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As i understand it

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barry_1
Super Contributor
Property unit trusts are excempt from capittal gains tax if held for about five years or longer.Aboon for retirees...Other types of property companies are against this as they seem to think they will gain more if this is abolished.....ofcourse there is ordinary tax on all OMO.See....http://2010plusstocktrends.blogspot,com
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22 REPLIES 22
Not applicable
Ja Barry, I wonder if the dividend WHT is likely to change the way listed property is evaluated going forward, since their payouts are no longer compared against a tax free return (div). The only difference is that a listed property payout still affects your tax status - vs a dividend which doesn't. But if you are retiring, then that point is moot. I think listed property isan excellent, excellent retirement vehicle outside of the conventional RA's, etc.
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DEP
Super Contributor
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SimonPB
Valued Contributor
how come they are CGT exempt ater 5 years ?? I never heard fo this ..
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barry_1
Super Contributor
Saw the article on Monwyweb,They did not mention a time span,but made it very clear the idea was to help PUI investors.I once asked at the receiver office and they said about five years proved i was not trading that investmrnt.This tax free was mentioned as an aside.Property loan stock is gunning to have this privelege removed from PUTS AT THE NEXT REITS meeting with the receiver
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geordie1
Super Contributor
really surprised that this would be capital tax gain free not wishing to doubt you as i would benefit but it seems to be inconsistent how sure are u?
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THRESHOLD
Super Contributor
Right. They're not really -in generic terms, that is. It is SARS' pracitce to treat 5 years as the basic test for intention in the absence of other defining factors that indicate to the contrary. A unit trust that "masses assets" such that they lose their identity would be able to apply this on a unilateral basis and this development is really only a "nod" to the status quo. Companies that TRADE in the underlying properties would be subject to income tax in any case. As regards SKAAPTJOP's comment:- at the end of the day - the fact that the tenant of these companies is impacted by the dividend tax will ultimately impact the rental they can charge. So - in the long term - it will all even-out ie. they (property co's and other co's)are all worth less as the government has left "less on the table."
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Not applicable
I think you guys refering to section 9C of the act. It has changed from 5 years(section 9B previously) to 3 years now. There is no election or SARS practice, if you hold for 3 years it's capital no matter what. Anything under 3 years has to be determined using the normal capital vs revenue tests which come mainly from case law.
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THRESHOLD
Super Contributor
Nope. Trying to reolve the CGT developments for "unit trusts" (property at that) and why they are moving this way. Trying to establish WHY they should be exempt from CGT after 5 years (and trying to link it to historic provisions.) The general 3 year story came in (1/2?) years ago. I assume there is some industry-specific allowance here that he is on about though. Any ideas? (I haven't the energy to go and read up on this - since I have no interest in unit trusts; or property stocks for that matter)
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barry_1
Super Contributor
Yes i remember the cut to three years.That might be it.It was definitely mentioned in the article as tax free nature of the capital was irking the other property sectors....Of course as far as the interest goes that is at the moment taxed in the hands of the individual (me),receiving the amount,which is acceptable to me as i don't pay the highest rate and its less than the company rate.thanks Mark
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Not applicable
Threshold, just to clear it up a property unit trust is actually considered a vesting trust. There are two main issues to an investor: 1.The distributions/dividends are taxed in the hands of the unit holder as interest. 2. Capital gains/Income tax are paid when the unit itself is sold. For that purpose there is no difference between an normal equity share and a unit trust. They are both governed by Section 9C.
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THRESHOLD
Super Contributor
Only interested in the entity itself (e the unit trust) and Barry's point re 5 years. Trying to establish where that came from. The exisitng legislation is pretty simple. The discussion here is re the possibilty of something thata's being missed - perhaps proposals in the budget?
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partridge
Super Contributor
Now I know why people lose money.
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louisg
Super Contributor
Perhaps this clarifies.(last sentence) What is the difference between a property unit trust and a property loan stock company? PUTs are trusts which are highly regulated and fall under the Collective Investment Schemes (CIS) Act as well as being governed by the Financial Services Board. PLSs fall under the Companies Act. It is compulsory for a PUT to have a separate management company (manco) while this is optional for PLSs. The CIS Act stipulates that PUTs may only borrow up to 30% of the value of the portfolio while PLSs have unlimited gearing which is stipulated by the trust deed of the company. PUTs are except from Capital Gains Tax (CGT) when they sell properties in the portfolio unlike PLSs which have to pay CGT.
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barry_1
Super Contributor
THANKS lOUISGNright on the button as usual
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Not applicable
Threshhold - I don't understand your point directed at me?
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THRESHOLD
Super Contributor
SKAAPTJOP - It is directed to you and not at you. The point is that your contention that the property stocks may be worth more in terms of their yield (relative to the ordinary stocks which now suffer a 15% divi tax.) will probably prove right in the short term In the long-term, however, they too compete with government for their rent ie. they can only charge their tenants what they can afford after meeting all committments and allowing for a realistic rate of return for their shareholders. In the long-run the government will drive down the net value of the entire investment arena as they are plundering capital.
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Not applicable
Sorry - poor choice of words - was interested in your view is all. But can't say that I subscribe to it. I mean your point can be crudely summarized as 'they will be making too much money in the future, so don't stock up on them now?'. If your point is not to be overweight property - well that is just portfolio management 101. If your point is to avoid the sector because of the propensity for government to go after the most profitable sectors?
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THRESHOLD
Super Contributor
I made no such point. I offered no sector specific preference. Quite the contrary in fact.In the long run I do not like SA stocks in general. The government is systematically plundering the formal sector. Switching to property stocks to seek cover from higher taxes on other companies will work until government revises the tax dispensation applicable to that sector. Then we all scurry off to the next-best-thing. It doesn't bode well.
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Not applicable
Ja, but boet - DWT will apply to foreign listed shares as well, since it is in your personal capacity - so whether you invest overseas or locally, I don't think it will make a difference? And honestly - DWT vs STC makes a lot of sense, IMO - the only dispute is the hefty 15% - 10% would have been fair. But Pension & provident funds are the real beneficiaries - since now now dividend tax is charged at all - so they should receive a 10% boost in dividend earnings (which will get raped an pillaged by the fund administators, but that is a separate matter). So I guess the 15% is to get us poor suckers to make up the shortfall due to the retirement industry excemptions
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