The JSE and finance forum for South Africa
General Category => Shares => Topic started by: Orca on September 24, 2013, 08:15:20 pm
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We all know that divies are almost tax free but to live off the divies alone is almost out of our reach as one would need at least R2.3m in high divi stocks to actually earn enough.
One site that I found stated that they only invest in high divi Co's and do a great 100% in Divies over an 8 year period. This equates to 12.5% pa on Divies alone.
My R2.3m will give you R24K pm less the tax.
Now I have not checked but wonder how STXDIV performs to my calculation above.
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The satrix divi is currently yielding 3.5%. A site that says they do 100% in 8 years must surely be trying to sell you something. Here's a list of the top yielding companies on the JSE. Unfortunately most of them are property companies which will be taxed. Others are companies that have had low growth prospects, apart from CML of course!
http://www.topyields.nl/Top-dividend-yields-of-JSE.php
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Since I know you like charts, here's the satrix indi vs divi over the last 5 years. Interestingly the divi was in the lead until Feb 2012, andyou need to remember it was also paying out at least double the dividends, so the lead could have been even bigger. Not sure why it hit such a slow note in 2012/02.
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Very interesting. Makes me wonder which one will be more tax efficient if one has to make monthly withdrawals for retirement. More divies. Less tax.
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Personally, I'd go for a 3 way split between Divi, Rafi and Indi.
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The first R30 000 of capital gains is tax free. So assuming you had made 200% on some share you could cash in R45 000 worth annually and pay zero tax.
Assuming your only income was sale of shares:
You could keep cashing out tax free in until you hit the tax threshold. Assuming a threshold of 67 000 you could sell R350 000 worth of shares for a capital gains of 233 333. Deduct your 30 000 exclusion and multiply the rest by 0.33 and your taxable income is 67 777. Pretty much tax free?
Source:
http://www.sars.gov.za/AllDocs/OpsDocs/Tables/IT-GEN-01-TBL02%20-%20Income%20Tax%20Rates%20for%20Individuals%20and%20Trusts%20for%202013%20and%202014%20-%20External%20Table.pdf (http://www.sars.gov.za/AllDocs/OpsDocs/Tables/IT-GEN-01-TBL02%20-%20Income%20Tax%20Rates%20for%20Individuals%20and%20Trusts%20for%202013%20and%202014%20-%20External%20Table.pdf)
http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-CGT-G02%20-%20The%20ABC%20of%20Capital%20Gains%20Tax%20for%20Individuals%20-%20External%20Guide.pdf (http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-CGT-G02%20-%20The%20ABC%20of%20Capital%20Gains%20Tax%20for%20Individuals%20-%20External%20Guide.pdf)
PS: I'm not a tax expert! I could be wrong here! But check the links I posted...
PPS: Dividends are taxed (generally) at 15%.
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Great post, I could live tax free! :TU:
I think there may be a new blog coming ;D
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Good one yossa. I will play with it tomorrow. My concern is that even if you keep your shares for years but sell portions monthly, will SARS not regard it as income and not CGT?
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To make things more clear to me I did this math. (yossa must be looking at my account)
Started with R667K and made 200% gains then retired. You will now have R2m.
The R667K bought you 20 000 shares in ABC.
R667 000.00/20 000 = Base Cost of R33.35 ps
Now your R2m will have a market value of R2m/20 000 shares = R100 ps
You sell 3 500 shares at R100 ps = R350 000.00
Cost of 3 500 shares = R33.35 x 3 500 = R116 725.00
Your Gain is R350 000.00 - R116 725.00 = R233 275.00
Less Exclusion amount of R30 000.00 = R203 275.00
CGT at 33.3% of R203 275.00 = R67 690.60
This will be your Taxable income.
Whoopy. Portugal has CGT of 25%
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To make things more clear to me I did this math. (yossa must be looking at my account)
R67 690.60
Yes, it was off what I could recall of your circumstances. Pretty close eh?
