Author Topic: Australian Investing Thread  (Read 643897 times)

GT

  • Handlebar Stache
  • *****
  • Posts: 1424
  • Location: Brisbane, Australia
Re: Australian Investing Thread
« Reply #3150 on: June 01, 2017, 10:43:21 PM »
For those with a Vanguard MF and/or ETF, I know what the annual management rates and earnings are as a % based on the info on the website, but when do they actually take their cut/payout?  Is it done once a year or do they nibble/add a bit off each month?

Just trying to nut out some scenarios for the kids seed money as I've now reached a stage where MF's are accessible and can drip feed in $300 every month, or just buy a chunk of ETF now and then wait the 16 months between purchases of the next chunk ~$5k at a time.

FFA

  • Pencil Stache
  • ****
  • Posts: 512
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3151 on: June 02, 2017, 07:54:10 AM »
I'm pretty sure it would be calculated and deducted daily otherwise would be unfair for people depending on the timing of when they bought/sold. Has always been my assumption but also happy to hear if someone knows for certain.

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3152 on: June 06, 2017, 05:09:33 AM »
I would guess an accrual would be built into the daily unit price. Cash payment would occur monthly.

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3153 on: June 06, 2017, 05:12:38 AM »
Have not been keeping up with this thread lately.

ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.

JuicyCrab

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Age: 29
  • Location: Perth - Australia
Re: Australian Investing Thread
« Reply #3154 on: June 06, 2017, 10:44:23 PM »
Have not been keeping up with this thread lately.

ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.

First time I've come across this sell in May and go away idea:

http://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp

Is this an actual legitimate investment strategy based on historic trends?
insert any quote from Alan Watts....

FFA

  • Pencil Stache
  • ****
  • Posts: 512
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3155 on: June 06, 2017, 11:11:53 PM »
I would guess an accrual would be built into the daily unit price. Cash payment would occur monthly.

yes agreed, cash payment probably monthly, but taken out of the NAV calculation daily so would be reflected in market prices each day. i.e. there is no advantage/disadvantage to be timed.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1448
Re: Australian Investing Thread
« Reply #3156 on: June 06, 2017, 11:14:04 PM »
Have not been keeping up with this thread lately.

ASX took a bath today (1.5% down). The old "sell in May and go away" trick would appear to be truth again.

First time I've come across this sell in May and go away idea:

http://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp

Is this an actual legitimate investment strategy based on historic trends?

I think so but I don't know how well it would work in practice. Say you take a profit and you pay tax on the profit and get back in and do it all again. I think you'd be better off just staying the course.

You also won't have it work out for you all the time. At some point you will take a bath. Your profits will be taxed but you won't gain anything on the loss.

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3157 on: June 07, 2017, 03:06:10 AM »
It's a funny one. We're now in "confession season". Companies flagging bad results under continuous disclosure rules in advance of year end reporting.

Expect to see poorly performing companies blaming "tough market conditions", "FX", "weak consumer sentiment", "the Government" for all their bad results.

It's never the fault of bad decisions from executive management.

Abundant life

  • Stubble
  • **
  • Posts: 113
Re: Australian Investing Thread
« Reply #3158 on: June 07, 2017, 06:15:20 AM »
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.

I've been wondering if a capital gain can be offset by a capital loss within super?

deborah

  • Walrus Stache
  • *******
  • Posts: 5673
Re: Australian Investing Thread
« Reply #3159 on: June 07, 2017, 11:49:21 AM »
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.

I've been wondering if a capital gain can be offset by a capital loss within super?
As long as they are in the same tax entity - eg, they are both within your SMSF.



Rowellen

  • Stubble
  • **
  • Posts: 231
  • Location: Australia
Re: Australian Investing Thread
« Reply #3160 on: June 07, 2017, 06:32:23 PM »
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.

I've been wondering if a capital gain can be offset by a capital loss within super?
As long as they are in the same tax entity - eg, they are both within your SMSF.

And the loss can't be made in a later financial year. Ie. It must be made in the same financial year or carried forward from a previous year.

