Spread betting and tax in South Africa

[EricaS]

Good day

Anybody here from South Africa? Are you paying tax on your spread betting profits?
The law here is not clear on spread betting and tax.

Regards

 

[BigDeal]

In the UK spreadbetting is classified as a form of gambling, and is therefore tax free. If brokers in RSA are offering spreadbetting, I'm pretty sure they are offering it because of similar tax advantages.

 

[EricaS]

In the UK spreadbetting is classified as a form of gambling, and is therefore tax free. If brokers in RSA are offering spreadbetting, I'm pretty sure they are offering it because of similar tax advantages.

I don't think there are any brokers offering Spread Betting in South Africa.
I am using TradeNation.

 

[BigDeal]

OK sure, I can see that most spreadbet providers allow SA traders, as the tax regime seems favourable

 

[tomorton]

This is a complex area of law, both regulatory, fiscal and contractual.

Note that technically SB is a type of CFD trade. In the EU and UK, SB is regarded by the financial regulators as CFD trading. In the UK SB is legal and is tax-free, whereas CFD trading is legal but is not tax-free. In many countries CFD trading is permitted, but SB is not legally permitted.

Some SB providers are also CFD providers so they can offer both types of trading service. But for some of their clients they will have to offer a CFD trading account, as in the client's country, SB is not permitted.

My assumption is that whether SB is legal or not and whether it is taxed or not is a decision for the country's regulators based on how likely SB services are to generate significant taxable company profits and how risky SB services would be to the financial services industry in that country. There might also be an argument that incumbent brokers, who do not wish to see competition from SB, influence the regulators to not allow it to be started up. None of this has much to do with individual traders, the primary role of regulators is to ensure stable financial services industries, not protect consumers.

 

[EricaS]

I asked Bard if spread betting is tax free in South Africa, this is what it said:

Yes, spread betting is tax-free in South Africa. This is because spread betting is considered a form of gambling, and gambling winnings are not subject to tax in South Africa. However, it is important to note that spread betting is a high-risk investment, and you could lose more money than you invest.

Here are some of the advantages of spread betting in South Africa:

• Tax-free profits: As mentioned above, spread betting winnings are not subject to tax in South Africa. This can be a significant advantage, as it means that you can keep all of your profits.
• Leverage: Spread betting allows you to trade with leverage, which means that you can control a larger position with a smaller amount of capital. This can be a great way to magnify your profits, but it also increases your risk.
• Flexibility: Spread betting allows you to trade a wide range of assets, including stocks, indices, currencies, and commodities. This gives you a lot of flexibility to find the markets that you are most interested in trading.

However, there are also some disadvantages to spread betting in South Africa:

• High risk: Spread betting is a high-risk investment, and you could lose more money than you invest. It is important to understand the risks involved before you start trading.
• Complex: Spread betting can be a complex investment, and it is important to understand the terms and conditions before you start trading.
• Regulation: Spread betting is regulated by the Financial Services Board (FSB) in South Africa. This means that you are protected by certain regulations, but it also means that there are some restrictions on how you can trade.

If you are considering spread betting in South Africa, it is important to weigh the risks and benefits carefully. Spread betting can be a great way to make money, but it is important to understand the risks involved before you start trading.

 

[tomorton]

I asked Bard if spread betting is tax free in South Africa, this is what it said:

Yes, spread betting is tax-free in South Africa. This is because spread betting is considered a form of gambling, and gambling winnings are not subject to tax in South Africa. However, it is important to note that spread betting is a high-risk investment, and you could lose more money than you invest.

Here are some of the advantages of spread betting in South Africa:

• Tax-free profits: As mentioned above, spread betting winnings are not subject to tax in South Africa. This can be a significant advantage, as it means that you can keep all of your profits.
• Leverage: Spread betting allows you to trade with leverage, which means that you can control a larger position with a smaller amount of capital. This can be a great way to magnify your profits, but it also increases your risk.
• Flexibility: Spread betting allows you to trade a wide range of assets, including stocks, indices, currencies, and commodities. This gives you a lot of flexibility to find the markets that you are most interested in trading.

However, there are also some disadvantages to spread betting in South Africa:

• High risk: Spread betting is a high-risk investment, and you could lose more money than you invest. It is important to understand the risks involved before you start trading.
• Complex: Spread betting can be a complex investment, and it is important to understand the terms and conditions before you start trading.
• Regulation: Spread betting is regulated by the Financial Services Board (FSB) in South Africa. This means that you are protected by certain regulations, but it also means that there are some restrictions on how you can trade.

If you are considering spread betting in South Africa, it is important to weigh the risks and benefits carefully. Spread betting can be a great way to make money, but it is important to understand the risks involved before you start trading.

The situation sounds similar to the UK. SB is treated as gambling but is regulated by the financial services regulator, not the gambling industry regulator.

Also, you occasionally read in the UK that in SB "you could lose more money than you invest". This isn't absolutely true. It sounds like if you had an open position and price moved against you, your losses could just keep growing to infinity. But the SB firms here are required by the regulator to impose margin limits which means that they are obliged to automatically close a losing trade if the losses reached the level of capital available for margin in the account. Also, the margin requirement is very large, e.g. 1 pip on GBP/USD requires about £400 of margin.

In addition, clients' funds are segregated from the SB company's operating capital and the account is re-fundable up to a very large figure if the firm ceases trading. OK, I suppose if you deposited six figures of capital, that limit would be reached and if the SB firm went bust you'd only get some of your money back. But thanks to regulation, it isn't as risky now as it used to be.

Might be worth double-checking whether in SB in SA you really can lose more than you invest.