Your fear that SARS might not look at a single factor (holding time) to determine if your transactions were capital in nature is well founded. But clearly there is some possibility to minimize your tax burden by judicious selling.
http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-CGT-G01%20-%20Comprehensive%20Guide%20to%20Capital%20Gains%20Tax%20-%20External%20Guide.pdf (http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-CGT-G01%20-%20Comprehensive%20Guide%20to%20Capital%20Gains%20Tax%20-%20External%20Guide.pdf)
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Pretty spot on yossa. Now I wonder if that Taxable R67 690.60 can be reduced by the rebate of R12 080.00 plus the 7.5% Medical expenses plus other expenses.
If so, then one could go much higher than R350k py and pay no tax.
I have not yet read your link but I'm sure SARS will have covered this and make you pay 100% of your gains as income.
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Just as I thought. All your withdrawals will be Income and taxed as such. :'(
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Pretty spot on yossa. Now I wonder if that Taxable R67 690.60 can be reduced by the rebate of R12 080.00 plus the 7.5% Medical expenses plus other expenses.
No, I think the rebate is the same as the threshold. IE 67 000 tax free equals a "rebate" of 12060 at the 18% tax rate. So they are two different ways of looking at the same thing: either a threshold of 67 000 or a rebate of 12 080.
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To make things more clear to me I did this math. (yossa must be looking at my account)
Started with R667K and made 200% gains then retired. You will now have R2m.
The R667K bought you 20 000 shares in ABC.
R667 000.00/20 000 = Base Cost of R33.35 ps
Now your R2m will have a market value of R2m/20 000 shares = R100 ps
You sell 3 500 shares at R100 ps = R350 000.00
Cost of 3 500 shares = R33.35 x 3 500 = R116 725.00
Your Gain is R350 000.00 - R116 725.00 = R233 275.00
Less Exclusion amount of R30 000.00 = R203 275.00
CGT at 33.3% of R203 275.00 = R67 690.60
This will be your Taxable income.
Whoopy. Portugal has CGT of 25%
Well, that now sadly changes this. I used the tax calculator at http://yourtax.co.za/tax-calculator/2014/ that deducts the rebate that yossa corrected me on.
Gain = R233 275
Tax = R34 647
Not too bad considering that normal tax on your R350 000 would have been R70 060
Older that 65 then tax = R27 897
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Well, that now sadly changes to this.
Gain = R233 275
Less Rebate of R12 080 = R221 195
Tax = R31 627
Not too bad considering that normal tax on your R350 000 would have been R70 060
I think you deduct the rebate from your *tax* (after applying tax to the whole income). Or you deduct the threshold from your income. Not the rebate from your income.
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The rates in the linked document are out of date. But it's well written and presented.
Shares bought for the dominant, main and overriding purpose of securing the highest
dividend income possible will be of a capital nature when the profit motive is incidental
(CIR v Middelman supra).
3.2.1 Intention - the most important factor
The most important factor in determining whether a profit is of a capital or revenue
nature is your intention at the time when you bought and sold your shares
(Elandsheuwel Farming (Edms) Bpk v SBI 1978 (1) SA 101 (A), 39 SATC 163). If they
were bought as a long-term investment to produce dividend income the profit is likely to
be of a capital nature. But if you bought the shares for the purpose of resale at a profit,
the profit will be of a revenue nature.
In order for a profit to be of a capital nature you need not exclude the “slightest
contemplation of a profitable resale” (SIR v The Trust Bank of Africa Ltd 1975 (2) SA 652
(A), 37 SATC 87).
In general, in order to qualify as capital gains, you need to invest in shares that you could conceivably have lived off for their dividends. If at some later stage you need to sell some shares for an incidental reason then that sale is very possibly "capital gains". You can obtain an advance ruling from SARS if you want and if it's unfavourable take them to court.