Abundant life

  • Stubble
  • **
  • Posts: 113
Re: Australian Investing Thread
« Reply #3161 on: June 07, 2017, 08:51:14 PM »
Thanks Deborah and Rowellen, yes they are in the same fund, and I would be selling them at the same time, ie same financial year.

zinny1

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Australian Investing Thread
« Reply #3162 on: June 07, 2017, 09:04:20 PM »
Hi all,

Noobie EOFY question;

I have bought a couple of lots of Vanguard ETFs (about $40K across two transactions - VAS, VHY and VGS) this year (Jan 17 and Apr 17). I did receive some dividends (I had failed to tick the correct box to auto reinvest in all three but from now on they should).

Come tax time - what do I need to report? Just dividends I actually received or all dividends including those that were reinvested?

Anything else?

Any good guides I can read? Thanks for the ongoing help.

Rowellen

  • Stubble
  • **
  • Posts: 231
  • Location: Australia
Re: Australian Investing Thread
« Reply #3163 on: June 07, 2017, 09:42:27 PM »
Hi all,

Noobie EOFY question;

I have bought a couple of lots of Vanguard ETFs (about $40K across two transactions - VAS, VHY and VGS) this year (Jan 17 and Apr 17). I did receive some dividends (I had failed to tick the correct box to auto reinvest in all three but from now on they should).

Come tax time - what do I need to report? Just dividends I actually received or all dividends including those that were reinvested?

Anything else?

Any good guides I can read? Thanks for the ongoing help.

Yes you need to report dividends and distributions both received and reinvested. If there are franking credits, these will also need to be reported. These are added to your income. Then you receive a credit against your tax payable amount.

The ATO actually has some pretty good basic resources on their website. Google ato investing in shares.
« Last Edit: June 07, 2017, 11:17:56 PM by Rowellen »

cakie

  • Stubble
  • **
  • Posts: 136
  • Age: 27
  • Location: Australia
Re: Australian Investing Thread
« Reply #3164 on: June 07, 2017, 09:44:48 PM »
Zinny, vanguard will mail you all the tax details in the new FY. Dividends will get added to your income even if you do an automatic reinvestment with them. Last year was my first year, it did an autofill for me in mytax, I didn't even have to type them in :)

Gremlin

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: Australian Investing Thread
« Reply #3165 on: June 07, 2017, 10:14:58 PM »
Strictly speaking, Vanguard provides you with a distribution not a dividend.  It's worth understanding what this means in practice as it can have implications on your taxes.

switch42

  • 5 O'Clock Shadow
  • *
  • Posts: 8
  • Location: Australia
Re: Australian Investing Thread
« Reply #3166 on: June 07, 2017, 11:46:51 PM »
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.

I've been wondering if a capital gain can be offset by a capital loss within super?

I just sold my gain making etfs with ING today, after selling the loss making etfs a few weeks back.

There was a money in transaction as "capital gains taxes" when I sold the loss making etfs, followed immediately by a money out as "unutilised tax credits" for the same amount.

When I sold my gain making etfs today (been waiting for the 12 month discount), there was a money out as "capital gains taxes", followed immediately by a money in as "unutilised tax credits" for the amount of my previous credit.

Abundant life

  • Stubble
  • **
  • Posts: 113
Re: Australian Investing Thread
« Reply #3167 on: June 08, 2017, 08:27:24 AM »
I'm in the process of waiting for the shares I've bought in ING super to reach the 12 month mark so that I can avoid the maximum CGT before I roll it over into an industry fund.

I've been wondering if a capital gain can be offset by a capital loss within super?

I just sold my gain making etfs with ING today, after selling the loss making etfs a few weeks back.

There was a money in transaction as "capital gains taxes" when I sold the loss making etfs, followed immediately by a money out as "unutilised tax credits" for the same amount.

When I sold my gain making etfs today (been waiting for the 12 month discount), there was a money out as "capital gains taxes", followed immediately by a money in as "unutilised tax credits" for the amount of my previous credit.
Thanks, that's good to know, I'll keep an eye on it when the time comes.

