I managed to identify the source of this mindlessly repeated mantra amongst too many in this country: they have been studying (or in some Professors’ cases, rewriting) American textbooks. The US has traditionally operated a ‘classical’ system of taxation, where profits are taxed at both a company and a shareholder level (dividends received). Interest payments, however, are only taxed once: in the hands of the debt holder.

It is this unspoken assumption of identical taxation of dividends and interest received (more specifically the existence of differing asymmetries or an asymmetry in the taxation of dividends and interest for payor and payee) that has led too many of our unthinking populace down the wrong track.

Having said all of this, I believe that an answer (not /the/ answer) may be found in the debt capital market structure. A significant portion of buyers of bonds and debt instruments are tax advantaged, being retirement-funding entities or untaxed policyholder funds or non-resident taxpayers, all of whom would not pay tax on interest received (and would therefore not benefit from the tax exempt status of dividends received comparatively), creating an exploitable asymmetry.

I’m pretty sure the above could be used as an effective sales pitch by bankers. Which gives me an idea…

Thanks for point into perspective and focus these crucial questions

Best regards,

Stelios.

An old post, but we should have got togther at the time. I shared (and still share) exaclty the same views – what the hell do they think they are up to? And then, because the RDR derivation and CoC calc are screwballed and cannot handle debt in the capital structure, they try and play fancy footwork to show +ve EV effect after the debt has been raised.

CRAZY. I think the advisors made lots of cash though!

We need to have a cup of coffee sometime – you up in Jhb anytime soon?

Andrew