LAPD-IT-G11 - Tax Guide for Share Owners (http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-IT-G11%20-%20Tax%20Guide%20for%20Share%20Owners.pdf)
[updated link -- Yossarian]
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1) For the purposes of this section—
"connected person" means a connected person as defined in section 1, provided that the expression 'and no shareholder holds the majority voting rights of such company' in paragraph (d)(v) of that definition shall be disregarded;
"equity share" includes a participatory interest in a portfolio of a collective investment scheme in securities;
"qualifying share", in relation to any taxpayer, means an equity share, which has been disposed of by the taxpayer or which is treated as having been disposed of by the taxpayer in terms of paragraph 12 of the Eighth Schedule, if the taxpayer immediately prior to such disposal had been the owner of that share for a continuous period of at least three years excluding a share which at any time during that period was-
a) a share in a share block company as defined in section 1 of the Share Blocks Control Act, 1980 (Act No. 59
of 1980);
b) a share in a company which, was not a resident, other than a company contemplated in paragraph (a) of
the definition of "listed company"; or
c) a hybrid equity instrument as defined in section 8E.
2) Any amount other than a dividend or foreign dividend received by or accrued to a taxpayer in respect of a
qualifying share shall be deemed to be of a capital nature.
2A)Subsection (2) does not apply in respect of so much of the amount received or accrued in respect of the disposal
of a qualifying share contemplated in that subsection as does not exceed the expenditure allowed in respect of that share in terms of section 12J(2).[Venture capital exclusion]
3)The provisions of this section shall not apply to any qualifying share if at the time of the disposal of that share the
taxpayer was a connected person in relation to the company that issued that share and-
a)more than 50 per cent of the market value of the equity shares of that company was attributable directly or
indirectly to immovable property other than—
i)immovable property held directly or indirectly by a person that is not a connected person to the
taxpayer; or
ii)immovable property held directly or indirectly for a continuous period of more than three years
immediately prior to that disposal; or
b)that company acquired any asset during the period of three years immediately prior to that disposal and
amounts were paid or payable by any person to any person other than that company for the use of that asset while that asset was held by that company during that period.
4)For purposes of this section, where—
a)any share has been lent by a lender to a borrower in terms of a securities lending arrangement, such
share shall for the purposes of the lender be deemed not to have been disposed of by the lender; and
b)any other share of the same kind and of the same or equivalent quantity and quality has been returned by
the borrower to the lender, such share and such other share shall be deemed to be one and the same share in the hands of the lender.
5)There shall in the year of assessment in which any qualifying share is disposed of by the taxpayer be included in
the taxpayer's income any expenditure or losses incurred in respect of such qualifying share and allowed as a deduction from the income of the taxpayer during that or any previous year of assessment in terms of section 11. Provided that this subsection must not apply in respect of any expenditure or loss to the extent that the amount of that expenditure or loss is taken into account in terms of section 8(4)(a) or section 19.
6)Where the taxpayer holds identical shares in the same company which were acquired by the taxpayer on
different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time.
7)The provisions of section 22(8 ) shall not apply as a result of the disposal of any qualifying share.
8)For the purposes of this section, where a company issues shares to a person in substitution of previously held
shares in that company by reason of a subdivision, consolidation or similar arrangement or a conversion contemplated in section 40A or 40B, such share and such previously held shares shall be deemed to be one and the same share if—
i)the participation rights and interests of that person in that company remain unaltered; and
ii)no consideration whatsoever passes directly or indirectly from that person to that company in relation
to the issued shares.
Subsection (1) comes into operation on 1 January 2013 and applies in respect of years of assessment commencing on or after that date.
The provision in the Act seems to post-date most of the court rulings.
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The fact that if you are withdrawing money other than divies monthly as an Income then it is INCOME. You will be taxed as Income revenue and not CGT. You are holding your shares for income.
SARS will ask you this. "What is your intention for holding these shares" What will your answer be? For income.
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Now that first calculation was based on R350k withdrawals py. As you age, the less you spend. If I were to stay in SA then my circumstances would warrant a R18 000 pm withdrawal or R216 000 py. The divies will be an extra bonus.
Started with R667K and made 200% gains then retired. You will now have R2m.
The R667K bought you 20 000 shares in ABC.
