Presenter: Marius Botha CFP Topic: PCE Exam Training ...€¦ · Topic: PCE Exam Training February 2018 Session 2 Webinar 2 on 8 Feb 2018 Slide 2 Agenda ... inflation (assume 6%)

2018/02/07

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Marius Botha [email protected]

Presenter: Marius Botha CFP®

Topic: PCE Exam Training

February 2018

Session 2

Webinar 2 on 8 Feb 2018 Slide 2

Agenda

• Case study with questions and answers

• Accrual formula for life insurance

• Section 11F example

• Section 10C

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Case study -The facts

Michael and Susan are married out of community of property subject to accrual. In their ante-nuptial contract they both declared their asset values at date of marriage as zero. Michael is 57 years old and Susan is 55. Michael has two children from a previous marriage, George (27) and Esther (24). Both are employed and self-supporting. Susan has a daughter, Jennifer (14), from her previous marriage. Her first husband died 4 years before she got married to Michael in 2013. Michael’s first wife died in 2011. She bequeathed the residue of her estate to him except insurance policies of R3 000 000 to her children so that her net estate was R3 000 000.

Michael is employed with Acme Distributors Ltd, a large company that have branches throughout South Africa.

He also owns 50% of the shares in Michael Importers (Pty (Ltd), a company that imports Acme’s goods from Europe. His brother-in-law and co-shareholder, John, manages Michael Importers (Pty (Ltd). John is 42 years old and owns 48% of the shares. Michael’s son George owns 2% of the shareholding.



Michael promised George that he will bequeath his 50% shares in the business to him. Michael only receives an annual dividend distribution from Michael Importers. He gets no salary from the company. Most of the profits are invested back into the company. Michael is happy with that as he wants the business to grow as much as possible so that George can have a good business to take over. George and John have a very good relationship. The company has shown very good growth since it was formed 10 years ago. Michael wants to retire from his employment in order to join Michael Importers (Pty) Ltd on a full-time basis. He does not want to do that unless his retirement capital is sufficient to provide them with the income that they require for their retirement. The rules of his provident fund provide that he can retire, without penalty, at any time after he has attained the age of 55.

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They have the following assets and liabilities:

Assets - Michael Base cost Market value

Primary Residence 750 000 3 250 000

Share Portfolio (JSE) 450 000 1 200 000

Shares in foreign companies 300 000 680 000

50% in Michael Importers (Pty) Ltd 800 000 1 250 000

Portfolio of unit trust funds 875 000 1 450 000

Cash Investments 350 000 350 000

Motorcar 310 000 250 000

Apartment (flat) in Kenilworth 1 250 000 1 480 000

Total value 9 910 000



Liabilities – Michael

Bond (loan) on primary residence 450 000Car loan 110 107

Total liabilities 560 107

Notes on Michael’s liabilities

• The original car loan was R300 000 and the monthly instalment R9 680. The interest rate 10% and the balance of the loan after 2 years is R110 107.

• The interest rate on his housing loan is 9.5% and the remaining term is 8 years (at age 65). The current monthly instalment is R6 710.

The following are assumed regarding the administration of his estate should he die:

• The administration fees (executor’s fee excluded) is R30 000, and

• The funeral cost is R20 000.

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Michael owns the following life insurance policies on his life:

• Policy A: A pure risk life policy with no beneficiary nominated with a death claim value of R2 500 000.

• Policy B: A pure risk life policy. Susan (his wife) is nominated as beneficiary and the death claim value is R1 400 000.

• Policy C: A pure risk life policy. His children George and Esther are the beneficiaries and the death claim value is R900 000.



Assets - Susan Market valuePortfolio of unit trust funds (see note below) 1 870 000Cash Investment 300 000Motorcar 220 000Furniture and Household effects 650 000Jewellery 750 000Total value 3 790 000

Liabilities - Susan Credit card 40 000Total liabilities 40 000

Notes on Susan’s assets The portfolio of unit trust funds were bought by Susan with an amount of R1 870 000 that was donated to her by Michael during their marriage. The main reason why this was done is that Michael thought it may be a good idea if she invests the money in an interest bearing investment so that she could be taxed at a lower rate of tax than what he would have to pay.

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After the donation Susan was advised by her financial adviser to invest the money in a portfolio of unit trust funds. It is a pure equity unit trust portfolio and she will receive a before tax dividend of R41 400 for the current year. The units have not increased in value since they were acquired by Susan.