Spence

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Australian Investing Thread
« Reply #3168 on: June 09, 2017, 03:45:06 PM »
Hi everyone. I've just finished reading the whole thread, I feel like I just completed a marathon...

I've always been frugal but I've been aiming towards Fi for about a year now.

My asset allocation is
50% aus stocks
20% international stocks (vgs)
20% aus bonds (vaf)
10% international bonds. (vif)
I have a 25k emergency fund which I include in the bond allocation calculation.

For the aus stocks component I've been buying VAS, but I'd like to start buying AFI and ARG when they're under NTA.

Currently it looks like about 5 years to Fi, I'm calculating that with a 5% withdrawal from the non super part of my investments.

The reason I think I can get away with 5% instead of 4% is because there'll be a big super payment years into the future (currently 34), and with the heavy weighting to aus stocks the portfolio will return a pretty big dividend especially when franking credits are included and I drop down to the bottom tax bracket in Fi. Also intending to live super cheap in the first few Fi years (spend it hiking the te araroa and others)

Interested in any feedback on my approach.

One question I do have for the collective mustachian wisdom though is does anyone have any tricks to work out up to date NTAs for AFI ARG etc? If the published NTA is anywhere from a week to four weeks old its could be hard to be certain I'm buying under NTA?

I've really enjoyed reading everything here, thanks to all that have contributed.


Sent from my E5653 using Tapatalk


FFA

  • Pencil Stache
  • ****
  • Posts: 512
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3169 on: June 09, 2017, 04:35:00 PM »
Hi Spence, for the traditional LIC's such as AFI/ARG/MLT/BKI etc you can pro-rate the ASX200 movement since the NTA.

e.g AFI NTA (pretax) 31 May = 5.87
Share price 31 May = 5.75
NTA discount on 31 May = 2%

ASX 200 on 31 May = 5724.6
ASX200 on 9 Jun = 5677.8

Estimated NTA on 9 Jun = 5677.8/5724.6 * 5.87 = 5.82
Share price 9 Jun = 5.65
estimated NTA discount on 9 Jun = 3%

Just be careful of any ex dividend periods, you need to make adjustments to the NTA and share price for the dividend depending on whether they are pre- or post- dividend.

Spence

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Australian Investing Thread
« Reply #3170 on: June 09, 2017, 05:49:27 PM »
Thanks FFA. That'll work. 

Sent from my E5653 using Tapatalk


Spence

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Australian Investing Thread
« Reply #3171 on: June 10, 2017, 07:29:16 PM »
Made a google spreadsheet that does all the hard work if anyone is doing the same:

https://docs.google.com/spreadsheets/d/1A5cUD2jkHRbmRjrHXpIeJjEfqxinGbwh6VtCtY85jUU/edit?usp=sharing


zinny1

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Australian Investing Thread
« Reply #3172 on: June 10, 2017, 10:21:16 PM »
Thanks for the help with EOFY. Glad to hear MyTax does it automatically.

Help is greatly appreciated as ever!

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3173 on: June 12, 2017, 06:38:22 AM »
With so many more changes to borrowing serviceability being brought in by the banks in the last couple of months it's becoming increasingly clear that I will be prevented from borrowing anything more for future property purchases (beyond the ~$1m debt I currently have).

These current borrowings are split 25% to PPOR, and 75% to IPs with the PPOR fully offset and about $50k in offsets against the IPs.

Today I pulled out most of the cash in offset against the IPs out and have loaded up the Commsec account with a purchase for VAS input to the buy queue.

I figure if debt is going to be inaccessible in future, now is probably the "end of days" scenario for investors to make the most of it. The distribution yield from VAS largely offsets the interest payable on the debt (4.5%), so I'm quite comfortable engaging in this.

The difference between now and what I went through 10 years ago, is that I won't have a risk of margin calls hanging over my head. Not quite risk free, but certainly risk reduced.

