Document includes proposals for separate tax framework for hedge funds.
The National Treasury in November 2024 released a discussion document on the taxation of collective investment schemes (CIS) to address concerns about their inconsistent tax treatment under current law.
Under section 25BA of the Income Tax Act, a person who receives a distribution from a CIS will be subject to tax on the distribution provided the amount is distributed within 12 months of its accrual or receipt by the CIS (in the case of interest). However, to the extent the CIS receives or accrues an amount and does not distribute that amount to the holder of a participatory interest within 12 months, then the CIS is deemed to have received that amount and will be subject to tax on the amount received or accrued.
In addition, paragraph 61(3) of the Eighth Schedule to the Income Tax Act provides that a CIS (other than portfolios of collective investment schemes in property) may disregard any capital gain or loss on the disposal by the CIS, and paragraph 61(1) provides that the holder of a participatory interest in a CIS must determine a capital gain or loss in respect of the participatory interest only upon the disposal of that participatory interest.
Hedge fund CIS’ are subject to the same tax dispensation as “conventional” CIS’ even though hedge funds may have a different investment strategy (i.e., to both leverage and short securities to achieve an absolute return).
The discussion document considers a number of principles governing the characterization of CIS receipts and accruals and proposes two options for a targeted and separate tax framework for hedge funds (outside the framework for traditional CIS’):
Read a December 2024 report prepared by the KPMG member firm in South Africa