Michael’s current income from his employer is as follows: Annual salary 900 000Annual Bonus 70 000Med scheme contributions by his employer (R2 200 p.m.) 26 400

His employer also pays the premiums in respect of two unapproved group life policies which are for Michael’s benefit. These policies are: • A pure risk life policy with life cover of R850 000. This policy will

pay to his surviving spouse in the event of his death. The annual premium payable by his employer is R12 000.

• An income replacement policy. The annual premium paid by his employer is R18 000.



Michael pays a further R1 500 per month to the medical scheme. He and his wife and Jennifer are the only members. Their qualifying medical expenses that they could not recover from the fund was R100 000.

Retirement provision

Michael is a member of his employer’s provident fund. The current value of his retirement interest in the fund is R5 400 000. In terms of an approved group life scheme that is part of the fund, the fund will pay an amount equal to twice his annual salary in the event of his death. This is in addition to the investment value of his interest in the fund on the date of his death.

His employer contributes 10% of his salary to the provident fund. Michael does not contribute to the fund.

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He retired from a retirement annuity fund after he turned 55 years old. He was not happy with the fund performance and made the decision to retire and transfer the full benefit to a living annuity. He used the annual drawdown income to pay for his son’s university education. His son has now completed his studies. The current value of the assets in the living annuity is R1 189 000. He takes a drawdown amount of 2.5% per annum. His wife’s daughter Jennifer is nominated as beneficiary to the living annuity. He has not received any retirement fund lump sums benefits in the past.

He would like to receive an income of 70% of his current salary if he is to retire today. He wants this income to be paid until he and his wife reach the age of 77 years. It must increase annually at the rate of inflation (assume 6%). His provident fund benefits, living annuity capital and share portfolio (JSE) must be taken into account as retirement capital, but not any other assets.


Case study -The facts He feels that he does not want to use all his assets as retirement capital as he would like his children to inherit from him one day and does not want to use all his assets for retirement purposes. Also, if he takes early retirement to join Michael Importers (Pty) Ltd, he wants to have assets that are not needed for his retirement in case the business needs further funding. He will repay the outstanding balance of his bond when he retires.

Michael’s monthly cash flow Payments IncomeSalary (before tax) 75 000Living annuity drawdown (R1 189 000)0.025/12 2 477Household expenses 12 000 Rates and taxes and municipal services 4 500 Short term insurance 1 200 Loan repayment housing loan 6 710 Own contribution to medical scheme 1 500 Qualifying medical expenses (R100 000 ÷ 12) 8 333 Existing life insurance 1 200 Monthly instalment car loan 9 680 Income tax (not provided) 0 45 123 77 477

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Notes to monthly cash flow

• Investment income is not included in the above cash flow as it is all reinvested and not used to pay their monthly expenses.

• His annual bonus is excluded from the above cash flow as Michael uses it for their annual overseas holiday.

• Michael was not sure of the amount of income tax for which he is liable in the year.

Michael will receive the following investment income for the tax year:

Dividends from pure equity unit trust fund 30 450Local dividends from share portfolio (JSE) 26 400Foreign dividends 13 600Interest on cash investments (6% of R350 000) 21 000



Michael’s Last will and Testament In terms of his current Last Will and Testament he bequeaths his estate as follows:

• He bequeaths his apartment in Kenilworth to his daughter Esther.

• He bequeaths a cash legacy of R2 000 000 and the shares in Michael Importers (Pty) Ltd to his son George.

• He leaves the residue of his estate to his spouse Susan.

The end of the facts

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Case study – Question 1

Question 2

Calculate the amount of capital gains tax that will be payable by Michael if he should die today.



MV Base cost Cap gain50% in Michael Importers (Pty) Ltd 1 250 000 800 000 450 000Apartment (flat) in Kenilworth 1 480 000 1 250 000 230 000 680 000Less: Annual exclusion 300 000 Nett capital gain 380 000 Taxable capital gain (40%) 152 000 CGT payable at 45% (assumed) 68 400

Solution to question 2

Capital gains tax on death The only assets that will not roll-over to his surviving spouse are the following:

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Question 1

Calculate the accrual claim that Susan will have against Michael’s estate under the Matrimonial Property Act if Michael should die today.