Itchyfeet

  • Bristles
  • ***
  • Posts: 296
Re: Australian Investing Thread
« Reply #3174 on: June 12, 2017, 11:16:54 AM »
Hey Marty

I have $200K in my redraw on my old PPOR ( now a rental) and have been toying with the idea of increasing my leverage further and putting the money to work in the same way you are.

Even with the additional leverage the debt on the property will still be only around than 40% of the property value, so it's not like I really risk having the banks hunting me down, even if things go to shit. I am sure There would be some grace given.

But I have been balking.....

I will FIRE in 2 years without increasing risk by taking on more leverage, so it seems a bit greedy/ stupid to put FIRE at risk in the hunt for some better returns.

But, your post is challemging me to reconsider......

Does anyone know off hand, if I was to redraw debt on my former PPOR, and use the funds to generate income by investing it in another vehicle, will the additional interest on the debt be tax deductible, given that the property was previously a PPOR and the loan was not originally drawn to generate assessable income.....

.... and further, if I was to take the cash off-shore (I am not an Aust tax resident) and invest it overseas, could I claim a further tax deduction in Oz on the interest on my IP (ex-PPOR).

I doubt it has any impact, but just for full disclosure. it is critical that whatever I do I don't jeopardise the 6 year rule ie: the Property must be PPOR for CGT if I sell it within 6 years.

Well, if no one knows off hand, I will do some research.....

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3175 on: June 12, 2017, 03:33:34 PM »

Does anyone know off hand, if I was to redraw debt on my former PPOR, and use the funds to generate income by investing it in another vehicle, will the additional interest on the debt be tax deductible, given that the property was previously a PPOR and the loan was not originally drawn to generate assessable income.....

I think you know the answer is no. For cleanliness, you should to take out a new loan against the PPOR and make sure it is split from the old one. (reborrow, not redraw).

Very easy to get muddled into a mess of mixed purpose loans where you have to start apportioning interest as deductible and non-deductible... best analogy I've seen is that once you piss in the honey you can't unix it no matter what you do.

For the other 2 questions - you really need proper tax advice to sort that situation out.

Itchyfeet

  • Bristles
  • ***
  • Posts: 296
Re: Australian Investing Thread
« Reply #3176 on: June 12, 2017, 09:07:42 PM »
Marty,

The was a case study in the SMH that perfectly highlights your point

http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs

However, I am not 100% sure the answer is "no" in my particular circumstances.

The house is currently rented out, so the loan interest is already now tax deductible.

https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/

If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.

If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.

Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....




Rowellen

  • Stubble
  • **
  • Posts: 231
  • Location: Australia
Re: Australian Investing Thread
« Reply #3177 on: June 12, 2017, 09:51:39 PM »
I'm not familiar with the law regarding non residents. However you are correct that the interest would generally be deductible if you are using the money to produce taxable income.

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3178 on: June 13, 2017, 05:12:31 AM »
Sods law. Buy order still in the queue, market goes on a tear today.

:/

dbm

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Australian Investing Thread
« Reply #3179 on: June 13, 2017, 07:48:47 AM »
Made a google spreadsheet that does all the hard work if anyone is doing the same:

https://docs.google.com/spreadsheets/d/1A5cUD2jkHRbmRjrHXpIeJjEfqxinGbwh6VtCtY85jUU/edit?usp=sharing

I found a better way to calculate the interim NTA is take the top 20-25 holdings and track the market value of these and use the index for the difference.

The top 20-25 are usually published in the monthly NTA, plus every holding is published in the annual report each year.  I have access to Iress have it updating in real time, but I think you can do this by calling the prices from yahoo finance or google finance.

WHF and DUI seem to have a decent discount to NTA, but always seem to trade at a discount, so I'm not holding my breath that the gap will close.  Also their yield is currently below AFI, ARG, AUI, MLT and BKI.