R667 000.00/20 000 = Base Cost of R33.35 ps
Now your R2m will have a market value of R2m/20 000 shares = R100
Sell 2160 shares at R100 ps = R216 000
Cost price of 2160 shares at R33.35 = R72 036
Gain is R216 000 - R72 036 = R143 964
Tax = R14 474
Older than 65.
Tax = R8 084
From this you can deduct internet costs, a portion of your laptop cost and medical expenses. So on R18K pm plus divies you will pay less than R1 000 pm tax.
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Now that first calculation was based on R350k withdrawals py. As you age, the less you spend. If I were to stay in SA then my circumstances would warrant a R18 000 pm withdrawal or R216 000 py. The divies will be an extra bonus.
Started with R667K and made 200% gains then retired. You will now have R2m.
The R667K bought you 20 000 shares in ABC.
R667 000.00/20 000 = Base Cost of R33.35 ps
Now your R2m will have a market value of R2m/20 000 shares = R100
Sell 2160 shares at R100 ps = R216 000
Cost price of 2160 shares at R33.35 = R72 036
Gain is R216 000 - R72 036 = R143 964
Tax = R14 474
Older than 65.
Tax = R8 084
From this you can deduct internet costs, a portion of your laptop cost and medical expenses. So on R18K pm plus divies you will pay less than R1 000 pm tax.
I think you're forgetting something. The gain was R143 964. Capital gains means only 33% of that is taxed so income for the year is: R47 988...
That's well below the R67k threshold, so you'd effectively pay no tax.
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No Patrick. My calculations are correct. There is no CGT if you withdraw monthly. It is income and tax is paid at your tax margin as revenue.
You are retired and withdraw monthly for income. It will not be CGT.
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No Patrick. My calculations are correct. There is no CGT if you withdraw monthly. It is income and tax is paid at your tax margin as revenue.
You are retired and withdraw monthly for income. It will not be CGT.
What's the cut off point? What if you withdraw every 3 months? or 6 months?
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I think the crux of the matter is does a "qualifying share" (section 9C) override the other factors in determining if a disposal is of a capital or income nature. A job for some tax expert to explain to us.
In simple terms Section 9C is the "three year holding period law"
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And bear in mind that this is brand new law!
Subsection (1) comes into operation on 1 January 2013 and applies in respect of years of assessment commencing on or after that date.
So whatever happened in the past is irrelevant really. And I think the case law is probably superseded by the new provision in the Act.
The new law introduces a simple objective test to determine if a share disposal is of a capital nature. If it's capital then the calculation I posted earlier demonstrating a selling R350k of shares (2/3 capital gains) tax free holds...
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And bear in mind that this is brand new law! Subsection (1) comes into operation on 1 January 2013 and applies in respect of years of assessment commencing on or after that date.
I don't see, or can't find, any changes when compared to the pdf attached. Section 4.1. What exactly is 'the brand new law' ?
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I don't see, or can't find, any changes when compared to the pdf attached. Section 4.1. What exactly is 'the brand new law' ?
My mistake. It's been in its current form since 1 Oct 2007. I was side-tracked by this line in the current Act: Subsection (1) comes into operation on 1 January 2013 and applies in respect of years of assessment commencing on or after that date.
The note you posted indicates that disposals of shares held for more than 3 years is capital. Less than that is up for debate. So my original calc is accurate...
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I disagree. My last calculation is correct.
Despite guidelines laid down by case law, the determination of whether the amount received or accrued on the disposal of a share falls on capital or revenue account is often a contentious matter which can lead to costly and protracted legal disputes.
As this directly affects me, I have done much research on it. The wording of these "laws" are such that only a court can decide what they actually mean.
Farmer vs SARS. Farmer has had his farm for 35 years and decides to divide his farm into plots and sell them individualy. The court found that his intention was for profit. So his gains were taxed as income.
The sale of your shares for an income will be considered as revenue.
