finale project

Mr. Sashin Maharaj

Maximus Financial Advisors (PTY) Ltd

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Maximus Financial Advisors

Mr. Sashin Maharaj

Contents PageIntroduction

Risk planning

Investment planning

Business Assurance

Tax planning

Retirement planning

Estate planning

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Mr. Sashin Maharaj

Conclusion

Financial PlanPrepared for:

Mr. Sashin Maharaj

Prepared by:Maximus Financial Advisors (PTY) Ltd

South Africa

Johannesburg

Sandton

121 Fredman Drive

2021

Tel: 011 876 5432

Fax: 011 234 5678

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Mr. Sashin Maharaj

[email protected] October 2011

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mailto:[email protected]

Mr. Sashin Maharaj

INTRODUCTION

Dear Mr Maharaj

The team, which will advise you and implement, our recommendations consist of:

Delano Conradie Bcom Financial Managemet Honours (UJ)

Faheem Suffla Bcom Financial Planning Honours (UJ)

Lwazi Nkuhlu Bcom Investment Honours (UJ)

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Introduction

Mr. Sashin Maharaj

Statutory Requirements

At Maximus Financial Advisors (PTY) Ltd we strive as advisors to give our clients the best possible portfolios revolving around the following requirements.

Establish a professional relationship with the client Gathering of information relation to goals Determine financial postion Present recommendations and alternatives Implementation of recommendations Monitoring and recommendation updating

Maximus Financial Advisors (PTY) Ltd is part of the Financial Planning Institute and it is therefore our duty to follow strict and regulated code of ethics and professional responsibility. We follow the statutory requirements

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FAIS Act 37 of 2002

FICA Act 38 of 2001

PROCDATARA Act 33 of 2004

Professional Relationship

It is the responsibility of the advisor and client to determine at what speed decisions regarding the handling of the clients need must be implemented. All decisions and intentions of both parties should be documented and saved on both hard and electronic copy.

Information

All relevant information must be collected and compiled and presented to the client. All anomalies must be taken into consideration including the client’s own wants and expected needs. Decisions should be made revolving the goals and financial position.

Financial Position

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All current investments, cash in/out flows, tax position, current insurance and other relevant aspects need to be heavily evaluated in order to get the greatest benefit from all benefits for the long and short term.

Recommendations and Alternatives

Based on the information compiled and received, decisions should be made. Recommendations should be discussed with the client so that he can make informed decisions as well as give his input. From that all recommendations should be revised.

Implementation

The client is able to implement his own course of action from what was discussed and agreed upon and use the advisor as a mentor or leader. He may also let the advisor do everything on his behalf at a pace decided by the two of them.

Monitoring and Revision

It should be discussed between client and advisor how often a revision of the current recommendations should take place. It should happen periodically in order to maintain a clear vision of where the client is going and continues to expect to go.

Code of Ethics

Confidentiality

Professionalism

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Objectivity

Integrity

Fair and Honest Disclosure

Prospects for the Future

As a team of analysts we have done an in depth analysis of you as an individual and your financial position taking your views in the short and long term horizon into consideration.

We have taken your current standing and position and based upon that we provided you with information on where we expect you to be. We have measured your ability to take risk and incorporated it with your willingness to incur risk, and from that recommended your financial path from this point on.

We take into consideration all income, assets, equity, expenses, liabilities and other sources of income and expenses to attain a picture for the future. Any divergences from the prescribed recommendations or problems incurred in the future will be reassessed and rectified according the to your current position.

All services are charged at a percentage of annual income, which will be discussed and negotiated between the client and the company.

Company Profiling and Expectations

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Maximus Financial Advisors (PTY) Ltd is a company, which has strived towards creating a name for itself where by it puts the client and his needs above all. To create a real world, achievable outcome based on every individuals individual needs and goals.

It has been of out most importance for us to create and environment where all our analysts work together to achieve the best possible outcome. Continually allowing them to grow and contribute to a great firm creating great results.

Each client is dealt with as an individual and the number one goal is to create a simplified solution so that there is one less stressful factor in our client’s lives.

The current working climate is one of a fast paced nature, which demands the highest degree of self discipline from our advisors which is why we only hire the best. This naturally allows our employees to grow and learn within themselves indirectly forcing them to uphold the ethics and principals of our high strenuous and competitive industry.

All factors mentioned above are the foundations to a great company who puts the people they exist for as their number one priority. Only the best can be promised which is why we are the only choice when it comes to financial planners.

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Financial Planners Ombundsman

Each FSP is assigned a compliance officer who has certain responsibilities which include

Regular audits Creating a culture of honesty Attending monthly meetings Training to new staff Implementing and monitoring systems and procedures

In order for the requirements of the act to be followed by the business, a compliance officer is important.

All discretions or disputes between the client and advisors will be handled through the FAIS and Ombud.

FAIS complaints procedure

Formal written letter All information relating to specific dispute Response term is also granted to the FAIS

The complaint will thereafter be thoroughly investigated and if the Financial Service Provider is found to have transgressed in terms of

Financial loss or damage incurred due to deviation or failure to comply to FAIS provisions Financial loss or damage due to irresponsible handling of the client

The FAiS Ombud may decide on the following outcomes based on their decision

Dismissal of complaint Continuation of contract Court order

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Dismissal can be order if

Insufficient proof Outside of court deal It is already under trial in court

1. Background Mr Maharaj approached us (Maximus Financial Advisors (Pty) Ltd) for assistance with his financial planning. Mr Maharaj is married to Mrs Maharaj for 25 years by ante nuptial contract (A.N.C.) subject to the accrual system. The A.N.C. provides for: • A life policy to the value of R1 000 000 to be taken out on Mr Maharaja’s life for the benefit of each child that may be born from the marriage. • A holiday home to the value of R1 500 000 to be donated by Mrs Maharaj to Anne. • Any assets inherited or donated to Mr Maharaj or Anne not to be subject to marital power. • Assets introduced into the marriage to be adjusted for inflation at time that marriage is dissolved. The commencement value of Mr Maharaj’s estate at the time of the marriage was R500 000 and that of Mrs Maharaj was R600 000, the CPI at the time of the marriage was 120 and stands at 615 today.

They have two children, Roshini and Romano. Dates of birth are as follows: • Sashin was born on the 10th of January 1965. • Jerusha was born on the 11th of March 1966. • Roshini was born on the 22nd of February 1993. • Romano was born on the 20th of March 1995.

Both Mr Maharaj and Mrs Maharaj have been very successful in their careers with Mr Maharaj being a senior executive at Didata Holdings Limited and Mrs Maharaj being an account executive with the Advertising firm Ogilvy Thompson.

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2. The statement of financial position of Sashin Maharaj and Jerusha Maharaj as at 31 December 2010 reflected the following:

SASHIN JERUSHA

Assets R Assets RHouse in Bryanston 3 000 000 Paintings & Antique

Furniture1 250 000

Holiday home in Belvedere 1 500 000 Old Mutual Resources fund 730 000Bare dominium “Mooizicht”Furniture 600 000 Jewellery 300 000Vehicles 800 000 Vehicle 350 0003 500 ABSA shares 378 525 Cash in the bank 78 00050% Spectrum Paints (Pty) Ltd 500 000Loan Spectrum Paints (Pty)Ltd 600 000Absa Money market 3 500 000Life Assurance: Life Assurance:Policy – Estate as beneficiary 2 600 000 Policy on Sashin’s Life 1 500 000Policy – Roshini as beneficiary 1 000 000Policy –Romano as beneficiary 1 000 000Retirement Benefits: Retirement Benefits:Pension fund value 3 800 000 Provident fund value 600 000Liabilities LiabilitiesHP on vehicles 445 100 HP on vehicle 300 000Credit card 22 000 Credit Card 42 000

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Bond on Bryanston Property 1 700 000 Edgars 15 000Bond on Holiday home 1 000 000 TruWorths 24 000

Woolworths 28 000

3. Notes to the statement of financial position

3.1 Investment in Spectrum Paints (Pty) Ltd. : The company operates as a retailer selling domestic paints and accessories to the residential market on the West Rand. Sashin provided the start-up capital and his fellow shareholder (50%) Christopher Birdstein (60 yrs. a.n.b.) operates the business. Sashin is concerned that the business will suffer in case of Christopher Birdstein retiring or even worse in case of his untimely death as neither of them have relatives that are interested in joining the business. They have employed Peter Cox (28 yrs. a.n.b.) as a backup for Christopher Birdstein and he definitely has the potential to take over from John. To ensure his commitment they believe he should get a 20% interest in the business should he be required to take over but as he has no assets of any significance Sashin has asked you for advice on how they should handle the situation. The value of the Company is expected to grow by 8% per annum. Shareholder loans are not subject to interest and no repayment arrangements have been agreed upon. The company meets the qualifying criteria for a small business.

