Capital gains tax or not

(Shutterstock)
(Shutterstock)
A Fin24 user has invested in an offshore company trading on Wall St and wants to know when capital gains tax would apply. He writes:

I am invested in an offshore company which does high-frequency trading on a Wall St portfolio.

They generate gains weekly. I am invested for a fixed 6 month term and have to re-invest at least 50% of the investment returns. The balance may be withdrawn weekly.

I receive weekly statements, showing weekly income, capital balance and a sliding-scale fee deducted weekly as well.

Is any portion of this investment capital gain or is it all income?

Tax expert Zohra De Villiers of KPMG responds:

Your description of the investment is not completely clear.
 
If you mean that you have invested by purchasing shares in a foreign company that performs share-trading on Wall St - like an investment in a foreign collective investment scheme, also known as a foreign unit trust - then all returns in the form of distributions you receive from the company will generally be treated as revenue in your hands rather than as capital gains.

Once you sell the shares in this foreign company, any gains derived from that sale may be capital gains unless you are trading in such shares.   
 
Your question could be read to mean, however, that you invest by providing funds to an offshore company that performs share-trading on Wall St on your behalf.

Given the high frequency of the trades you describe, it is likely that all the income generated through the investment will be considered to have been derived in terms of a scheme of profit-making and will be taxed as revenue gains in your hands, rather than as capital gains.

The good news for you, however, is that the weekly fee you pay in the production of this income may be deductible for tax purposes.

- Fin24

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