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From the SARS note that moonraker posted :
19. Conclusion
Section 9C provides taxpayers with certainty that if they hold equity shares for at
least three continuous years the gains and losses on disposal will be of a capital
nature regardless of the intention with which the shares were originally acquired. The
section has a much wider application than its predecessor (section 9B) in that it
covers unlisted shares and a member’s interest in a close corporation instead of only
JSE-listed shares. But not all types of shares qualify under section 9C; for example,
non-participating preference shares, shares in foreign companies (other than JSE-
listed shares) and participatory interests in portfolios of collective investment
schemes in property fall outside section 9C. Its provisions are now mandatory and no
election is required or even possible. The wider ambit of section 9C has necessitated
the inclusion of a number of anti-avoidance measures. The capital or revenue nature
of shares disposed of within three years of acquisition will continue to be determined
according to principles laid down by case law.
I suspect you are conflating the issue of having to declare your shares as trading stock.
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The fact that if you are withdrawing money other than divies monthly as an Income then it is INCOME. You will be taxed as Income revenue and not CGT. You are holding your shares for income.
If by 'withdrawing' you mean selling i.e. a disposal, and the share(s) sold are regarded as 'qualifying shares' (see yossarian's reply #16), then the disposal will be regarded as being of a capital nature, even if the share(s) disposed of were designated as being trading stock.
Section 9C draws no distinction between a share-dealer who carries on a distinct business of buying and selling shares for profit and a person who invests in shares as a long-term investment but speculates in some shares from time to time. The holding of shares by a share-dealer or the occasional speculator for at least three continuous years converts the amount derived on disposal from income to an amount of a capital nature. Amounts previously allowed as a deduction (for example, opening stock or interest on monies borrowed to buy shares) must be recouped on disposal of the shares and a capital gain or loss determined as if the shares had been held on capital account from the date of acquisition. Both categories of persons are subject to section 9C and do not have an option to elect out of the provision in order, for example, to claim revenue losses on shares held for three years or longer.
In the year of acquisition a share-dealer will be entitled to claim the cost of acquisition
The purpose of 9c is to provide clear guidelines - 3yrs. is the determining factor.
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I have read all the "laws" on SARS website. They are so designed as to give a "doubtful" or "debatable" meaning to the selling of shares as Ernst & Young have stated.
Most of the docs state that the meaning of the docs are not to be used as law and fact.
The court rulings will apply. Not the "laws" as stated.
Having read through many court cases vs SARS I can only conclude that the Intention is the main factor regardless of the "laws".
So if you are selling shares for income, then it will be INCOME and taxed as such. No way to get around this even if you have held the stocks for 40 years.
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Post # 16 is an extract from the Income Tax Act 1962 (http://www.google.cd/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCsQFjAA&url=http%3A%2F%2Fwww.acts.co.za%2Fincome-tax-act-1962%2F&ei=cXlIUuyXMoSC4ATguoG4BQ&usg=AFQjCNFSvGiB3w8Se5urk8oH2MyfzPos3Q&bvm=bv.53217764,d.bGE) (amended). It's law it's not an interpretation.
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19. Conclusion
Section 9C provides taxpayers with certainty that if they hold equity shares for at
least three continuous years the gains and losses on disposal will be of a capital
nature regardless of the intention with which the shares were originally acquired. The
section has a much wider application than its predecessor (section 9B) in that it
covers unlisted shares and a member’s interest in a close corporation instead of only
JSE-listed shares. But not all types of shares qualify under section 9C; for example,
non-participating preference shares, shares in foreign companies (other than JSE-
listed shares) and participatory interests in portfolios of collective investment
schemes in property fall outside section 9C. Its provisions are now mandatory and no
election is required or even possible. The wider ambit of section 9C has necessitated
the inclusion of a number of anti-avoidance measures. The capital or revenue nature
of shares disposed of within three years of acquisition will continue to be determined
according to principles laid down by case law.
seems quite clear and unambiguous.....