3.2 Hire Purchase on vehicles Sashin has financed his vehicle costing R500 000 on the 1/3/2010 over 60 months at 9% n.a.c.m. with a residual value of R100 000.

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Jerusha has financed her vehicle costing R400 000 on the 1/3/2010 over 60 months at 9% n.a.c.m. with a residual value of R50 000. 3.3 Bare Dominium “Mooizicht”

When Sashin’s father died exactly five years ago he bequeathed the farm “Mooizicht” in the district of Bela Bela to Sashin subject to a lifelong usufruct in favour of Sashin’s brother Tom who was 60 at the time of his father’s death. No estate duty was paid by the estate of Sashin’s father and the farm was valued as a bona fide farming operation at R1 500 000. Tom has indicated that he wants to retire at the age of 70 and will then be prepared to agree to the cancelation of the usufruct in his favour, provided Sashin provides him with a monthly annuity equal to 12% of the bona fide value of the farm (which it is estimated will grow to approximately R2 842 257 by that time). Sashin has agreed to it and wants to start an investment plan now so that he will have the required cash available when it is required in order to provide for the monthly income. The farm is currently worth R2 064 797.

3.4 Absa Money market The account attracts interest at an average interest rate of 6.25% n.a.c.m. For calculation purposes, the net after tax return will remain the same as for the current year.

3.5 Gold coins

Sashin sold his gold coins in March 2011 for R350 000. He bought the coins in March 1999 for R50 000. The market value of the gold coins on 1 October 2001 was R88 000.

3.6 Pension fund

Sashin’s pension fund is invested in 50% money market, 20% bonds and 30% shares.

4.MonthlyStatement of comprehensive income: Maharaj familyIncome RSalary–Sashin (Includes Non-pensionable travel allowance of 20%) 78000

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Salary–Jerusha (Includes Non-pensionable travel allowance of 20%) 52000Interest on Money market funds for Jerusha 18900

Total 148900ExpensesBond on Bryanston house 15900Bond on Belvedere property 9360HP on vehicle(Sashin) 9050HP on vehicle (Jerusha) 7640Payment of credit card (Sashin) 14800Payment of credit card (Jerusha) 12000Municipal bills 3900Household Expenses 7000Traveling expenses: Sachin’s vehicle 2460Jerusha’s vehicle 2200Policy on Sashin’s Life by Jerusha (taken out5 years ago) 1200Insurance (see below) 2750MedicalAid contribution (Discovery) 4800Holiday and entertainment provision 6000Cell phones 3000Sashin’s Pension fund contribution 4200Jerusha’s Provident fund contribution 3000Monthly donation to S.P.C.A for which 18A certificate is issued 1000P.A.Y.E. –Sashin 18000P.A.Y.E. Jerusha 12000Total 140260

4.1 Monthly premiums on Insurance

Vehicle Sashin R 700Vehicle Jerusha R 500Bryanston property (Fire policy) R 400Holiday home (Fire policy) R 350Content Bryanston home R 400Content Holiday home R 400

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4.2 Vehicles The following table is a summary of detailed logbooks kept by Sashin and Jerusha in terms of kilometres travelled and expenses incurred in respect of their vehicles for the period 1March 2011 to 28 February 2012.

Vehicle Business Km Private Km Total Km Fuel Maintenance

Sashin 16500 18000 34500 27600 1950Jerusha 17000 15100 32100 24650 1750

4.3 Medical expenses During the current tax year Sashin had to pay R26 000 additional to the R20 000 paid by Discovery for a hearing aid for his wife Jerusha. The risk contribution of medical aid is made up as follows:

Principal member: R1 400 p.m. Spouse: R1 100 p.m. Per child dependant: R 550 p.m.

5. Investment Requirements

5.1 Overseas holiday

In 5 years Sashin wants to take the family on an overseas holiday. The cost of the trip currently is R125 000 and will increase by 8% per annum. 17 | P A G E


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5.2 University studies

Sashin would like to start investing now to provide for the children’s education. They will study from age 19 for 4 years. Study cost at present is R25 000 per annum with education inflation at 8%.

5.3 Acquiring usufruct over farm “Mooizicht” in the Bela Bela district.

The capital sum that will be required to provide a monthly annuity based on 12% of the market value for life to his brother Tom as per note above.

6. Retirement Needs

Sashin wants to retire in 15 years and he has asked you to calculate whether he and his wife will be adequately provided for under the following conditions:•Sashin’s current contribution to his pension fund will increase by 7%p.a.•Living expenses to increase by 5%per annum.•Living expenses to reduce by 20% when children have completed their studies.•Jerusha to retire in 10years’ time. The after tax proceeds of her provident fund will be used to pay debt. This will result in a further reduction of the living expensesby10% at that time.•When Sashin retires, living expenses is to reduce by another 10% and the monthly pension required is to be calculated based on Jerusha’s life expectancy plus a safety factor of 10 years.•Return on all investments except money market, ABSA shares and Spectrum Paints to be taken at 9%per annum.•Sashin would like you to calculate the expected value of his ABSA shares investment which is to grow by 7% as well as the value of the Spectrum Paints investment as per the guidelines from the auditor. However both these investments must not be considered in his retirement plan. He regards them as a safety buffer.

7.MaharajFamily trust

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Seven years ago Sashin established a discretionary family trust for the benefit of his spouse Jerusha, himself and any children born from their marriage.

Jerusha’s father Chris Ball donated a block of flats to the trust.

Sashin and Jerusha together with a representative from a Trust company are the trustees of the trust. The trustees’ remuneration is paid in equal shares between them.

To date all income after expenses has been paid to Sashin and Jerusha on a 50 : 50 basis. The trust’s abridged statement of comprehensive income for the period 1 March 2011 to 28 February 2012:

Rent earned from block of flats 380 000 Maintenance – flats 36 000 Trustees’ remuneration (to be paid before any distribution) 48 000 Rates and taxes 64 000 Insurance 20 000

8. Personal Risk

Sashin is concerned that in case of his sudden death there will be insufficient funds to provide adequately for Jerusha and the children and gives you the following wish list. In the case of his death: • He wants all liabilities (cars and bonds) to be repaid from life insurance in his name. • He estimates that the current living expenses should reduce to R61 850 • Jerusha will live from her income until she retires in 10 years’ time. Her income and contribution to her Provident fund should increase by 7% p.a. The fund should get a return on average of 9%p.a. • He asked you to calculate the capital required in case of his death today bearing in mind the needs indicated in the Retirement section (5 above) and assuming that Jerusha will use two thirds of her Provident fund value at retirement to invest in a living annuity with a withdrawal rate of 8% and return of 9%.

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• The current value in Sashin’s defined contribution pension fund will be available as a living annuity and Sashin wants you to use 8% as a withdrawal rate as the fund should also achieve a return of 9%.

9. Estate requirements

9.1 Last will and testament In terms of Sashin’s will he bequeath the primary residence to his spouse, R500 000 to each child and the residue to his spouse. From your discussions with them it transpires that they prefer a joint will providing for: - Surviving spouse to inherit residential property, furniture, paintings and vehicles. - It is their dream that the holiday home and farm is to remain in the family for generations to come. - The S.P.C.A. to receive a cash legacy of R500 000. - The balance of the estate is to be divided equally between the surviving spouse and children.

9.2 The following table reflects relevant data regarding assets of a capital nature.

Asset Date Purchased and price Value 1/10/2001 ImprovementsHouse in Bryanston 1/6/96 R500 000 R1 200 000 R500 000 Nov99Holiday home 1/8/00 R400 000 R600 000 NILPaintings & Antiques 1999 R700 000 R800 000 NILABSA Shares 1/06/9760% Spectrum Paints (Pty)Ltd.

