n Business Tax and Company Law Quarterly - The taxation of hedge funds : the cart before the horse

Volume 4, Issue 4
  • ISSN : 2219-1585


Few understand the mechanics and purpose of hedge funds; a perceived alternative asset class with interest limited to high net worth individuals and the institutional community.

The taxation of hedge funds is at present not regulated in the Income Tax Act 58 of 1962, although certain amendments have been proposed by the Taxation Laws Amendment Bill 39 of 2013. The proposed new tax rules are directed at hedge funds structured in the form of partnerships and trusts.
In contrast, hedge funds as an industry are also not regulated. This article will examine the various regulatory proposals considered over the past decade which, in any form, are yet to be approved.
The article explains the key components of a hedge fund and considers various related definitions. It seems that the original construction of a hedge fund has been transformed into a non-publicly tradable, non-listed collective investment scheme-type arrangement, utilising a variety of exotic instruments.
The article examines the unique basis of taxation of hedge funds that applies at present, that is, prior to promulgation of the amendments proposed by the 2013 TLAB in relation to partnerships and trusts. It then considers the impact of the new proposed tax rules. Some interesting peculiarities are considered, particularly in relation to hedge funds structured as partnerships.

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