A couple of spreadsheets I'm looking to build are firstly back testing to see if it is better to not hold the larger LIC's (AFI, ARG, AUI, DUI, MLT, WHF) for the dividend, instead selling on ex-date -1 and buy back in the days afterwards, and the second is to to see if it is worth trading between a large LIC and VAS.  As VAS has market makers, it will generally trade at intra-day NTA, whereas AFI will trade wherever the market takes it, so there are often days VAS is down 0.75% and AFI is up 0.5%, so would it be worth selling AFI and buying VAS, and vice versa.  A good example is the 22/05 VAS was up 0.869% and AFI down 0.321%.

I do love my LIC's and spreadsheets, and always fun to combine the two!

Cheers

Rowellen

  • Stubble
  • **
  • Posts: 231
  • Location: Australia
Re: Australian Investing Thread
« Reply #3180 on: June 13, 2017, 03:35:10 PM »
I'm not familiar with the law regarding non residents. However you are correct that the interest would generally be deductible if you are using the money to produce taxable income.

Also make sure that the money isn't combined with a private spending account at any point. Either purchase investments direct from the redraw or transfer to an account used solely for investing.

Itchyfeet

  • Bristles
  • ***
  • Posts: 296
Re: Australian Investing Thread
« Reply #3181 on: June 13, 2017, 08:51:41 PM »
I'm not familiar with the law regarding non residents. However you are correct that the interest would generally be deductible if you are using the money to produce taxable income.

Also make sure that the money isn't combined with a private spending account at any point. Either purchase investments direct from the redraw or transfer to an account used solely for investing.

Thanks. Good point

FFA

  • Pencil Stache
  • ****
  • Posts: 512
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3182 on: June 13, 2017, 10:14:24 PM »
agreed dbm, that's the more accurate way to do it, mine is more of a shortcut approach. Using holdings especially important for those with more deviation from the index such as WHF which has no resources, and DUI which has some global shares.

Mandy656

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Australian Investing Thread
« Reply #3183 on: June 14, 2017, 10:08:46 PM »
Hello,
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance

GT

  • Handlebar Stache
  • *****
  • Posts: 1424
  • Location: Brisbane, Australia
Re: Australian Investing Thread
« Reply #3184 on: June 14, 2017, 10:22:03 PM »
Hello,
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance

Do you have an Investment Plan?  What do you want to do, where do you want to end up, how are you going to get there?  Are you contemplating FIRE?  When do you want to retire?  Do you want to live off your investments?  Do you both have Super funds?  Where are they and what are they invested in?

Contemplate your super being invested in VAS (more tax effective for Aussies) and your extra $630K funds being invested in VGS and some bonds.

Contact Vanguard direct and get them to set you up with a Wholesale account, saves you in the Management costs %.



marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3185 on: June 17, 2017, 08:42:30 PM »
Hello,
I've been reading this blog, thread and info over at jlcollins and would like some advice please. Pretty new to all this FI business!
My partner and I (both late 30's) are looking to invest around $630k joint into vanguard ETFs. I'd say most of it split 70/30 in VGS and VAS, with the last 20% or so in bonds. Considering the amount of capital we are starting with and our age, are these good options, and how do we actually transact them, as wholesale trades? We need something simple and uncomplicated.
Also I currently work part time and he works full time - what are the tax implications for the gains that are made each year? Are they just treated as income tax or are there other things to consider?! Lots to learn on this journey!
Thanks in advance

You may want to invest it all in your name, as I'm guessing you are in a lower tax bracket. If invested in VGS and VAS, you will pay tax on the distribution income each year, but won't pay tax on unrealised gains until you sell (if ever).

hm520

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Australian Investing Thread
« Reply #3186 on: June 19, 2017, 03:20:18 PM »
Hi all - very long time reader, first time poster (I think)

I've read about tax loss harvesting that is performed by betterment in the states, but does any Australian based ETF fund perform a similar service?

As a background, I have investments in ETFs but also in individual stocks. I'm not wanting to buy any more at the moment and instead I'm putting small amounts into an acorns account as a way to beat the 3% interest in a HISA. There's been a recent explosion in providers of these accounts (Acorns, Sixpark, quietgrowth, stockspot) etc. and as far as I can tell, Acorns is still the cheapest but none offer specific benefits of tax loss harvesting.

