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Author Topic: Living off Dividends.  (Read 48834 times)

Orca

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Living off Dividends.
« on: September 24, 2013, 08:15:20 pm »
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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AVM

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Re: Living off Dividends.
« Reply #1 on: September 25, 2013, 10:05:22 am »
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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Patrick

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Re: Living off Dividends.
« Reply #2 on: September 25, 2013, 10:36:52 am »
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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Orca

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Re: Living off Dividends.
« Reply #3 on: September 25, 2013, 11:11:24 am »
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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Hendrix

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Re: Living off Dividends.
« Reply #4 on: September 25, 2013, 05:31:27 pm »
Personally, I'd go for a 3 way split between Divi, Rafi and Indi.
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yossarian

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Re: Living off Dividends.
« Reply #5 on: September 26, 2013, 12:54:52 pm »
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/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%.
« Last Edit: September 26, 2013, 12:57:44 pm by yossarian »
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Patrick

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Re: Living off Dividends.
« Reply #6 on: September 26, 2013, 03:57:49 pm »
Great post, I could live tax free!  :TU:

I think there may be a new blog coming  ;D
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Orca

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Re: Living off Dividends.
« Reply #7 on: September 26, 2013, 04:03:25 pm »
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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Orca

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Re: Living off Dividends.
« Reply #8 on: September 26, 2013, 06:05:55 pm »
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%




« Last Edit: September 26, 2013, 06:13:37 pm by Orca »
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yossarian

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Re: Living off Dividends.
« Reply #9 on: September 26, 2013, 06:16:27 pm »
Quote from: Orca on September 26, 2013, 06:05:55 pm
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
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Orca

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Re: Living off Dividends.
« Reply #10 on: September 26, 2013, 08:02:20 pm »
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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Orca

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Re: Living off Dividends.
« Reply #11 on: September 26, 2013, 08:18:31 pm »
Just as I thought. All your withdrawals will be Income and taxed as such.  :'(
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yossarian

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Re: Living off Dividends.
« Reply #12 on: September 26, 2013, 10:51:54 pm »
Quote from: Orca on September 26, 2013, 08:02:20 pm
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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Orca

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Re: Living off Dividends.
« Reply #13 on: September 27, 2013, 11:32:20 am »
Quote from: Orca on September 26, 2013, 06:05:55 pm
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
« Last Edit: September 27, 2013, 05:02:31 pm by Orca »
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yossarian

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Re: Living off Dividends.
« Reply #14 on: September 27, 2013, 02:18:06 pm »
Quote from: Orca on September 27, 2013, 11:32:20 am

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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