I read it as a "CONCLUSION" by SARS themselves and have been applying this to my trades, irrespective of what my original 'intention' supposedly was
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A change in your intention will be irrelevant once section 9C applies to your shares. Section 9C deems the proceeds on the sale of JSE-listed equity shares and equity shares in resident companies to be of a capital nature once they have been held for at least three years. Section 9C does not, however, trigger a deemed disposal of your shares held as trading stock after you have held them for three years because the shares technically remain trading stock despite them only being able to produce proceeds of a capital nature.16
16. The shares fall within paragraph (1) of the term"trading stock" in section 1 because they were purchased for the purposes of sale.
Anyone care to explain the above to me?
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A change in your intention will be irrelevant once section 9C applies to your shares. Section 9C deems the proceeds on the sale of JSE-listed equity shares and equity shares in resident companies to be of a capital nature once they have been held for at least three years. Section 9C does not, however, trigger a deemed disposal of your shares held as trading stock after you have held them for three years because the shares technically remain trading stock despite them only being able to produce proceeds of a capital nature.16
16. The shares fall within paragraph (1) of the term"trading stock" in section 1 because they were purchased for the purposes of sale.
Anyone care to explain the above to me?
Means that, if say you have been holding a share as trading stock for the past 4 years, there is no deemed disposal just because you held them for over 3 years. If you sell the share after 4 years 'the amount derived on disposal will be converted from income to an amount of a capital nature'.
(See also recoupment of expenses on page 22 of the Section 9c.pdf I uploaded some days ago).
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I normally would have sold all by now but cannot as my gains have been too high and I still have a year and a half left to pay CGT instead of normal tax.
So, I guess you now agree with the various people on this thread?
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I normally would have sold all by now but cannot as my gains have been too high and I still have a year and a half left to pay CGT instead of normal tax.
So, I guess you now agree with the various people on this thread?
Umm. Not quite, thank you for asking. My next prob now is this.
I have 3 shares that I have held for 1.5 years and 1 of them has grown overweight compared to the other 2. Now if I sell some of the overweight one and add to the other 2, does my "Purchase Date" start all over again?
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I normally would have sold all by now but cannot as my gains have been too high and I still have a year and a half left to pay CGT instead of normal tax.
So, I guess you now agree with the various people on this thread?
Umm. Not quite, thank you for asking. My next prob now is this.
I have 3 shares that I have held for 1.5 years and 1 of them has grown overweight compared to the other 2. Now if I sell some of the overweight one and add to the other 2, does my "Purchase Date" start all over again?
on the other 2 shares? No, only for the newly bought shares I would think.
But your question has made me think if portfolio balancing could not be argued to trigger CGT instead of PAYE?
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Umm. Not quite, thank you for asking. My next prob now is this.
I have 3 shares that I have held for 1.5 years and 1 of them has grown overweight compared to the other 2. Now if I sell some of the overweight one and add to the other 2, does my "Purchase Date" start all over again?
The one you sell is up for debate between you and SARS as to whether it's income or CGT based on your intention etc.
Let's to simplify things say that you only buy one type of share instead of two.
You used to hold x shares.
You now hold x + y shares.
x shares are considered by SARS to be 1.5 years old.
y shares are considered by SARS to be 0 years old.
In other words you hold shares in a single company whose constituents are two different ages. In 1.5 years time you could sell x shares and pay only CGT. But if you sold x+y shares in 1.5 years time you'd pay CGT on x shares and would have to argue with SARS if your proceeds on y shares were CGT or income.
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As the 3 stocks were not yet held for 3 years, selling a portion of one to add to the other 2 would be revenue on the sell portion.
Due to the fact that I'm still holding the same 3 stocks should not reset the date to zero.
Perhaps SARS would say that "trading" had occurred on that date and reset the date to zero.
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Perhaps SARS would ... reset the date to zero.
OK, I'll bite. Where did you get the idea that SARS can reset the date to [a new date]? Post the source please.
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As the 3 stocks were not yet held for 3 years, selling a portion of one to add to the other 2 would be revenue on the sell portion.
Yes, but see yossarians closing paragraph.