Cheers

Adram

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Australian Investing Thread
« Reply #3187 on: June 21, 2017, 06:14:40 AM »
Marty,

The was a case study in the SMH that perfectly highlights your point

http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs

However, I am not 100% sure the answer is "no" in my particular circumstances.

The house is currently rented out, so the loan interest is already now tax deductible.

https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/

If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.

If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.

Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....

As a non-resident, interest on any redraw for share purchases will not be tax deductible in Australia regardless of whether you invest in Australian or overseas share investments, as Australian dividends are not taxable income for you in Australia and should not be declared in your Australian return (you also don't get the benefit of any franking credits). No Australian CGT will apply if you sell the shares while still a non-resident.

However, as a non-resident any Australian dividends may be taxable income in the country in which you are a tax resident, along with a possible tax credit depending on tax treaties for any withholding tax on unfranked dividends. In that case, i would imagine that the additional interest is deductible in that country against the australian dividend income.

It certainly isn't deductible against your rental property in Australia as the redraw is not for a purpose associated with that property.

As to your question about the 6 year rule on PPOR, any redraw or change to the loan is completely irrelevant.

Itchyfeet

  • Bristles
  • ***
  • Posts: 296
Re: Australian Investing Thread
« Reply #3188 on: June 22, 2017, 12:15:54 AM »
Marty,

The was a case study in the SMH that perfectly highlights your point

http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs

However, I am not 100% sure the answer is "no" in my particular circumstances.

The house is currently rented out, so the loan interest is already now tax deductible.

https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/

If I redraw funds on that loan the ATO will classify this as a new loan (refer case study in SMH), and its purpose will be for investment, so therefore tax deductible.

If I take the funds offshore, the funds won't be used for generating assessable income in Australia, so I would imagine that in this instance the interest would not be tax deductible. But if I invested in Australia the interest would be tax deductible. However, as a non resident for tax I expect there are other traps on CGT etc that I need to be carful about.

Definitely not a simple area of tax law and at the end of the day I still come back to my first point which is that I don't need to take on extra risk to achieve FIRE so prudence is probably the wisest course of action...... hmmmm....

As a non-resident, interest on any redraw for share purchases will not be tax deductible in Australia regardless of whether you invest in Australian or overseas share investments, as Australian dividends are not taxable income for you in Australia and should not be declared in your Australian return (you also don't get the benefit of any franking credits). No Australian CGT will apply if you sell the shares while still a non-resident.

However, as a non-resident any Australian dividends may be taxable income in the country in which you are a tax resident, along with a possible tax credit depending on tax treaties for any withholding tax on unfranked dividends. In that case, i would imagine that the additional interest is deductible in that country against the australian dividend income.

It certainly isn't deductible against your rental property in Australia as the redraw is not for a purpose associated with that property.

As to your question about the 6 year rule on PPOR, any redraw or change to the loan is completely irrelevant.

This sounds correct to me. Thanks for the detailed explanation.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1018
  • Age: 51
  • Location: Ann Arbor, Michigan
Re: Australian Investing Thread
« Reply #3189 on: June 22, 2017, 09:43:41 AM »
Wow I was struck by how the Australia All Ordinaries Index has never recovered from it's height in Oct. 2007 when it reached a high of around 6800. It dropped by less than half by March 2009, and has recovered quite a bit since then.

mjr

  • 5 O'Clock Shadow
  • *
  • Posts: 69
  • Age: 51
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3190 on: June 22, 2017, 03:34:36 PM »
This is true.  It's also true that an ASX300 index fund pays about 4% dividends p.a. and including them in the returns shows that it has passed the 2007 peak

GT

  • Handlebar Stache
  • *****
  • Posts: 1424
  • Location: Brisbane, Australia
Re: Australian Investing Thread
« Reply #3191 on: June 22, 2017, 05:46:30 PM »
Wow I was struck by how the Australia All Ordinaries Index has never recovered from it's height in Oct. 2007 when it reached a high of around 6800. It dropped by less than half by March 2009, and has recovered quite a bit since then.