June 98 R100 000 NIL

Old Mutual Resources Fund

1/3/2001 R300 000 R520 000 NONE

Absa Money market Investment A/C Continuous Fluctuating

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Spectrum Paints (Pty) Ltd

Balance Sheet as at 31st December 2010

Assets

Notes 2010 2009

Non-Current Assets

Property, plant and equipment

2 R 2 000 000 R 2 000 000

Vehicles 3 R 800 000 R 850 000

Current AssetsAccounts receivable R 500 000 R 250 000Stock consisting of finished goods R 1 400 000 R 850 000Cash and cash equivalents R 100 000 R 200 000

Total Assets R 4 800 000 R 4 150 000

Equity and Liabilities

Equity attributable to ownersShare Capital 4 R 1 000 R 1000

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Retained earnings R 199 000 R 90 000

Non-Current LiabilitiesLong term liabilities 5 R 1 440 000 R 1 600 000Member’s loans 5 R 1 800 000 R 1 800 000

Current LiabilitiesCreditors R 950 000 R 399 000Current portion of long-term borrowings

R 260 000 R 260 000

Current tax payable R 150 000 NIL

Total equity and liabilities R 4 800 000 R 4 150 000


Income statement as at 31 December 2010 Notes

2010 2009

Income R 5 450 000 R 4 825 000Cost of sales (R 2 800 000) (R 2 475 000)

Operating (Loss) / Profit R 2 650 000 R 2 350 000

Financing costs ( R 62 000)(R 69 900)

Other expenses 6 (R 2 388 000) (R 2 201 242)

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Net Profit R 200 000 R 78 858S.A. Normal tax @ 28% (R 56 000) (R 22 058)

Profit after tax R 144 000 R 56 800

Share Capital

Authorised 2010 2009 - 100 ordinary shares @ R 10 each R 1 000 R 1 000

Issued - 50 ordinary shares @ R 10 each to S Maharaj R 500 R 500 - 50 ordinary shares @ R 10 each to C Birdstein R 500 R 500

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Long term liabilities 2010 2009

Absa Loan over Property, Secured by Mortgage Bond for 10 years, interest @ 10%.Annual terms of payment

R 260 000.Suretyship from shareholders in proportion to shareholding.

R 1 440 000 R 1 600 000

Sashin Maharaj. Unsecured, interest free with no fixed terms of repayment.

R 600 000 R 600 000

Christopher Birdstein. Unsecured, interest free with no fixed terms of repayment.

R 1 200 000 R 1 200 000

R 3 240 000 R 3 400 000

Schedule of expenses 2010 2009

Salaries and wages R1 565 000 R 1 457 500Water and electricity R 50 000 R 40 000Telephone R 49 500 R 46 000Depreciation R 50 000 R 50 000Stationary R 2 000 R 3 000Advertising R 351 500 R 309 742Insurance R 30 000 R 30 000Vehicle Expenses R 290 000 R 265 000

Total expenses R 2 388 000 R 2 201 242

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Spectrum Paints (Pty) LtdRegistration Number 1992 / 037396 / 23 Annual Financial StatementsFor the year

ending 31st December 2010


Annual Financial StatementsFor the year ending 31st December 2010

The reports and statements set out below comprise the annual financial statements presented to members:

Index Page

Report of independent auditors 27 Report of the directors 28 Balance sheet 29 Income Statement 29

30 - 31The financial statements were approved by the directors on 10 February 2011.


Mr. Sashin Mahara

Report of the Independent Auditors to the shareholders of Spectrum Paints (Pty) Ltd.

We have audited the annual financial statements of Spectrum Paints (Pty) Ltd. for the year ended 31st December 2010. These financial statements are the responsibility of the company’s director. Our responsibility is to express an opinion on these financial statements based on our audit.

Audit opinion

In our opinion, the financial statements fairly present, in all material respects, the financial position of the company at 28 February 2010 and the results of its operations and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice, and in the manner required by the Companies Act in South Africa.

The company trade in a profitable position for the financial year ending 31st December 2010, seeing that its assets exceed its liabilities.

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Report of the directorsFor the year ending 31st December 2010

The director presents his report for the year ended 31st December 2010. This report forms part of the audited financial statements.

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Sashin Maharaj – 50% Christopher Birdstein - 50%

The DirectorsSpectrum Paints (Pty) Ltd. West RandDear Sirs,

APPENDIX D30th December 2010

Valuation of CompanyRegarding your enquiry regarding the valuation of the shares to support a Buy and Sell

Agreement we advise that we are of the opinion that “Super Profit” valuation method should be used to determine a value for goodwill which together with value of assets less liabilities will give a value for equity . This amount divided by the number of issued shares will provide a value per share.

In the retail paint business it is normal to use the following when determining value of goodwill.Expected return on “equity” = 12%. In the case of a private company with a shareholder loan and capital structure as yours then “equity” = capital plus shareholder loans. Super profit = Actual profit – expected profit. Actual profit is the average after tax profit for the last 3 years.

The super profit is then discounted at 15% for 5 years to a Present value. This is the value of goodwill to be added to asset value and

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then subtract liabilities to get value of business.The percentages indicated above are obviously dependent on market conditions and investor expectations.

SIGNED FURTER and CARSTENS

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Introduction and Aspects of Risk Planning

Risk is the condition in which there is a possibility of an adverse deviation from a desired outcome that is hoped for.

Risk is a phenomenon that confronts us all in different ways, both as individuals and within businesses.

The types of personal risk that can affect Mr. Maharaj:

Risks associated with his family e.g illness of a family member

Risks associated with business e.g death of a key person in the business

Property risks e.g loss of property due to fire

Liability risk e.g being held legally responsible for damages

Investment risk e.g devaluation of shares

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Insurance

Insurance is an agreement where, for an agreed payment, called the premium one party the insurer) agrees to pay to the other (the policyholder or their beneficiary a defined amount upon the occurrence of a specific loss or event.

Insurance is ultimately a pooling of risks, because many people with similar risks contribute their premiums to an insurance company and hopefully only a few of them will suffer loss at a particular time.

Parties to the insurance contract

Insurer

The insurer is the one who accepts the risk of the insurance policy and promises to pay a sum of money when an insured event such as death, disability or theft occurs, as stated in the insurance contract

Policy holder/ owner

The policyholder is the owner of the policy. The owner can deal with the policy in any way including cancelling, ceding or nominating a beneficiary surrendering the policy.

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Beneficiary

This is the person who is nominated by the policy owner to receive the proceeds, for example in the event of the life insured’s death.

Indemnity and non-indemnity insurance

Indemnity insurance is insurance where the insurer will cover the amount of the actual loss that has been suffered. It usually covers against an uncertain event.

Non-indemnity insurance (also called capital insurance) is insurance where the insurer undertakes to pay a specified amount upon the happening of an event, the timing of which is uncertain.

Duty of good faith

An insurance contract, for all types of insurance, can be said to be a contract of good faith. This good faith exists between the insurer and the insured that the prospective insured will disclose all material facts that would affect acceptance of risk in terms on which the risk is accepted, for example the premium.

Average

The principle of average is a provision that has the effect of reducing a claim payment where under-insurance exists. Underinsurance can be defined as where a person takes out insurance for a sum insured less than the value at risk.

Contribution

The principle of contribution is also known as the doctrine of proportionate contribution, which is applicable to indemnity insurance.

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Short term insurance

The main function is to protect you from unforeseen events, normally involving patrimonial loss. The aim is to put in the same financial position as though the loss did not happen, you should not profit from the loss.

Long term insurance

Life policy is a contract in terms of which a person, in return for a premium, undertakes to provide policy benefits upon, and exclusively as a result of, a life event or pay an annuity for a period and includes a reinsurance policy in respect of such a contract.

Health policies

In case of a health policy, the insurer undertakes, in return for a premium, to provide policy benefits on the occurrence of a health event. A health event is an event relating to the health of the mind or body of a person born or unborn.

Disability policies

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A disability policy is defined as a contract in terms of which the insurer undertakes to provide policy benefits upon a disability event. Disability event means the impairment of the functional ability of a person or an unborn.

A sinking fund policy

A sinking fund policy is defines as a contract, other than a life policy, in terms of which a person, in return for a premium, undertakes or provide one or more sums of money, on a fixed or determinable future date, as policy benefits; and includes a reinsurance policy in respect of such a contract.

Personal risk plan

Living expenses

Bond on Bryanston house eliminated

Bond on Belvedere property eliminated

HP on vehicle (Sashin) eliminated

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HP on vehicle (Jerusha) 7640

Payment on credit card (Sashin) eliminated

Payment on credit card (Jerusha) 12 000

Municipal bills 3900

Household expenses 7000

Travelling expenses: Sashin’s vehicle eliminated

Jerusha’s vehicle 2200

Policy on sashin’s life by Jerusha eliminated

Insurance 500

Medical Aid contribution 3400

Holiday and entertainment provision 6000

Cell phones 3000

Sashin’s pension fund contribution eliminated

Jerusha’s Provident fund contribution 3000

Monthly donation to S.P.C.A 1000

P.A.Y.E Sashin eliminated

P.A.Y.E Jerusha 12000

Total 61 640

Living expense for the next 15 years= 61640*80%= 49 312

49312- 7000(household expenses)=42 312

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PV for first year

P/Y=12 C/Y=1 END

N=12

I/Y= 13

FV= 0

PMT= 42312

CPT PV= 475 512.96

Resultant rate= (1+i/1+e) -1 * 100

=(1+0.13/1+0.07) -1 *100

= 5.6075%

P/Y= 1 C/Y=1 BGN

N=15

I/Y=5.6075

PMT= 475 512.96

FV= 0

CPT PV= 5 004 828.27 living expenses for the first 15 years

Living expenses are expected to be R61 850 per month.