Accrual calculation - Michael Assets 9 910 000Life insurance payable to the estate 2 500 000 12 410 000Less: Liabilities (R560 107 + R68 400) 628 507Accrual Michael’s estate 11 781 493



Accrual calculation Susan Assets 3 790 000Less: Donation excluded 1 870 000 1 920 000Less: Liabilities 40 000 1 880 000 11 781 493 minus 1 880 000 = 9 901 493 9 901 493 ÷ 2 = 4 950 747 Claim in favour of Susan 4 950 747

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Question 3

Calculate the residue that will accrue to Susan in terms of Michael’s Last Will and Testament if he should die today. Ignore estate duty in this calculation.



Solution to Question 3 (calculation of the residue)

Assets 9 910 000Life insurance payable to the estate 2 500 000 12 410 000Less: Funeral cost 20 000 CGT 68 400 Admin fees 30 000 Accrual claim 4 950 747 Executor’s fees 495 159 Liabilities 560 107 Legacy (cash) 2 000 000 Legacy apartment 1 480 000 Legacy Shares Michael Importers 1 250 000 10 854 413Residue 1 555 587

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Question 4

Calculate the amount of estate duty that will be payable if Michael should die today. Ignore apportionment of estate duty. Solution to question 4

Total assets (as given) 9 910 000Plus: Deemed property Policy A (to estate) 2 500 000 Policy B (to wife) 1 400 000 Policy C (to children) 900 000 Unapproved group life 850 000 5 650 000Total value of the estate 15 560 000

Continued on next slide


Question 4

Total value of the estate 15 560 000Less: Deductions Funeral cost 20 000 Administration fees 30 000 Executor’s fee (3.99% of R12 410 000) 495 159 Capital gains tax 68 400 Accrual to spouse (section 4(lA) 4 950 747 Liabilities 560 107 Sec 4(q) Policies to spouse 2 250 000 Residue to spouse 1 555 587 9 930 000Net estate 5 630 000Less: Section 4A abatement (3 500 000 × 2) – 3 000 000 4 000 000Dutiable estate 1 630 000 Estate duty payable R326 000

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Question 5

Question 5

Calculate whether there will be enough cash in Michael’s estate to pay all the liabilities, taxes, administration expenses, and cash legacies if he should die today. Ignore apportionment of estate duty and also assume that the accrual claim will not be satisfied in cash.


Question 5

Solution to Question 5

Cash liquidity Cash in estate Cash investments 350 000Insurance payable to estate 2 500 000Total cash 2 850 000Less: To be paid in cash Funeral cost 20 000 Administration fees 30 000 Executor’s fee (3.99% of R12 410 000) 495 159 Capital gains tax 68 400 Estate duty 326 000 Liabilities 560 107 Cash legacy to son 2 000 000 3 499 666Shortfall 649 666

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Question 6

Question 6

Provide Michael with two options that can be used to eliminate the cash shortfall in the event of his death. Advise his as to which of the two options would be the best. Use a monthly premium of R14 per R10 000 of life cover if you should recommend life insurance.


Question 6


Assets will have to be sold if the shortfall is not insured. This means the asset will not roll-over for CGT purposes.

The accrual claim will be satisfied if all the assets in the estate, other than the legacies to the children, are transferred to his surviving spouse. This will, however, mean that assets will have to be sold to pay the cash legacy to his daughter. To prevent this life insurance can be taken out on his life.

The problem is that any policy payable to the estate will increase the accrual claim by his surviving spouse. The cash shortfall of R649 666 does not include the accrual claim. If that is also to be paid in cash, the shortfall will be R5 600 413 (R4 950 747 + R649 666). If the accrual claim is to be paid in cash, additional cash of R5 600 413 is needed. In this case it seems not to be necessary.

Continued on next slide

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Question 6

It would be best if Michael nominate wife as beneficiaries so that she can, if necessary, pay it into the estate to preserve the assets. In such a case the sum insured should be R649 666.

Premium = (R649 666/10 000)14

= R910 p. m.


Question 7

Question 7

Michael is eager to retire now in order to join Michael Importers (Pty) Ltd. Calculate and advise Michael whether he has sufficient retirement capital to take early retirement today.

Assume that he can earn 8% per annum on the capital that he invests and that the inflation rate at which his post-retirement income is to increase annually is 6%.

