Q5 2016 CashPlus newsletter
26 February 2016,
Your Q1 2016 CashPlus Newsletter
In this months newsletter:
Latest CashPlus property market trends and growth forecasts
2016/17 National Budget Property impact
CashPlus property market trends and growth forecasts.
According to the 5 February 2016 ABSA house price index, the average nominal price growth for small houses increased by 3.8 % y/y in December and by 4.1% in January 2016.
The outlook for the residential property market in 2016 is one of subdued growth against the background of expected low real economic growth of only 0,9% this year, low employment growth, rising inflation and higher interest rates.
The Reserve bank (SARB) Monetary Policy Committee (MPC) also decided on 28 January 2016 to hike its policy Repo Rate by a further 50 basis points to 6.75%, and Commercial Banks followed suit and raised their Prime rates to 10.25%.
The January CPI (Consumer Price Index) inflation rate accelerated, from 5.2% year-on-year in the previous month to 6.2%. This is a very significant jump, and takes the inflation rate to above the SARB’s (Reserve Bank) upper inflation target limit of 6%.
The January CPI inflation rate suddenly against expectations jumped above the SARB’s upper target limit of 6%. This is mainly due to the sharp weakening in the Rand late in 2015 along with a drought-induced food price
The minister of finance focussed in his budget speech to keep the inflation rate under control and as a result SARB will continue with their gradual interest rate increase strategy as long as inflation is above the target level of 6%.
The rising inflation rate will have a dampening impact on housing demand in the near term but rental inflation should see some benefit.
2016/17 National Budget Property impact
The budget did not have any major upsets for the CashPlus property investor.
There was however a number of budget impacts for the uninformed buy-to-let property investor.
The big surprise was the effective rates of CGT which have increased because now 40% of capital gains will be included in taxable income for individuals instead of 33.3%, and 80% of capital gains will be included for trusts instead of 66.6%. This results in the increase of the effective rate of
CGT from 13.7% to 16.4% for individuals, and from 27.3% to 32.8% for trusts. (For companies the increase in the inclusion rate is the same
as for trusts (80%) resulting in an increase in the effective rate from
27.3% to 32.4%). For individuals (but not trusts) the first R40 000 of capital gains will be exempt, an increase from R30 000. The new rates will be applicable from 1 March 2016.
Please note if you invest the CashPlus way, you will not have to pay Capital Gains tax.
From 1 March 2016 an additional bracket for property exceeding R10 million is created at a rate of 13%. Transfer duty rates applying to property acquired on or after 1 March 2016 by any person (including companies, close corporations or trusts).
Please note the CashPlus property market is in the R500 000 to R750 000 secure sectional title market and the high end of the market tax impact will not affect the CashPlus property investor.
On a positive side properties below R 750 000 are still exempt from transfer duty and will continue to include transfers to Trusts.
There has been a lot of publicity lately on Trusts as a wealth creation tool and POTENTIAL SARS clamp down on trusts. The CashPlus property investor also utilizes the Trust structure as our tax effective wealth creation tool and I would like to share some thoughts.
Trusts have long been used as an estate planning mechanism, including (but not limited to) the avoidance of estate duty. Because a donation to a trust carries donations tax, assets are generally transferred to the trust by selling same on loan account.
It is PROPOSED that, to limit taxpayers’ ability to transfer wealth without being taxed, the assets transferred through a loan to a trust are to be included in the estate of the founder at death, and to categorize interest-free loans to trusts as donations. Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits will also be CONSIDERED.
It remains to be seen precisely how these objectives will be achieved and how the legislation will be drafted.
If your Trust is correctly structured the CashPlus way, the above considerations should not have an impact on your CashPlus business objectives. Please get in touch with your CashPlus auditor to clarify the potential future impacts on Trusts as proposed, but not legislated, by SARS.
Estate duty has been left unchanged and is levied at a flat rate of 20% on property of residents and South African property of non-residents.
Please note the first R100 000 of property donated in each year by a natural person is still exempt from donations tax.
The CashPlus Course fees for 2016 will remain at R 999 until further notice.
You can order the CashPlus Property Investment Course by logging in with your registered username and going to Buy Course on the website.
Remember to send me your CashPlus success stories and or course comments.
CashPlus greetings till next time!!!!
CEO CashPlus Property Investments
Always buy below market value!!