61 850*80%= 49 480

49 480 in 15 years @ 7%

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P/Y=1 C/Y=1 BGN/END

N=15

I/Y=7 (inflation rate)

PV= 49 480

CPT FV= 136 516.88

136 516.88*50%= 68 258.44 per month after 15 years

68 258.44 for (33.316-15) = 18.316 years

P/Y=12 C/Y=1 END

N=12

I/Y= 13

PMT= 68 258.44

FV=0

CPT PV= 767 105.62

Resultant rate= 5.6075%

P/Y=1 C/Y=1 BGN

N=18.316

I/Y= 5.6075

PMT= 767 105.62

FV= 0

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CPT PV= 9 128 620.62

Discount to today from 15 years

P/Y=12 C/Y=1 BGN/END

N=180 months (15*12)

I/Y= 13

PMT= 0

FV= 9 128 620.62

CPT PV= -1 459 582.03 (living expenses for Mrs. Maharaj for the rest of her life)

Total living expenses required is R6 465 410.30 (R5 004 828.27+ R1 459 582.03)

Mr. Maharaj has the following debt that has to paid off in the event of his sudden death:

Liabilities 3 167 100

Living expenses 6 465 410.30

Total needed at death 9 631 510.30

Shortfall = 3700 000- 9631510.30

= 5 931 510.30

A policy of R5 931 510.30 should be taken out to account for the shortfall should Mr. Maharaj pass away.

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R9 631 510.30 is what Mr. Maharaj needs in order for his family to pay off his debts and for his wife and children to maintain the life that they have now.

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Risk inventory

Type of risk Level of risk Risk handling methodPersonal risk:Loss of income due to death Critical Transfer risk by means of life

insuranceLoss of income due to disability

Critical Transfer the risk by means of disability insurance

Loss of financial assets due to cost of illness

Critical Transfer risk by means of becoming a member of a medical scheme

Property risk:Damage to home/property Important Transfer risk by means of

insurance policies on all property

Damage to vehicles Important Transfer risk by means of motor insurance

Damage to personal property

Important Transfer the risk by means of short-term insurance

Liability risk:

Due to home/property Unimportant Retain the risk

Due to vehicles Important Transfer the risk by mans of short term insurance

Due to credits Unimportant Retain the risk

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Recommendation

Mr. Maharaj should also provide for disability in case of unexpected death. Mr. Maharaj wants all his liabilities (cars and bonds) to be repaid from a life insurance in his name, we recommend that either he or his wife should take out a Life Insurance policy on his life as soon as possible in the event of his unexpected death, with an amount that will cover all his liabilities.

He will also need Insurance for his business. Business risk can have an impact on personal risk and should be mentioned in any risk plan.

In the event of the death or disability of his partner Christopher Birdstein, he will have to take over the running of the business alone, collect from debtors and pay creditors. As this be viewed as his personal assets he must create a trust so a to protect his personal assets in case of the business going insolvent or being liquidated.

Also his investments are at risk in case of investment devaluation. So Mr. Maharaj should take out a trust mortis causa, so that his assets can be protected from devaluation and his wife and children can received the benefits from his assets event in the event of devaluation. They can also be his trustees.

He should be careful when constructing his retirement plan because this can either lead to a peaceful retirement or worrisome one where he constantly will have to worry about shortfalls.

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Mr. Maharaj also needs to provide for his children’s education. So, he must investment properly so as to be able to provide for his children’s educational needs. His investments must then be protected by means of taking out an inter vivos trust, with his children as benefactors.

Also he should take care with the amount any way that he insures his properties so as not to disadvantage his family when his estate duty has to be paid.

Mr. Maharaj should also take out a trust to protect his assets (property, cars), in case his business should fall on hard times and become insolvent or be liquidated. To insured that his family doesn’t suffer if his business should fail.

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INVESTMENT PLANNING

The main objective to investment planning is the need to generate as much income and wealth on an initial investment.

The proceeds generated from this initial investment are referred to as the rate of return of an investment, which ideally is expressed as a percentage of the original initial value of the investment.

However, there is a simple counteract to only just receiving a return and this is known as risk. Risk is the analysis of uncertainty that arises when an investor purchases or invests in a specific financial asset.

Buyers of financial assets or non current assets, (property, shares, policies, gold bonds, etc.), are usually concerned with purchasing these instruments at a low rate of return in essence to produce a higher remuneration of an escalated sales price, maximum possible dividends and or a substantial interest and rent

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INVESTMENT PLANNING

Mr. Sashin Mahara

income. Lenders or traders of financial instruments sell or borrow out such instruments usually at a higher rate to enhance opportunities of receiving a greater rate of return that is also referred to as the yield on the investment.

The purpose of this section, with reference to Mr. Maharaj, is to create a portfolio investment for the effective future planning of his necessary goals and needs. Mr. Maharaj’s investment plan requires enough return on his capital to compensate for the well being of his family, to go for overseas vacation, to pay the obligation of his children’s tertiary education as well as to provide a monthly annuity for his brother upon the usufruct right he has acquired before and after his demise.

Investment management is structure into many fundamental classes which each have their own procedures, underlying assumptions as well as rules, rights and principles. Mr. Maharaj’s portfolio will thus contain the following fundamental classes:

50% shareholder in Spectrum Paints (Pty) Ltd The ABSA Money Market Properties Bonds and Gilts

INVESTMENT REQUIREMENTS:

Shares in Companies

Mr Sashin Maharaj owns 3 500 shares in ABSA Bank Limited which is valued at R 378 525 at the current financial period ended on 31 December 2010.ABSA Bank Limited is a listed company on the Johannesburg Stock Exchange (JSE) and is one of the leading financial service providers in the country as well as the continent. ABSA provides consolidated group

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statements which show that many successful and profitable companies who are in operation are maintained by ABSA Bank Limited.

The information produced is the graph above, proves to the investor that ABSA will and cannot be easily liquidated. The earnings and dividends per share are continuously and constantly increasing and stabilizes well after the recession that the world faced a year or two ago. With the information given above and the portfolio of Mr Sashin, he effectively needs to cater for his children’s, Roshini and Romano, tertiary education as calculated below:

Capital Required for his children’s tertiary education:

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James’ age: 1995 to 2011 = 16 years of ageAlice’s age: 1993 to 2011 = 18 years of age

Resultant Rate = 1.09 – 1.08 = 0.92593%

James’ Education Alice’s Education

PV = 25 000I/Y = 8 %N = 3 YEARSPMT = 0CPT FV = R 31 493

PMT = (31 492.80)I/Y = 0.92593%N = 4 yearsFV = 0Cpt PV = R 124 248

PV = 25 000I/Y = 8 %N = 1 YEARPMT = 0CPT FV = R 27 000

PMT = (27 000)I/Y = 0.92593%N = 4 yearsFV = 0Cpt PV = R 106 523

Thus the total capital required to cater for his children’s future tertiary education is equal to R 230 771 (106 523 + 124 248)

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The money market

ABSA Money Market

The money market is a well recognised financial instrument dealing with short term investments, less than a year, and reaching maturity dates of shorter time periods.

Due to the fact that Sashin and his wife, Jerusha, are highly qualified individuals, Sashin being a senior executive of Didata Holdings Limited and Jerusha being an accountant of Ogilvy Thompson, it can be assumed that as high positions of business status’ are attributed towards the couple who receives a steady monthly guaranteed incomes. It can also ne stated that such high executive positions normally relies on financial soundness, punctuality, determination to succeed and thus relates majority of people being risk-seekers as they are financially backed.

Mr Sashin, as an individual, has already invested R3 500 000 in the ABSA Money Market as at 31 December 2010 and thus enjoys an average interest rate of 6.25% nacm.

2nd Function DateDate 1 = 01.1065 Date 2 = 12.3110DBD = 16 791 days16 791/365 = 46 years

As calculated above, Sashin is currently 46 years of age and wants to retire in 15 years time at the age of 61 but has many investment needs to satisfy before he retires. Thus the calculation for the current Money Market Investment until he retires is as follows:

P/Y= 12 C/Y= 12 END MODEPV= (3 500 000)N= 180 months (15x12)I/Y= 6.25

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FV= 0Cpt PMT = 30 009.80

This calculation states that he will be able to withdraw R 30 009.80 each year until he retires.

