Author Topic: Living off Dividends.  (Read 47673 times)

yossarian

  • Jr. Member
  • **
  • Posts: 55
  • Karma: +2/-0
    • View Profile
Re: Living off Dividends.
« Reply #30 on: September 29, 2013, 09:04:26 pm »
Post # 16 is an extract from the Income Tax Act 1962 (amended).  It's law it's not an interpretation.

Bundu

  • Full Member
  • ***
  • Posts: 181
  • Karma: +3/-0
    • View Profile
Re: Living off Dividends.
« Reply #31 on: September 29, 2013, 09:12:14 pm »
Quote
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
« Last Edit: Tomorrow at 06:13:55 PM by Bundu »

Orca

  • Hero Member
  • *****
  • Posts: 2280
  • Karma: +54/-3
    • View Profile
Re: Living off Dividends.
« Reply #32 on: September 30, 2013, 09:48:48 am »
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?
I started here with nothing and still have most of it left.

Moonraker

  • Hero Member
  • *****
  • Posts: 1095
  • Karma: +31/-0
    • View Profile
Re: Living off Dividends.
« Reply #33 on: September 30, 2013, 01:30:22 pm »
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).

yossarian

  • Jr. Member
  • **
  • Posts: 55
  • Karma: +2/-0
    • View Profile
Re: Living off Dividends.
« Reply #34 on: October 02, 2013, 02:21:15 pm »
Quote from: orca on Pulverized sandbox
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?

Orca

  • Hero Member
  • *****
  • Posts: 2280
  • Karma: +54/-3
    • View Profile
Re: Living off Dividends.
« Reply #35 on: October 02, 2013, 03:41:40 pm »
Quote from: orca on Pulverized sandbox
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?
I started here with nothing and still have most of it left.

Bundu

  • Full Member
  • ***
  • Posts: 181
  • Karma: +3/-0
    • View Profile
Re: Living off Dividends.
« Reply #36 on: October 02, 2013, 03:52:13 pm »
Quote from: orca on Pulverized sandbox
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?
« Last Edit: Tomorrow at 06:13:55 PM by Bundu »

yossarian

  • Jr. Member
  • **
  • Posts: 55
  • Karma: +2/-0
    • View Profile
Re: Living off Dividends.
« Reply #37 on: October 02, 2013, 04:13:38 pm »


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.
« Last Edit: October 02, 2013, 04:21:06 pm by yossarian »

Orca

  • Hero Member
  • *****
  • Posts: 2280
  • Karma: +54/-3
    • View Profile
Re: Living off Dividends.
« Reply #38 on: October 02, 2013, 05:08:06 pm »
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.
 
I started here with nothing and still have most of it left.

yossarian

  • Jr. Member
  • **
  • Posts: 55
  • Karma: +2/-0
    • View Profile
Re: Living off Dividends.
« Reply #39 on: October 02, 2013, 05:26:47 pm »
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.

Moonraker

  • Hero Member
  • *****
  • Posts: 1095
  • Karma: +31/-0
    • View Profile
Re: Living off Dividends.
« Reply #40 on: October 02, 2013, 05:29:04 pm »
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.

Quote
(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.


Orca

  • Hero Member
  • *****
  • Posts: 2280
  • Karma: +54/-3
    • View Profile
Re: Living off Dividends.
« Reply #41 on: October 02, 2013, 06:25:18 pm »
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.
I started here with nothing and still have most of it left.

Moonraker

  • Hero Member
  • *****
  • Posts: 1095
  • Karma: +31/-0
    • View Profile
Re: Living off Dividends.
« Reply #42 on: October 02, 2013, 06:53:41 pm »
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.
Quote
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.

Quote
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.
Quote
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

Bundu

  • Full Member
  • ***
  • Posts: 181
  • Karma: +3/-0
    • View Profile
Re: Living off Dividends.
« Reply #43 on: October 02, 2013, 06:57:40 pm »
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
« Last Edit: Tomorrow at 06:13:55 PM by Bundu »

Orca

  • Hero Member
  • *****
  • Posts: 2280
  • Karma: +54/-3
    • View Profile
Re: Living off Dividends.
« Reply #44 on: October 02, 2013, 07:18:55 pm »
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:
I started here with nothing and still have most of it left.