Funny, I was looking at the 5yr graph yesterday, and it hasn't broken the 6K (guessing the graph was using end of day value) from what I was looking at.  Came close twice.  Mar 2015 and April 2017.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1018
  • Age: 51
  • Location: Ann Arbor, Michigan
Re: Australian Investing Thread
« Reply #3192 on: June 22, 2017, 08:49:47 PM »
Can I move to Australia?  I don't like living in Donald Trumpistan.

Sydneystache

  • Bristles
  • ***
  • Posts: 274
  • Location: Sydney (Westie!)
  • Aiming for RE!
Re: Australian Investing Thread
« Reply #3193 on: June 22, 2017, 10:15:33 PM »
Can I move to Australia?  I don't like living in Donald Trumpistan.

Yes. Cold but - winter here.

marty998

  • Magnum Stache
  • ******
  • Posts: 4591
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3194 on: June 23, 2017, 04:07:26 AM »
Trumpistan. Ha.

Yes... the index is still below the Nov 2007 peak, but as mjr said the ASX 200, 300 and All Ords (500) accumulation indices have all surpassed that due to the (comparatively large) dividend payouts of Australian companies.

Our governments are starting to do really stupid things. FID and BAD bank account taxes were removed 15-20 years ago because they were inefficient and crap. Now various governments are floating dumb ideas to start bringing them back in one shape or another.

We may not be the utopia you are seeking if the level of intelligence at the political level is a measure.

Sydneystache

  • Bristles
  • ***
  • Posts: 274
  • Location: Sydney (Westie!)
  • Aiming for RE!
Re: Australian Investing Thread
« Reply #3195 on: June 23, 2017, 05:06:07 AM »
We may not be the utopia you are seeking if the level of intelligence at the political level is a measure.

I will take our silver tongued barrister of a Prime Minister over an overblown egoistic wigged orange geriatric who struggles to come up with more than two syllables and divides the world in "good for Trump" "bad for Trump."

PS Utopia is across the Tasman Sea, in Hobbiton, New Zealand. Or so I am told.
« Last Edit: June 23, 2017, 05:08:33 AM by Sydneystache »

superannuationfreak

  • Stubble
  • **
  • Posts: 116
  • Location: Melbourne, Australia
Roll your own cash fund - consider managing your own defensive assets
« Reply #3196 on: June 24, 2017, 06:11:22 AM »
This is a topic I've been thinking about for myself and my parents as I've been exposed to a lot of regulatory information recently.  I thought it might help others for me to put it down on digital paper.  Note that it's targeted at individuals who are more conservative in their investments and have substantial balances.  Many Mustachians will have more aggressive allocations so may not get as much value out of it.  Any feedback is appreciated and I may edit the post based on that feedback.

Roll your own cash fund - why you should consider managing your own defensive assets

In this post I outline why it may be beneficial for conservative investors with fairly substantial savings to manage their own defensive assets in cash, rather than use a Cash or Fixed Interest allocation in Super.  This is not intended as advice, just some insights from institutional asset management.  Note that I work for an industry super fund so at the margin it could be argued that I benefit from people doing the opposite of this advice.

We regularly hear SMSFs have too much cash.  And there are probably many cases where those statements are right.  Historically government bonds have provided better returns.  But there are good reasons, if you want to lean more towards defensive assets, why managing more of your own cash can be the best choice available at the moment.

Why Cash rather than a Bond or Fixed Interest option?

If you are a more conservative investor (less than 50% in growth/risky assets such as shares and property) in these days of low interest rates you need to eke out the highest expected returns from your defensive assets you can. One alternative is to take more risk but for many conservative investors that has psychological costs or invites sequence of returns risk (where a bad equity market just before or just after retirement can derail your plans).

