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Magic Formula Strategy

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Any experts out there? One of the key principles of MF is to maximise after tax earnings. It is not a buy and hold strategy, but an active trading strategy with rules designed to minimize the tax implications. Does anyone know how to translate the strategy into the South African taxation environment?
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Erm, I just buy and hold for a year after which I normalize, which is more optimized to US tax conditions. I think you need to hold for at least 3 years in SA, for it not be seen as trading?
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Super Contributor
Skaap.. apart from housing your trading within a fund...you need a couple of million, so you can activly trade without triggerig a tax event there is no dirrect way. The system is designed to support the asset managment business but that another point all together. The best thing you can do is... 1 seperate your accounts so that only the trading account triggers the tax event not you whole portfolio...2 look out for special dividends and distobutions when they happen.. buy as much of that share using an installment.. take the capital loss and convert you winnings to dividends.. it does not make it tax free but it does make it much more efficient. you can do it with normal dividends as well. the key is correct use of the installment
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Super Contributor
Following on what John said, my portfolios consist of share accounts for investing and CFD accounts for trading.In 2005 I bought BSR for 80 and sold a year later for 660 (profit attracted tax at marginal rate)thinking I made a killing, only to see them go to over 3500 a couple of years later, now that would have been a killing. Twelve years ago bought a nice parcel of RBW at 125,since then collected 562 in divs and now trading at 1800( would only attract CGT if sold).As the saying goes, "not timing the market , but time in the market". Since late last year I have concentrated more on dividend stripping with my CFD account, and these are my figures for financial 2011. Return on capital taxable 37.4% (22.4% after tax) and 9.0% return tax free in fornm of dividends.So far this financial year (mar,apr),1.7% taxable and 7.5% tax free (divs),the latter going to get a nice boost when BTI divs added for May.My big div plays mar/apr were MMI,ASA,SBK. Stole some ABL at 3345 (incl costs) on tues, so the immediate fiturelooks bright.Like to hear your ideas, after all isn't this what this forum should be about ...helping one another fill thr piggy bank.
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Super Contributor
well done...thats great. I was not aware that CFD's paid out dividends.. thats great news as it allows for even more gearing on the div stratergy we both refering too... I have only ever done it using installments.
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Super Contributor
Since central order book opened on SSFs, dividends are now paid wheras before you bought the stocl less whatever dividend was due. I do have a SSF account but trying to get to grips with the cost structure.
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Super Contributor
but remember the tax man will view the loss on the CFD as a capital loss and will be subject to "capital loss tax" which is less than the loss you can claim from any profits on capital---you cannot use capital loss to offset a profit made . If you get a tax audit, the intention will be clear to the tax man...and you might suffer an actual loss.... anyway wont apply in the future as all dividends will be taxed
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Super Contributor
Fictitious inaccurate ramblings from a single deluded entity. And the sunspots do not help.
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Super Contributor
Rams, not sure what you are trying to say; As yet I have never made a trading loss in any financial year, so the profit made trading is taxed at marginal tax rate. Should I have a year where I do made a trading loss, I assume I will have the right to deduct the loss from my taxable income, however should it be "ring fenced", the loss will be carried forward and offset againt future trading profit. Please note...Trading.All profits made on CFDs are of a trading nature and not capital On the question of taxing dividends the bottom line is that the end result will be no different to what happens at present, as there will be a 10% "withholding tax" paid by the company and you will have to declare it, but no further tax will be levied on the dividend, otherwise it will amount to double taxation.
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Super Contributor
yes, I agree with all you say, profits not capital but loss of capital is capital in nature if the loss earned you the dividends....buy the CFD, sell it on exdividend day, collect the dividends and offset the loss against other profits in your account-capital loss here can only offset the dividends earned in that trade... i think
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