital gains yet. We also haven’t paid ourselves a portion of the dividends. However, the underlying holdings in the investment club have accrued capital gains that will be reinvested in another vehicle – our business venture.

My question is:
How and when will the R26,169.23 CGT be paid?

How does this affect our members?

Njabulo Kelvin NsibandeNjabulo Nsibande is a Just One Lap user-turned-contributor. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.

Njabulo is a founding member of an investment club. In this blog he shares his experiences trying to work out the intricacies of collective investment in the true sense of the word.

Follow Njabulo’s journey here every month.

Find him on Twitter: @njab_soul.

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