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Question 7


Calculation of Retirement shortfall

Retirement capital available Living annuity 1 189 000Provident fund 5 400 000Share portfolio 1 200 000 7 789 000

8 – 6 = 2 Then 2 ÷ 1.06 = 1.88679% Income needed after retirement = 70% of 900 000 = R630 000 p.a.


Question 7

1 P/YR Begin mode 630 000 PMT22 N1.88679 I/YRPV 11 470 305

Shortfall = R3 681 305 (7 789 000 – 11 470 305) He cannot afford to retire now.

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Question 8

Question 8 Advise Michael as to what impact the fact that his wife’s daughter is nominated as beneficiary to his existing living annuity, will have on his wife’s retirement income after Michael’s death. Make a recommendation to eliminate any possible problem. Solution to question 8 If he dies the current living annuity will go to Susan’s daughter. That means that Susan’s income will be reduced.

He should nominate Susan as beneficiary who can in turn nominate her daughter as beneficiary.


Question 9

Question 9 Advise Michael as to who is liable for any tax on the dividend income that Susan receives on the investment in the unit trust fund in her name. Solution to question 9

The dividends that Susan receives on the unit trust funds will not be income in her hands as it is exempt from income tax in terms of section 10(1)(k) of the Income Tax Act.

It consequently will not be included in Michael’s (the donor spouse’s) income under section 7(2) of the Income Tax Act.

Susan will be liable for 20% tax on dividends.

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Question 10

Question 10

Michael wants to know whether a buy-and-sell agreement between the other shareholders is still possible, taking into account that he wants to bequeath his own shares in Michael Importers (Pty) Ltd to his son George. Advise him in this regard and state whether life insurance taken out for this purpose will be exempt from estate duty or not. Solution to question 10

It is recommended that George and John enter into a buy-and-sell agreement. They are both shareholders so that policies will be free of estate duty.

They can in future amend the agreement to incorporate the shares that George inherits.

The agreement must be in line with the Memorandum of Incorporation.


Question 11

Question 11

Do a complete income tax calculation for Michael for the 2017/18 year of assessment. Ignore the taxation of retirement fund lump sum benefits.

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Question 11

Income Tax Calculation Salary 900 000Draw-down living annuity 29 724Bonus 70 000Med scheme contributions 26 400Group life premium 12 000Income replacement premium 18 000Provident fund contribution 90 000Interest 21 000Foreign dividends 13 600Dividends unit trust 30 450Dividends shares JSE 26 400Gross income 1 237 574

Solution to Question 11

Fringe benefits

Continued


Question 11

Gross income 1 237 574Less: Exemptions Interest 21 000 Dividends 56 850 Foreign dividends (25 ÷ 45 × 13 600) 7 556 85 406Income 1 152 168Less: Deductions Retirement fund contributions 90 000Taxable income 1 062 168

Tax on 1 062 168 (2017/18 rates) 354 113Less: Primary rebate (under 65) 13 635 Medical scheme tax credit 9 720 Additional medical tax credit 6 464 29 519Tax payable R324 594

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Question 11

Medical Scheme contributions 44 400Less: R9 720 × 4 38 880 5 520Plus: Qualifying expenses 100 000 105 520Less: 7.5% of R1 062 168 79 663 25 857 25% of R25 857 R6 464

Calculation of additional medical tax credit


Question 12

Question 12

Calculate the amount of any other tax that Michael is liable to pay for the year. Solution to question 12

In addition to the above he will also pay tax on local dividends 56 850 × 0.2 = R11 370

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Question 13

Question 13

Michael Importers (Pty) Ltd has recently applied for a loan of R400 000 from Orange Bank Ltd. The loan was granted and Michael had to provide surety for the loan in his personal capacity. He is now worried that the bank may claim the outstanding amount from his estate in the event of his death.

Advise Michael on how to ensure that the amount will not be claimed from his estate. Further advise him what the tax consequences will be to the company if your plan is implemented by the company.


Question 13


The company can insure his life for an amount of R444 444 as the policy will attract estate duty. Michael and his son own 52% of the shareholding. The company is thus a family company in relation to Michael. In terms of section 4(p) of the Estate Duty Act 48% (percentage of shareholding that Michael owns) of the policy proceeds will be deductible for estate duty purposes.

The amount for which his life is to be insured, inclusive of the amount of estate duty that the policy will effectively attract, is calculated as below.

