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Author Topic: PSG Konsult  (Read 27473 times)

Moonraker

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Re: PSG Konsult
« Reply #15 on: June 12, 2014, 09:41:48 am »
Pref. shares are tax free after the dividend withholding tax. When STC was abolished and replaced by the withholding tax, investors thought they would be worse off, but the bank prefs, like NBKP, not wanting to leave investors worse off, increased their payout from 75% of prime to 83.33%

Quote
Amendment to the terms of the non-redeemable non-cumulative non-participating   
preference shares in the issued share capital of Nedbank Limited (`Nedbank     
perpetual preference shares`)                                                   
Holders of Nedbank perpetual preference shares are referred to the             
announcement, released on the Securities Exchange News Service (SENS) of JSE   
Limited on 1 March 2007, setting out the potential effects on the Nedbank       
perpetual preference shares of the then proposed amendments to the tax         
legislation regarding the introduction of a dividend tax on all distributions, 
including dividend distributions, by a company to its shareholders, as         
contemplated in sections 64D to 64N of the Income Tax Act, 58 of 1962, as       
amended (`Income Tax Act`) (`dividend tax`), in the place of STC. Those         
proposals have now been incorporated into the necessary amending legislation,   
which has come into effect and will apply from 1 April 2012.                   
As a result of the amendments to tax legislation, the board of directors of     
Nedbank Limited has resolved, subject to the passing of the required           
resolutions by holders of Nedbank perpetual preference shares and holders of   
Nedbank Group Limited ordinary shares, to amend the rate used to calculate the 
preference dividend payable on the Nedbank perpetual preference shares, from   
the current rate of 75% of the prime rate to 83,33% of the prime rate.         
The amendment will apply to dividend number 19, the dividend declared and paid 
on Nedbank perpetual preference shares on or after 1 April 2012, the date on   
which dividend tax becomes effective.         

With rising interest rates their prices should rise, i.e. it's not a bad time to buy them, but only if you are
looking for tax relief as a high income earner. The after tax yield will always be way better than parking
cash in the money market.
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gcr

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Re: PSG Konsult
« Reply #16 on: June 12, 2014, 10:41:02 am »
Quote from: Snakepit on June 12, 2014, 07:59:28 am
Heheh no sorry, can't make it  - Durbanville, Cape Town! :'(
Will check tonight as to whether they run such a session in CT - I know they do in Durban. Will post results once to hand
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Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

gcr

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Re: PSG Konsult
« Reply #17 on: June 12, 2014, 04:02:55 pm »
Quote from: gcr on June 12, 2014, 10:41:02 am
Quote from: Snakepit on June 12, 2014, 07:59:28 am
Heheh no sorry, can't make it  - Durbanville, Cape Town! :'(
Will check tonight as to whether they run such a session in CT - I know they do in Durban. Will post results once to hand
Seems like tonight's session may not be The Power Hour, but, Lavan Gopaul dealing with futures, awaiting confirmation from JSE - if it is the latter then I won't attend as attended last year
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Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

Snakepit

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Re: PSG Konsult
« Reply #18 on: June 15, 2014, 09:53:22 am »
Thanks Moonraker. So the bottom line if I understand it correct, is that compared to putting money into the bank, you will pay less tax. You do get a component of interest earned at your bank tax free, think the amount is round R31000, but once that component is exceeded you will start paying tax at, what 18%, and as you earn more interest you will move into higher tax brackets. But with prefs you will just pay the divi tax.

So the bottom line is that up to that R31000 you can go the bank route but once you exceed that,  prefs are the route to go?

Now a question pops up - that R31000 tax free money, is that per year? In prefs you pay that divi tax from day one. So a good move could be to put your money in the bank for 6 months to get the R31000 tax free and the take it out and buy prefs for the ramaining 6 months and then next year sell the prefs and put ht emoney back in the bank and for the second 6 months put it in prefs again.

You basically swing it to prefs as soon as you hit the R31000 tax free number?
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Moonraker

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Re: PSG Konsult
« Reply #19 on: June 15, 2014, 01:27:02 pm »
The interest exemption is 23.800-00 (<65) not 31.000-00
So you can have an interest bearing investment(s) of 340.000-00 @7% = 23.800-00 and pay zero tax on the 340.000-00
Taking the NBKP pref. @ currently ± 7% you would pay tax of 3.570-00 (15%).
If you double the invested amount, and assuming a 30% marginal tax rate:-
Interest bearing investment(s) is 680.000-00 @7% = 47.600-00 less 23.800-00 (exempt) = 23800-00 taxable @ marginal rate 30% = 7.140-00 tax
NBKP pref. - 680.000-00 @ ± 7% = 47.600-00 less 15% = 40.460-00. Tax also 7140-00
So the higher your income and marginal tax rate, the larger the benefit in favour of pref. shares.
Pref. shares are best suited for high net worth folks and are for the longer term. Their attractiveness increases in a rising interest rate cycle, when they should outperform bonds. Capital gains (and losses) can be made.

See also Here
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