Sashin is, however, required to pay out a monthly annuity to his brother Tom for the remainder of his life equal to 12% of the market value as he inherited the usufruct right of a farm “Mooizicht” in the Bela-Bela district.

The Capital required for this Annuity is calculated as follows:

Annuity Rate: 12%MV: R 2 842 257THUS = R 341 071 per annum = (341071/12) R 28 423 per month

Resultant Rate = [(1+i)/ (1+e) – 1] x 100Interest= 6.25%Inflation= 6.6%RR= 0.2347%

Tom was 60years old when his father had past away and thus the life expectancy after his next birthday worked out to be 9.37 years.

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Pmt = R 341 071N = 9.37 yearsI/Y = 0.2347%FV = R 3 227 000Cpt PV = R 486 000

Investment in Several Properties

Mr Sashin has invested in bonds on two of his properties. This investment can thus result in capital appreciation as well as rental income. The initial investment on his primary residence is worth R 3 000 000 and a further R 1 500 000 on his holiday home in Belvedere. This is subjected to change yearly due to fair value re-measurements and thus with the current market conditions, property prices are growing continuously and will slowly steady in future years.

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With reference to the holiday home in Belvedere, the situation of this property is “prime” as it’s in the well recognised and renowned beauty of the Garden Route of South Africa. WE suggest that full advantage can be taken of this holiday home and could be rented out to holiday makers during peak seasons as well as roughly throughout the year.

The Holiday Home in Belvedere is approximately 280m2, three bedrooms, six sleeper and has two bathrooms.

Prices of property in the coastal regions of South Africa are valued at a premium compared to inland properties in the country. The current value of the Belvedere property is approximately R 5 500 per square meter and should increase annually by at least 4 %.With reference to the holiday seasons of South Africa, 10 weeks of Holidays can be allocated to the year and by subtracting the weeks Sashin has put away for his family, a minimum of 6 peak weeks and 5 off-peak weeks can be subjected to rental income during Sashin’s financial year. The calculation of this rental income is as follows:

SEASON WEEKS PRICE PER DAY TOTAL INCOMEPeak 6x5days = 30 R 1 500 R 45 000Off-Peak 5x5days = 25 R 1 000 R 25 000

R 70 000With reference to the calculation above, a MINIMUM of R 70 000 can be received as rental income which can be used to pay off the bond liabilities quicker as well as an easier way of settling his investment needs.

Bonds and Gilts

A bond is a formal contract in which a borrower receives money from a lender and this money is paid back to the lender at intervals with interest.It is also a debt security which requires formalities such as terms of the contract, exact maturity dates as well as coupon rates and maturity levels.

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Mr Sashin, as an individual, has two bond contracts taken out on his name as at 31 December 2010, the first one being a priority on his primary residence in Bryanston which is in debit of R1 700 000. The second bond is on a holiday home in Belvedere at which the bond is currently valued at R 1 000 000.

Prime Interest RatesSouth African Home Loans Interest Rates, since Jan 4 1999.

25 Mar 10 10.00% 20 Aug 07 13.50% 15 Aug 03 14.50% 16 Aug 99 16.50%

14 Aug 09 10.50% 11 Jun 07 13.00% 13 Jun 03 15.50% 14 Jul 99 17.50%

28 May 09

11.00% 11 Dec 06 12.50% 13 Sep 02 17.00% 02 Jul 99 18.00%

04 May 09

12.00% 13 Oct 06 12.00% 14 Jun 02 16.00% 03 May 99

19.00%

24 Mar 09 13.00% 03 Aug 06 11.50% 18 Mar 02

15.00% 02 Apr 99 20.00%

06 Feb 09 14.00% 12 Jun 06 11.00% 16 Jan 02 14.00% 02 Mar 99 21.00%

12 Dec 08 15.00% 18 Apr 05 10.50% 01 Oct 01 13.00% 02 Feb 99 22.00%

13 Jun 08 15.50% 16 Aug 04 11.00% 16 Jul 01 13.50% 04 Jan 99 22.75%

11 Apr 08 15.00% 15 Dec 03 11.50% 18 Jun 01 13.75%

07 Dec 07 14.50% 20 Oct 03 12.00% 01 Feb 00 14.50%

15 Oct 07 14.00% 15 Sept 03 13.50% 04 Oct 99 15.50%

The current prime interest rate on home loans and property bonds are 9.0 %

respectively.

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Due to the fact that Mr Sashin is planning a holiday for his family in 5 years time, the results of paying his debt off will allow him to cater for such a luxury. The total trip would cost R 125 000 today but will increase by 8% per annum and thus can be calculated as follows:

Capital required for Overseas Vacation:

A total amount of R 183 666 will be required in 5 years time to pay for the vacation for his family.

P/Y=1 C/Y=1 END MODEPV= R 125 000I/Y= 8%N= 5 YEARSPMT=CPT FV=

0R -183 666

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Summary of Sashin’s Investment portfolioHoliday Home in BelvedereThis asset is currently worth R 1500 000 and consists of 21 % in the investment portfolio. Since it is a non-current asset of Property it is illiquid and cannot be transferred to cash overnight. The risk on the asset can be calculated as an average point depending majority on the market and economy of the country. Property does not generate income unless it is rented out. However, it can reap profits on the sale of the asset which is subjected to Capital Gains Tax on the asset.ABSA SharesThese share produce 5% 0f the investment portfolio of Mr Sashin with respectable market value of R 378 525. Markets a very volatile and thus is very risky which effectively create higher returns which are known as dividends. These shares and dividends are liquid can be cashed out at anytime but upon sale are subjected to Dividend Tax as well as Capital Gains Tax.50% Shareholder of Spectrum Paints (Pty) LtdSince Sashin is the joint partner in the company which is currently worth R 500 000 at market value, it completes 7% of his investment portfolio. He also receives remuneration in the form of a salary and therefore in subjected to income tax. The company is illiquid and is subjected to Capital Gains Tax upon the sale of the business.Loan from Spectrum Paints (Pty) LtdSashin, as the partner of the company, has taken out a loan from the company to the value of R 600 000 which has to be income taxed as it is in his hands. It comprise of 8% of his investment portfolio and does not reap any benefits in terms of remuneration.ABSA Money MarketThe Money Market is a conservative fund with a reasonable return which consist of the majority of Sashin’s investment portfolio of 48% and a market value of R3 500 000. Its liquidity is almost none and consists and is

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the least risky. It generates a monthly income known as interest and is subjected to pay income tax. No other taxes are required for the instrument.Pension Fund Money MarketMr Sashin has invest R 400 000 in a pension fund money market to complete 5% of his investment portfolio. It can only be used upon reaching 65 years of age and thus is not very liquid but endures the same characteristics of the ABSA money Market. Any pension Fund instrument entails no real good return.Pension Fund BondsThese are bonds taken out to cater for needs upon retirement at a value of R 160 000 which is only 2% of Sashin’s investment portfolio. Its risk is considered to be at an average rate which produces a monthly remuneration called coupons. Pension bonds are not subjected to any kind of taxes.Pension Fund SharesThis asset completes the last 3% of Sashin’s investment portfolio at a market value of R 240 000. It’s very risky and volatile to market conditions but share the same implications of pension fund bonds but in essence receive dividends.

Advantages and Disadvantages of the Investment Fundamental classes

FUNDAMENTAL CLASS ADVANTAGES DISADVANTAGES

MONEY MARKET DiversificationThe money market fund considerably reduces the risk of companies by investing in several institutions which holds securities for the bulk of investors. This way a huge monetary loss is saved.

AffordabilityAn investment opportunity always arises from relatively small investments. Thus the money market encourages investing more due to a low

UncontrollableThe market volatility is independent of the investor and thus depends strictly on the skill of the banker the money market investment is taken out with.

Fund ManagersFund managers are the bankers of the money market and thus are all not completely successful so research is required before investing.

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risk.

LiquidityMoney market instruments are traded continuously throughout the business week which entitles the investor to cash out at anytime if the need to use that specific money arises.

CostsMany fund manager fees, administrative fees, sales costs, redemption fees as well as sales commissions could impact the substantial return on the investment. Research is required once again.

Bonds And Gilts SecurityBonds are debt securities which suggest that the issuer of the bond is legally entitled to the remuneration of interest upon the obligation signed by the purchaser.

ManageableBonds are traded like securities by the government, businesses and private financial individuals.