Sum insured = R400 000*100/[80 + 0.50(20)] = R444 444

Shareholding Michael

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Question 13

He and the company must enter into a contract in terms of which the company undertakes to use the policy proceeds for no other purpose but to repay the loan on Michael’s death.

The premium will not qualify for tax deduction under section 11(w)(ii) as it does not insure the company against a loss. It covers a capital debt.

The proceeds will be exempt in terms of section 10(1)(gH) as no premiums qualify for tax deductions.


Question 14

Question 14 Advise Michael what the income tax position will be in respect of the unapproved group life policy that will pay an amount of R850 000 to his wife in the event of his death. Solution to question 14 The proceeds will be included in Michael’s gross income as it is deemed to have been paid to him immediately before death. The proceeds will be exempt from income tax under section 10(1)(gG).

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Question 15

Question 15

The rules of Michael’s provident fund allow that any portion of the retirement benefit can be taken in the form of a living annuity. Assume that Michael has decided to retire now and that he wants to take a lump sum that, after tax has been paid on it, will be sufficient to repay the current outstanding balances on his car and housing loans. Calculate the amount that he must take as a lump sum in order to repay the two loans.


Question 15


The aggregate of the two outstanding loans is R560 107 Tax on R560 107 (2017/18 rates) = R10 819

The additional R10 819 will attract tax at 18%.

The additional amount that must be withdrawn to pay the tax is R10 819 ÷ 0.82 = R13 193.

The total amount to withdraw is R573 300.

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Question 16

Question 16

Once Michael has retired and joins Michael Importers (Pty) Ltd on a full-time basis, the company will start declaring dividends. Advise Michael what the effective rate of income tax is that will be paid on the profits made by the company if the rate of company tax as well as the new rate of tax on dividends are taken into account. Assume that profits are distributed as dividends.

Solution to question 16 On amount of R100 the tax is:

Company tax at 28% 28.0Tax on dividend (R72 × 0.2) 14.4 42.4

The effective rate is therefore 42.4%.


Question 17

Question 17

Assume that Michael dies today before he can retire from his provident fund. Assume that the full provident fund death benefit of R5 400 000 will be paid to his wife Susan.

Advise Michael what the options will be that are available to Susan as to the format in which she will be entitled to take the benefit.

Advise him what the income tax consequences are in respect of each option and who the person is that will be liable for the income tax.

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Question 17


• Option 1. Take the full benefit as a lump sum. The lump sum tax payable by the estate but can be recovered from Susan.

• Option 2. Take no lump sum and a take living annuity. Susan will be taxed on annual drawdowns.

• Option 3. Take a portion as a lump sum and the balance as a living annuity. Michael (his estate) will be liable for the tax on the lump sum but can recover it from Susan. Susan will be taxed on the drawdown amounts.


Question 18

Question 18

If Michael should retire today he will require an income of R630 000 in the first year of his retirement. The capital that he will have is R7 789 000. This will consist of R1 200 000 in a share portfolio and R6 589 000 in living annuities. His drawdown rate in the first year, if the full income is to be withdrawn from the living annuity, is 9.5614%.

Advise Michael as to how he can restructure his capital drawdown in the first year after retirement in order to pay the minimum amount of income tax in that year. Assume that he retires at the end of this tax year and that the R630 000 will be his only income in that year.

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Question 18


His tax threshold is R75 750 (under 65). He must withdraw at least 2.5% of capital (R164 725). In addition he can earn R23 800 in interest without paying tax.

He needs another R441 475. If he draws this from the capital from the non-living annuity capital this withdrawal will be tax-free.

His tax position for the year will be:


Question 18

Drawdown (living annuity) 164 725Interest 23 800Gross income 188 525Less: Interest exemption 23 800 164 725Less: Deductions 0Taxable income 164 725 Tax on R164 725 29 651Less: Rebate 13 635Tax payable 16 016

The medical scheme tax credit has been ignored.

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Question 19

Question 19

Do a new monthly cash flow which takes into account any recommendations that you made in respect of new financial products that are to be taken out by Michael, as well as any other recommendations that you think should be made to improve their monthly cash flow situation.

Solution to Question 19 Cash flow It is recommended that Michael should repay his housing loan and his car loan.