Due to the fact that I'm still holding the same 3 stocks should not reset the date to zero.
They won't because FIFO comes into play if you have used weighted average to determine the base costs.
(6) Where the taxpayer holds identical shares in the same company which were acquired by the taxpayer on different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time
Section 9C(6) deals with the situation in which a taxpayer has acquired identical shares in the same company on various dates and disposes of some of them. It then becomes necessary to identify which shares have been disposed of in order to determine whether they have been held for the qualifying three-year period. For this purpose section 9C(6) prescribes the “first-in-first-out” method (FIFO).
This rule is not in conflict with the identification rules under paragraph 32 of the Eighth Schedule used for CGT purposes for determining the base cost of identical assets. Paragraph 32 permits the use of the specific-identification method, the FIFO method or the weighted-average method. While it is appreciated that two different identification rules may apply for the same set of shares, the rules serve different purposes and need not be aligned. The identification rules in the Eighth Schedule are used for purposes of determining the base cost of shares for CGT purposes while the section 9C identification rule is used only for purposes of determining the holding period of shares that have been disposed of. On the question of non-alignment, while CGT allows for the weighted-average method in calculating the base cost of shares, this method cannot be applied for purposes of determining the time period for which shares were held because it disregards specific dates of acquisition and disposal. Consequently it will be necessary for a taxpayer who uses the specific-identification method or the weighted-average method to determine the base cost of shares for CGT purposes to also maintain a record of purchases and sales of shares on the FIFO basis in order to apply section 9C.
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I have always used the weighted average method and not FIFO. This now gets confusing as now I understand it as like this:
The shares that I add to the other two stocks will have a "zero" date and the older shares in those stocks will still be 1.5 years old.
This will stuff up my weighted ave method. I can't now change to the FIFO method.
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I have always used the weighted average method and not FIFO. This now gets confusing as now I understand it as like this:
The shares that I add to the other two stocks will have a "zero" date and the older shares in those stocks will still be 1.5 years old.
This will stuff up my weighted ave method. I can't now change to the FIFO method.
No, all it means is that FIFO will apply to your shares when you use weighted average. Nothing to do with changing to FIFO.
The identification rules in the Eighth Schedule are used for purposes of determining the base cost of shares for CGT purposes while the section 9C identification rule is used only for purposes of determining the holding period of shares that have been disposed of. On the question of non-alignment, while CGT allows for the weighted-average method in calculating the base cost of shares, this method cannot be applied for purposes of determining the time period for which shares were held because it disregards specific dates of acquisition and disposal. Consequently it will be necessary for a taxpayer who uses the specific-identification method or the weighted-average method to determine the base cost of shares for CGT purposes to also maintain a record of purchases and sales of shares on the FIFO basis in order to apply section 9C.
The first-in-first-out method must be used to determine the length of time you held shares you have disposed of.65 This method is merely for the purpose of applying section 9C and does not affect any identification method you have adopted for determining the base cost of your shares for CGT purposes. Thus if you adopted the weighted-average method for CGT purposes you must continue to use that method for determining the base cost of your shares. The first-in-first-out method will merely be used to determine whether any shares you sold were held for at least three years.
Where the taxpayer holds identical shares in the same company which were acquired by the taxpayer on different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time
I have merely repeated what I posted before. :-X
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I often buy the same stock in batches at different dates and when I sell some of them, I decide and tell SARS which batch or part of which batch I've sold - have not had hassles so far
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Ahhh. Got it Moon. I'm a bit slow you know. Thanks for that and I am sure many peeps here are following this and are being helped by your knowledge on tax. :TU:
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I often buy the same stock in batches at different dates and when I sell some of them, I decide and tell SARS which batch or part of which batch I've sold - have not had hassles so far
Geez Bundu. How do you "Tell" SARS on e-filling?