UnsteadyPurchase prices constantly change and a significant loss could occur as the market volatility increases.

RecommendationsWe, Paladin Financial Planners, comment that Mr Sashin’s investment portfolio consist of relatively high risk assets and this should somewhat change to prevent major losses from market fluctuations. This can be achieved by diversification of his current investment portfolio.Diversification is the process of where investments are not all invested in the same thing but also to invest in several different financial instruments of different organisations. A less risky approach should be taken as Mr Maharaj is a middle aged man, who runs a family of three dependents and requires a significant amount of capital to account for future needs and desires.

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The current investment portfolio consists mainly of shares and property which are risky and in essence do not receive much of a return. We suggest that Mr Sashin should start saving and invest in government bonds as well as some equities. The below description will help Mr Sashin to understand:

Cash 20%Cash is a risk free asset although the purchasing power may differ to economic instability. It is already in liquid form. It can gain interest if the money is saved and increased monthly upon savings which will then generate interest.

Bonds 30%Governments bonds are a risk free asset but bond also entail a low risk volatility which is indirectly proportional to interest rates and generally exposed to default risk. He should invest for longer periods of time only then will he be rewarded generously for his investment.

Gold 10%Gold is a commodity that is a Limited resource. Prices are effectively always increasing due to the fact that no more gold will be found in the near future. Thus collectable Mandela, Kruger coins should be invested into and not sold early as a higher price can be obtained as the need arises.

Equity 40%A capital growth is required to finance investment needs in the near future. Thus, securities in local, markets that are easily accessible should be considered.The main idea of the diversification model is to create a positive and reputable collective investment scheme. Proper research needs to done to ensure that higher dividend, interest and income yields are achieved in direct securities not forgetting the current market conditions of the South African economy as well as the stability of the Rand against foreign currencies.

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Business AssuranceBUSINESS ASSURANCEBuy-and Sell AgreementProposalsOne has to always take into consideration the amount of investment put into his business. Where you expect to see it go in the future as well as what will be done if the unexpected happens. Buy-and-Sell agreements are implemented in the event of the death or disability of a partner and help protect the assets if the company.

A Buy-and-Sell agreement is one where the partners/shareholders/members of a practice commit to the obligation of selling their share of the practice to their partners/shareholders/members upon the event of death or disability. Life assurance is the only way in which a guarantee can be made to receive the capital needed to either wind-up the company or purchase the partners share in the practice. This is needed due to the fact that most personal assets of partners/shareholders/members are tied up in the business.

The members of the Buy-and-Sell agreement in effect assure one another’s lives and need to pay the premiums in order to reap the tax benefits. If there is credit loan account the members may also may a provision in the agreement to cover this amount. The agreement protects the company from many drawbacks, they include:

Immediate cash availability The owners receive immediate ownership of the practice The heirs receive their interest in the practice at fair value The need to pay 100c in the rand plus interest is quelled due to the fact that a life policy is cheaper Capital resources of the business are left untouched

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BUSINESS ASSURANCE

Mr. Sashin Mahara

Mr. Maharaj and Mr. Birdstein own Spectrum Paints (Pty) Ltd and are equal and joint owners at 50% each. In this case they will both take out Buy-and-Sell agreements on one another’s lives in the event of possible death or disability. With the hiring of Mr Cox, he will receive 20% (100%-20%=80%/2=40%) interest in the business. Upon the death of either Mr. Maharaj (40%) or Mr. Birdstein (40%) the remaining interest in the practice will need to be purchased in order for Mr Cox to continue as a partner. This too will need to be covered buy the Buy-and-Sell agreement in the form of a credit loan account. The remaining interest, after Mr. Maharaj has purchased 50% of the interest will go to Mr. Birdstein’s heirs.

With the initiation of the Buy-and-Sell agreement all pitfalls surrounding any uncertainties that the practice could experience upon any unforeseen events will be covered. Leaving the business with enough capital to stay faithful to all long term contracts, such as:

The employees of the practice may apply for severance pay The landlord may wish to recover the rental for the full rental agreement period All long term agreements (like technology rental agreements) will remain payable even after the

practice closes All hire purchase agreements will remain enforceable and payable even if the practice closes down

Key-Man InsuranceProposalLife assurance taken out by the employer on his employees who are considered vital to the operation of the business:

Managing director Accountant Sales manager Technical staff

o Engineero Scientisto Chemist

In the event of the illness, disability, or death.It is important to manage the risks attached to the owners and the key persons in the practice. If these risks are left unchecked, the implications for the estate of the affected owner, the remaining owners and the practice could be devastating. It threatens the future existence of the practice and the wealth of the owners. The Key-man policy would be initiated to:

Should there be any loss of business profits, the proceeds of the policy will compensate for this Cash is available to finalize uncompleted projects

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A new employee may be recruited and trained The other employees are not affected because they perceive that the business is equipped and has

a contingency plan to cater for setbacks The credit standing of the business is not affected

The death of Mr. Maharaj, Mr. Birdstein or Mr Cox could be highly detrimental to the continuation of Spectrum Paints (Pty) Ltd. It is because of this fact that Mr. Maharaj will need to take out life assurance on Mr. Cox since Mr. Maharaj has invested in Mr Cox to take over the position of Mr. Birdstein upon his retirement or unexpected death or disability. Mr. Maharaj has also taken out life assurance on his life in which case his children are the beneficiaries. Mr. Maharaj’s wife has initiated life assurance on his life too, in the event of him passing away. This will create a safety net for the family and help cushion any financial burden.

In order for Mr. Maharaj’s business to qualify for the SARS tax deductions certain requirements need to be met, namely:

The insured event for employers is restricted to key employees job terminations stemming solely from an employees death, disability or severe illness.

Deductible premiums will be limited to term policies that solely cover the employer against insured risks. Policies with investment elements will not be permitted.

The employer must be the sole owner and sole beneficiary of the policy throughout the year of assessment in which the premium is paid.

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Deferred CompensationPossible ProposalsDeferred compensation is a written agreement between an employer and an employee where the employee voluntarily agrees to have part of their compensation withheld by the company, invested on their behalf, and given to them at some pre-specified point in the future. This scheme is usually implemented for key-persons or executive directors. It does however have a reputation as being called “golden cuffs” since the employee doesn’t have a vested right till maturity

How it works: The employer invests in an endowment policy, which earns interest during employment and

matures on or close to the employee’s retirement. Employer and employee sign an agreement where-by the employee has no vested right to the

endowment policy till maturity/retirement/disability. At maturity/retirement/disability the employer has a duty to pay out the policy.

Currently SARS allows a tax deduction of R30000 and the remaining amount taxed normally. It has not been revised in over 20 years and due to inflation its value has greatly depreciated.

This type of scheme is usually aimed at high-income earners, tax bracket of 40%.Mr. Maharaj should implement the scheme by taking out an endowment for Mr Cox. He is a very important employee in the business and expected to continue the survival of the practice in the coming years. He will receive the payout upon maturity, retiring or disability and the Mr Maharaj is entitled to pay out the policy. This will also create an incentive for Mr Cox to stay on and fulfill his duties.

Restraint of TradeAn amount is paid to either an executive or employee with the condition that he may not become involved with a similar type of trade in a pre-agreed time limit.

Mr. Maharaj may receive a tax deduction in the event that he enforces the restraint of trade upon Mr Cox if he leaves the company with the intention of starting his own company.The amount is calculated as follows:

Amount/N; N = number of years for which the restraint of trade is in forced 1/3 of the amount

May be deducted if

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Declared as income in the hands of the receiver The portion of the payment that qualifies will be divided in three equal amounts over three tax

years or divided by the number of years for which the restraint is in force

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TAX PLANNING

The primary interest for both individuals and companies with regards to income tax planning is to reduce the amount of income tax payable in the tax year period by following the current tax laws.

This section of financial planning is the process where by individuals and companies will pay the taxes imposed upon their income in the given period. For individuals this may include income or revenue in the form of interest, investment portfolios, salaries, wages bonuses and other sources of income clearly defined by the law.

Paladin (PTY) Ltd intends in offering the greatest possible service and advice to our clients when it comes to planning the payment and keeping up to tax demands.

We find that many of todays individuals and companies have the greatest intentions to pay their taxes. Time after time we reach the point in the year where are delivered with the news of a large tax bill which is the cause of poor planning, whether it was by mistake or not.

It is important to keep a continual record of what is received and paid for the duration of the tax year.