Continued …


Question 19

Michael’s new monthly cash flow Out InSalary 75 000Living annuity drawdown (1 189 000*0.025/12) 2 477Household expenses 12 000 Rates and taxes and municipal services 4 500 Short term insurance 1 200 Loan repayment housing loan 0 Own contribution to medical scheme 1 500 Qualifying medical expenses (R100 000 ÷ 12) 8 333 Existing life insurance 1 200 New life insurance policy 910 Monthly instalment car loan 0 Income tax (R324 594 ÷ 12) 27 050 56 693 77 477

His monthly expenses are reduced by R16 390 as a result of repaying the housing and car loans. His surplus is now R20 784.

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End of case study


Accrual Formula to cover cash shortfall

P = A + 0.5P + [0.2(0.5P)] + 2[0.0399A] ÷ 0.9202

= A + 0.5P + 0.1P + 0.08672A

= 1.08672A + 0.6P

P - 0.6P = 1.08672A

0.4P = 1.08672A

P = 2.7168A

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Section 11F

The amount of the deduction in a y. o a. is limited by section 11F to the LESSER of: (smallest of A, B and C)

A. R350 000.

B. 27.5% of the higher of the person’s

(i) remuneration as defined in fourth schedule (EXCLUDING any RFLB RWB and severance benefit); or

(ii) taxable income including taxable capital gain (EXCLUDING any RFLB RWB and severance benefit) BEFORE deducting any deductions under section 11F itself and 18A.

C. The taxable income of the person BEFORE the section 11F deduction and also BEFORE inclusion of the taxable capital gain.


Calculation Remuneration

Salary R 200,000.00

Bonus R 20,000.00

Fringe benefit fund contributions R 30,000.00

Other R - R 250,000.00

Income not remuneration

Interest R 25,000.00

Dividends (local) R 30,000.00 R 956,200.00

Business (sole proprietor) R 350,000.00

Other R -

GROSS INCOME R 655,000.00

Less: Exemptions Interest R 23,800.00 A R 350,000.00

Dividends (local) R 30,000.00 B R 262,955.00 956,200.00

Other R - R 53,800.00 C R 486,875.50

INCOME R 601,200.00

Less: Deductions (Sec 11F and 18A excluded) R 262,955.00

Expenses R 45,000.00

Other R - R 45,000.00

Tax inc BEFORE sec 11F, sec 18A and TCG R 556,200.00

Less: Section 11F (fund contributions) R 262,955.00

R 293,245.00

Plus: Taxable capital gain R 400,000.00

R 693,245.00

Less: Section 18A donation R 69,324.50

TAXABLE INCOME R 623,920.50

R556 200 – 69 324 = 486 875 It can also be interpreted as

the R556 200

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Section 10C – exemption compulsory annuities

Section 10C was inserted into the Income Tax with effect from 1 March 2014. The section provides an exemption in respect of compulsory annuities. “Compulsory annuity” is defined to mean the remainder of the retirement interest of a person payable in the form of an annuity as contemplated in a) Paragraph (ii)(dd) of the proviso to paragraph (c) of the

definition of pension fund; b) Paragraph (e) to the proviso to the definition of “pension

preservation fund”; or c) Paragraph (b)(ii) of the proviso to the definition of

“retirement annuity fund”.


Non-deductible contributions to retirement funds

Section 10C(2) It exempts from income tax • compulsory annuity • equal to so much of own contributions • to a pension fund, provident fund and RA fund • that did no rank for deduction against the person’s income

in terms of section 11(k) or (n) And has not • previously been allowed as a deduction in terms of the

Second Schedule • exempted from normal tax under section 10C in determining taxable income in respect of any year of assessment.

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Commentary on section 10C

• The exemption only applies in respect of a “compulsory annuity” as defined. The definition does not include a “compulsory annuity” payable by a provident fund or a provident preservation fund. As from 1 March 2019 it will apply .

• The exemption only applies to a compulsory annuity acquired by a person after retirement. Subsequent holders of the annuity do not qualify.

• Non-deductible contributions are aggregated and can be applied against a person’s retirement interest regardless of the fund that it was withdrawn from.

The End

Good luck!!

Documents

Presenter: Marius Botha CFP Topic: PCE Exam Training ...€¦ · Topic: PCE Exam Training February 2018 Session 2 Webinar 2 on 8 Feb 2018 Slide 2 Agenda ... inflation (assume 6%)