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when I still did my own tax on e-filing, I did all the calcs according to what I had decided and every year SARS wanted proof afterwards (like a mini audit) - I then supplied them with copies of my share transactions and a table indicating what I had bought and what I had sold when
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So what prompted SARS to do an audit on your shares. If one follows the e filing form what they ask for is the base figure and the selling price of stock and then CGT is calculated on the difference, less of course any carried forwards losses
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Both my wife and I get audited regularly. I think it might be due to us not having medical aid and them wanting to ensure that the expenses we declare as deductions are aboveboard. We also make donations to SPCA for which we receive a donations tax receipt so that we can deduct them from taxable income. I suppose they also want to verify that. Never had a problem with shares though. In short SARS trusts no one, except maybe gcr. ;)
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So what prompted SARS to do an audit on your shares. If one follows the e filing form what they ask for is the base figure and the selling price of stock and then CGT is calculated on the difference, less of course any carried forwards losses
I don't submit an IRP5 and I have various investments and also claim for a home office, so I can understand that they don't just take my word for it
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Hi guys
sorry to resurrect an oldish thread, but since its tax related, i think it better to continue the discussion/ line of questions here.
I assume it was concluded more or less, that, should you hold a share for 3 years, and then sell it, Capital gains tax will apply at a max of 10% after the annual exclusion has been deducted...
Thus leaves me the question - doesnt this make ETF investments a much much much better choice over Retirement annuities.
yes the RA is not taxed with your investments, but the moment you start "retiring" they see it as income, and tax you as such :
Tax Rate Withdrawal Lump Sum Retirement Lump sum
0% 0 – R22,500 0 – R315,000
18% R22,501 – R600,000 R315,001 – R630,000
27% R600,001 – R900,000 R630,000 – R945,000
36% R900,001+ R945,001+
See withdrawal lumpsum - even if i sell R600,000 every year, 18% of that goes back to treasury, and it just gets worse from there. :wall:
My questions thus - did anyone maybe already do the math already comparing investing in an RA paying tax after or in an ETF where you pay tax before you can invest?
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Capital gains tax is one third of income tax (so a 13.3% max, not 10%), after the R30k exemption.
So if you decided to retire on your investments, and need to sell R600k worth of shares to live on every month. I'll assume you bought the R600k worth of shares 5 years, and they grew at 15%pa. I'll also assume you're now retired and have no other income. Dividends are pre-taxed, so they don't count here:
Selling price R600 000
Less cost price R300 000
=Capital gain R300 000
Less exemption = R270 000
Divided by 3 to get taxable income = R90 000
Tax on R90 000 p/a = R3474 if you're under 65, if you're over 65, you won't pay a cent!
As to whether it's better than an RA depends on many things. RA fees, performance, your current tax bracket etc. I would imagine that from next year, having the ability to put 27.5% of your salary away without paying tax on it is going to be a worthwhile thing to do. Just make sure you put it somewhere where the performance is good, and the fees are low.
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Capital gains tax is one third of income tax (so a 13.3% max, not 10%), after the R30k exemption.
So if you decided to retire on your investments, and need to sell R600k worth of shares to live on every month. I'll assume you bought the R600k worth of shares 5 years, and they grew at 15%pa. I'll also assume you're now retired and have no other income. Dividends are pre-taxed, so they don't count here:
Selling price R600 000
Less cost price R300 000
=Capital gain R300 000
Less exemption = R270 000
Divided by 3 to get taxable income = R90 000
Tax on R90 000 p/a = R3474 if you're under 65, if you're over 65, you won't pay a cent!
As to whether it's better than an RA depends on many things. RA fees, performance, your current tax bracket etc. I would imagine that from next year, having the ability to put 27.5% of your salary away without paying tax on it is going to be a worthwhile thing to do. Just make sure you put it somewhere where the performance is good, and the fees are low.
Much much clearer now! Thx Patrick.
yes 27.5% really looks tasty, but i am not looking forward to working till 55 to wait for an RA. will see if i can get a balance going between the two.
I think i prefer a trustworthy RA maybe beats lower fee's eg Allangray or coronation vs ETFSA or 10x. will prefer being in control of my own shares rather to be honest.