Effective Tax Planning Program

Simple to use and understand Beginning and end point with steps in between Can be updated Has a worse case scenario

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TAX PLANNING

Mr. Sashin Mahara

Uses current income and expenses Understanding financial goals Knowing how to capitailse available resources

A simple yet effective tax plan following the above points will help any individual or company advantageously. Tax burdens can be greatly decreased by delaying certain income till a later year. All purchases have tax effects and by timing your purchases you can decrease these. Taking into consideration all your income. Identifying how fluctuations in your income will influence your tax expenses.

A good tax plan’s intention is to decrease tax payable, reduce direct taxable income and to increase and take advantage of all deductions.

Reducing Taxable Income

There are many institutions, which an individual may invest in, in order to decrease or avoid being taxed fully or on a portion of their income. A perfectly legal and excepted investment tool is bonds. Interest paid by the government is not taxable. Equity investments are also good sources of tax deductions (R22500) on interest, however interest exceeding the deduction is taxed according to an individuals tax bracket. All South African dividends are not taxed by SARS due to the idea that it will encourage investors to continue investing into the domestic market.

The use of a retirement annuity (Pension or Provident Fund) can greatly decrease your income and in turn decrease your tax liability. This can be done either through your company or by investing in a investment institution. The contributions to these funds are not taxable and therefore reduce tax expenses.

Almost everyone can claim a tax rebate deduction, depending on your age, it can be higher than the average individual. On all capital gains an individual may receive a deduction of R20000 on any gains that they will receive in the year.

In terms of Mr. Maharaj we recommend that he continues to reinvest his dividends from his investments into his shares and money market. With regards to his income it would be a good idea to continue investing into his retirement annuity funds. This would in return reduce his total income and tax expenses.

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Gross income R 1 149 550

Salary (RFI) R 748 800

SA Interest R 218 750

Trustee remuneration R 16 000

Income from Trust R 166 000

Exemptions -R 22 800

Interest -R 22 800

Income R1126750

Less deductions -R 150 240

Generaldeduction -R 60 000

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Pension -R 50 400

RA R0

1 Add Capital gains tax R 60 500

2 Add travel allowance R 101 109

Donations Medical -R 12 000

Medical -R 27 840

Taxable income R1138119

Tax rate R 391 497

Less primary rebate -R 10 755

Tax payable R 380 742

Less PAYETax outstanding -R 216 000

Tax outstanding R 164 742

Gross Income R 1 149 550

Less exemptions -R 22 800

Less RFI -R 748 800

Less general deductions -R 60 000

NRFI R 317 950

15% of NRFI R 47 692.50 pa

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R 3 974.38 pm

By implementing what has been recommended above, Mr. Maharaj will be able to take full advantage of his tax position, including tax deductions, tax exemptions and tax exclusions. It will decrease his tax obligations and increase his cash flow allowing him to either invest in other tax-free dividend yielding investments or back into his company increasing its value solidifying its continuation. Making his tax returns and obligations simple will help him ease any unwanted or extra pressure allowing him to concentrate on what is important.

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RETIREMENT PLANNING

Required

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RETIREMENT PLANNING

Mr. Sashin Mahara

Sashin’s retirements plan will be based on the following specifications:

1. Sashin wants to retire in 15 years and:

• He’s current contribution to his pension fund will increase by 7% p.a. • Living expenses to increase by 5% per annum. • Living expenses to reduce by 20% when children have completed their studies. • He’s wife (Jerusha) to retire in 10 years’ time.

The after tax proceeds of her provident fund will be used to pay debt. This will result in a further reduction of the living expenses by 10% at that time.

• When Sashin retires, living expenses is to reduce by another 10% and the monthly pension required is to be calculated based on his wife’s life expectancy plus a safety factor of 10 years.

• Return on all investments except money market, ABSA shares and Spectrum Paints to be taken at 9% per annum.

• Sashin would like to know the expected value of his ABSA shares investment which is to grow by 7% as well as the value of the Spectrum Paints investment as per the guidelines from the auditor. However both these investments must not be considered in his retirement plan. He regards them as a safety buffer.

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General

Many people overlook the importance of planning for retirement. Many of us would love to live our dream lifestyle after we retire but not everyone takes the necessary steps to make this dream a reality.

When deciding on planning for the future we need to consider our options very carefully. Since retirement is all long term goal one would look to save/invest a part of their income in more steady and less risky investment which will yield a sufficient growth to be able to meet future objectives. As attractive as higher returns on certain shares are it may be not in your best interest to expose yourself to high risk when planning for the long term.

There are many ways to invest your money but you must also consider a number of other variables. Retirement annuities, investment in bonds, pension plans and fixed investment, etc. are all different ways to grow your money but it is also important for you to consult qualified financial advisors to help you get the most out of your investment and retirement planning and help with critical decision about your retirement. Life cover is also important so as to make sure your loved ones are well taken care of after if anything may happen.

Fixed deposits and alluring investment opportunities may appear as high return instruments but may not always be as promising as they seem that’s why it is important to seek advice from financial advisors and stock brokers.

By starting early on planning your goals on and after retirement it will make your road to financial freedom that much clearer. Knowing how you would be spending your retirement years will also helping in knowing the amount of disposable income you would need to put away and what age you could work until because living of a government grant might not be enough later on in life. This all depends on when u start saving so saving as soon as possible is highly recommended.

Managing disposable income in a more responsible way by using budgeting is always a good starting point for a moving towards a comfortable retirement. Even though there is no real guarantee It is also recommended that you consider life expectancy when planning and any other important variables like inflation and any material economic conditions happening.

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Knowing what life you want to lead after retirement is at the core of your retirement plan and no one can define that but you. So having a clear understanding of what you want out of your retirement is a key. So saving as soon as possible and asking the necessary questions about your future while pave the road for a comfortable retirement.

Calculations

Calculating capital requiredFV of living expensesJames' age: 2011-1995 16 years old

Dependant: 23-16 7 yearsLiving expenses while children is studying and before Anne retiresPV 1683120 140260x12N 7I 5%FV R -2 368 319Living expenses after children have completed their studies before Anne retiresPV R -1 894 655 80%N 3I 5%FV R 2 193 300Living expenses after children have completed studies and after Anne has retiredPV R 1 973 970 90%n 5i 5%FV R -2 519 342Capital required for living expenses over life expectancy plus 10 yearsJack 2011-1965 46 years old 47 ANB

Jerusha 2011-1966 45 years old 61 ANB

18,04 life expectancy of Jerusha28.04 Plus 10 yearsResultant rate 9%-5%3.80952%

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Begin mode

pmt R -2 267 407 90%n 28.04i 3.80952%pv R 40 129 518 Capital required at

retirementFuture value of pension fundFV of Pension fundResultant rate 9%-7%1.86916%

R 50 400.00 annual value of recurrent contributions

begin mode

pmt R 50 400.00

n 15

i 1.86916%

pv R -666 211.30

pv of pension fund

begin mode

pv R 4 466 211 (699599+800000)

n 15

i 9%

fv R -16 268 095

fv of pension fund

FV ABSA Money Market

pv R 3 500 000

i 6.43%

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n 15

fv R -8 915 868

FV Old Mutual Resources Fund

pv 730 000

i 9%

n 15

fv R -2 659 012

Available R 27 842 976

Required R 40 129 518

Shortfall R -12 286 543

FV Spectrum Paints

pv 500 000

i 8% The value of the Company is expected to grow by 8% per annum.

n 15

fv R -1 586 085

Recommendation

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Mr. Sashin Mahara

The provision that is currently used will not be enough to satisfy the capital required at retirement.

In order to counter this I recommend that Mr Maharaj invests retirement annuities.

It is a way to make additional retirement savings outside of an occupational scheme(pension fund)

•The contribution is deductible from taxable income minimizing tax expense•A third of the contribution can be taken as a lump sum •The remaining contribution is invested in a scheme that will provide a monthly pension • It is protected against creditors •cannot access funds until 55 years old which is fine because Mr. Maharaj is planning on retiring after that age.• The two thirds left over of the contribution(after retirement)is free of tax

This option should be considered along with a comprehensive investment strategy.

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Estate Duty Planning

Estate Planning

The arrangement, management, securement and disposition of a person's estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and after his death, no matter when the death may occur.

Importance of Estate Planning

The purpose of succession planning is to ensure that the wishes of the client are carried out. A client's chosen beneficiaries should benefit from the death of that client in accordance to his last will.

An estate plan also has the following objectives:

1.Commercial soundness

The plan must include a strategy to ensure the growth and protection of a client's assets. The use of a trust, for example, can provide asset protection.

2.Liquidity

The plan must identify, and provide for the income requirements of the client and those of the client's dependants and beneficiaries.

Appropriate insurance policies and other investments products can provide the necessary liquidity.

3.Good governance

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ESTATE DUTY PLANNING

Mr. Sashin Mahara

The plan should provide for the efficient administration of the estate ( both during the lifetime and after death) and for the preservation of documentation.

4.Flexibility

A plan must be adapting to changed circumstances. The needs , assets, liabilities, marital status, dependants and other circumstances of a client are

continuously changing.

5.Minimisation of all costs including taxes

Plan must ensure that all costs including taxes are minimised.

Mr Maharaj’s Estate

Total AccrualAssetsHouse in Bryanston 3000 000 3000 000Holiday house 1500 000 1500 000Bare dominium 403 441 403 441Furniture 600 000 600 000Vehicles 800 000 800 000Absa shares 378 525 378 525Spectrum paints 500 000 500 000Absa money market 3500 000 3500 000Policy payable to estate 2600 000 2600 000Policy payable to Roshini 1000 000 1000 000Policy payable to Romano 1000 000 1000 000Total assets 1528 1966 1328 1966Accrual

Sashin Jerusha

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Mr. Sashin Mahara

Total assets 1528 1966 4208 000Liabilities:Credit card 22 000Hire purchase vehicle 445 100Bond on the house 1700 000Bond on holiday home 1000 000Capital gains tax 59 464Total liabilities (3226 564) (409 000)Specific assets excluded:Holiday home (1500 000)Policy proceeds (403 441)End value 1015 1961 3799 000Adjusted begin value500 000*615/120 (2562 500)600 000*615/120 (3075 000)Accrual 7589 461 724 000

Difference 6865 461

Half 3432 731

Executor's fee

PropertyHouse 3000 000Holiday house 1500 000

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Bare dominium 403 441Furniture 600 000Vehicles 800 000Absa shares 378 525Spectrum paints 500 000Loan 600 000Absa money market 3500 000Deemed propertyPolicy payable to estate 2600 000Total assets 1388 1966

Capital gains tax

Market value

Base cost Exemption Gain

House in Bryanston 3000 000 (1500 000) Roll over 0Holiday house 1500 000 (600 0000 R0ll over 0

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Mr. Sashin Mahara

Bare dominium Mooizicht 403 441 (214 607) 188 834Furniture Personal

assetVehicle Personal

assetAbsa shares 378 525 (129 500) - 249 025Spectrum paints 500 000 (143 214) - 356 786Total gain 794 644Annual exclusion (200 000)Net gain 594 644Inclusion rate @ 25% 148 661Tax rate @ 40% 59 464

Residue

Assets 1388 1966Cash legacies (1000 000)Holiday house (1500 000)Primary residence (3000 000)Deductions before sec 4q (6548 786)

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Residue 1833 181Estate duty

Property 1128 966House in Bryanston 3000 000Holiday house 1500 000Bare dominium 403 441Furniture 600 000Vehicles 800 000Absa shares 500 000Spectrum paints 600 000Absa money market 3500 000

Deemed property 4100 000Policy payable to children -Policy payable to estate 2600 000Policy payable to Jerusha 1500 000Buy and sell policy -Gross estate 1538 1966

Deductions (1508 1966)Funeral costs 35 000Capital gains tax 59 464Master's fee 600Liabilities 3167 100Accrual claim 3432 731Executor's fee 3432 731Sec 4q legacy 3000 000Sec 4q policy 1500 000Sec 4q residue 1833 181Sec 4q donation 1500 000Dutiable estate 300 000

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Abatement (3500 000)Net estate 0

Liquidity

Cash in 7478 525Absa shares 378 525Absa money market 3500 000Policy payable to estate 2600 000Buy and sell policy 1000 000Cash out (4816 055)Cash legacies 1000 000Liabilities 3816 055Estate duty 0Cash surplus 2662 470

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Recommendations to Mr Maharaj

Last will and testament

In terms of his will Sashin has bequeathed some of his estate to his wife and children.

Therefore I would advise him to ensure that none of them are witnesses during the signing of the will, as it may disqualify them from inheriting.

Dependent’s ages

As I observed the ages of the children I have noticed that they are not yet older than 18 years, which renders them to be minors.

Therefore I advise Mr. Maharaj to protect them against the guardian fund in case of the death of both the spouses, because the returns from the guardian fund are relatively low and it is corrupt.

Executor's fees

Mr. Maharaj’s executor's fee calculation is relatively higher as they include vat.

I urge Mr. Maharaj’s to check whether the appointed executor is a vat vendor and negotiate to pay 3.5% instead of 3.99% fee charges.

Conclusion

Mr. Maharaj has made an excellent choice of drafting a will and planning for his estate, as these would ensure that his family would be taken care of even when he is no longer there to take care of them.

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Conclusion

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The information contained in this presentation represents the importance we have placed on your present and future financial needs

Financial Plan:A financial plan is of greatest importance. It must be reviewed consistently and implemented with great care.

Budget:With the use of a budget all spent funds can be reliably traced creating a opportunity to save and spend “smartly”. The wealthy are where they are today because they don’t spend money on anything they don’t need as well as not living beyond their needs. It will help with retirement and other investments

Pay off Debt:Debts should be payed off as soon as possible as it may lead to unexpected expenses.

Create a savings plan:As mentioned allocate sufficiently for savings for purchases, retirement and investing.

Minimize Tax Expense:This could be achieved in a number of ways, including trusts and companies and should always be a consideration when making any business or investment decision.Saving can be significant when all tax savings are correctly implemented.

Review your insurance coverage:Sufficient personal and business insurance is crucial. Under insuring yourself could land you in very hot water with regards to your cashflow, both in your personal estate and business.

Update your will:Ensure that your dependants are taken care of and that upon death, the taxes and other expenses are minimised.

All information above is not to be considered as legal advice

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BibliographyInvestment Planning

www.corporateinformation.comwww.housepricesouthafrica.comhttp://capitalminds.co.za/2011/05/24/the-long-term-outlook-for-the-bond-market-in-sa/http://propertyloans.co.za/interest-rate-history/

Business Assurance

http://southafrica.smetoolkit.org/sa/en/content/en/5051/Buy-and-Sell-agreements-secure-your-company-s-futurehttp://southafrica.smetoolkit.org/sa/en/content/en/5050/Key-Person-Insurancehttp://www.ey.com/ZA/en/Services/Tax/Special-Tax-Alert---Tax-proposalshttp://www.darwinsfinance.com/deferred-compensation-plan/http://www.news.totallyexpat.com/south-africa-unveils-20102011-budget/

Tax Planning

http://www.deloitte.com/view/en_US/us/Services/tax/Private-Client-Advisors-Tax-Wealth-Planning/Individual-Income-Tax-Planning-and-Compliance-Wealth-Advisors/2011-tax-wealth-planning-guide/http://www.caclubindia.com/forum/tax-planning-guide-2011-128159.asphttp://www.taxrates.cc/html/south-africa-tax-rates.html

Fundamentals of Financial Planning. South Africa: LexisNexisBotha, M. du Preez, L. Geach, W. Goodall, B. Palframan, J. & Rossini, L. (2001)

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http://www.taxrates.cc/html/south-africa-tax-rates.html

http://www.caclubindia.com/forum/tax-planning-guide-2011-128159.asp

http://www.deloitte.com/view/en_US/us/Services/tax/Private-Client-Advisors-Tax-Wealth-Planning/Individual-Income-Tax-Planning-and-Compliance-Wealth-Advisors/2011-tax-wealth-planning-guide/

http://www.deloitte.com/view/en_US/us/Services/tax/Private-Client-Advisors-Tax-Wealth-Planning/Individual-Income-Tax-Planning-and-Compliance-Wealth-Advisors/2011-tax-wealth-planning-guide/

http://www.news.totallyexpat.com/south-africa-unveils-20102011-budget/

http://www.darwinsfinance.com/deferred-compensation-plan/

http://www.ey.com/ZA/en/Services/Tax/Special-Tax-Alert---Tax-proposals

http://southafrica.smetoolkit.org/sa/en/content/en/5050/Key-Person-Insurance

http://southafrica.smetoolkit.org/sa/en/content/en/5051/Buy-and-Sell-agreements-secure-your-company-s-future

http://southafrica.smetoolkit.org/sa/en/content/en/5051/Buy-and-Sell-agreements-secure-your-company-s-future

http://propertyloans.co.za/interest-rate-history/

http://capitalminds.co.za/2011/05/24/the-long-term-outlook-for-the-bond-market-in-sa/

http://www.housepricesouthafrica.com/

http://www.corporateinformation.com/

finale project

Documents

pensionable

didata holdings

absa bank

maximus financial

sinking fund

childrens

sashins investment

capital gains