So that begs the question, what are expected returns of Cash and Bonds.  Ignoring fees, etc. at time of writing:
Good online savings accounts outside super yield 2.87-3.0% p.a. (e.g. UBank, ING, Rams)
Good Term Deposits inside or outside super yield around 2.5 - 2.8% p.a.
AusBond Composite 0+ Bond Index YTM 2.27% p.a.
AusBond Treasury 0+ Bond Index YTM 2.13% p.a.

The Yield to Maturity (YTM) from the iShares website is a good estimate of the expected return of a broad bond index that doesn't have much credit risk, as is the case with these standard Australian bond indices (Composite 0+ does include about 10% Corporate Bonds which accounts for the higher yield and shorter duration).  The actual return will be higher when interest rates fall and lower when interest rates rise (interest rate risk, which can be measured by duration).  Where, historically in many countries, bonds have outperformed cash we can see good estimates today suggest they can only do so today if intermediate to long-term interest rates fall.

If your portfolio (super, outside investments and savings) are invested more in equities, property and other growth assets you might invest more in bonds for the diversification, in the expectation that when shares fall bonds will get better returns.  We saw that happen in 2008 but not in 1994, so there are no guarantees.  But if you are running a more conservative portfolio then these potential correlation benefits are likely to be outweighed by differences in expected return.

Why invest Cash yourself rather than the Cash investment option of your Super Fund

In equities, bonds, commercial property, infrastructure and alternative assets I see big drawbacks in DIY.  If you're index investing, the large funds can get much cheaper rates.  If you're active, large funds can not only get cheaper rates but access to better managers.  So why would I suggest investing cash yourself?

The key reason is bank regulation.  In current and upcoming regulation (LCR and NSFR for example, if you want to Google for more information) banks are incentivised to have more of their liabilities either in long-term funding or 'retail' funding, that is funding from individuals.  Funding from financial institutions, which includes all large super funds, is penalised.

The bottom line of this is that banks can (and do) offer better rates to individuals than to large super funds.  And the difference is large, with term deposits of 3 - 6 months I see offered to super funds more like 2.0-2.3%, around 0.5% lower than an individual could get even before fees. When rates have a 2 in front of them that's a very big difference.

How would I invest like this?

I can't give advice but will give a couple of examples that relate to me personally.  In my case, my plan for defensive assets is to either to:
i) hold cash in an offset account while I have a mortgage
ii) once my mortgage is paid off, use online savings accounts

This sort of cash has the advantage of being extremely flexible in that I can use it for emergencies also and it has no fees.  Of course with ii) above I'll pay taxes at my marginal rate whereas in Super I would pay a lower tax rate.  So while I'm working, even with the higher rate, it's very close to the expected return I'd get from Cash or Bonds in Super after tax.

For my parents, they have most of their financial assets in Super so the availability of good ongoing high-interest savings accounts is more limited but they pay zero taxes in retirement.  They run a much more conservative asset allocation also.  In their case I will be suggesting the direct investing option of their super fund so long as those term deposits continue to be treated by regulators as retail money and so gets retail rates.

One of my parents is with NGS Super (they have been for a long time so I'm using them as an example, not a recommendation).  NGS charge an extra $247 p.a. to invest in individual shares, ETFs and Term Deposits (they have four different banks available, although one of them has particularly poor rates).  In my parents' case they have a big enough balance that it's worth it to use just for TDs (for example, if you had $247,000 then $247 p.a. amounts to 0.1% p.a in addition to their base admin fees of $65 + 0.1% p.a.).

So what we'll likely do is use the transaction account and term deposits to build a ladder of term deposits.  That is, instead of having a single 3Month or 6M term deposit with one or more banks, invest each month so that a term deposit is maturing every month.  A simple example:

At the start invest 1/3rd in a 3M term deposit and 2/3 in cash or a 1M term deposit
After 1 month, invest another 1/3rd in a 3M term deposit and the remaining 1/3rd in cash or a 1M term deposit
After another month invest in another 3M term deposit.
Then every month invest the maturing money in a new 3M term deposit

At current rates you'd have a ladder paying 2.4-2.7% p.a. depending on the bank.
The advantage of the ladder is that a term deposit matures every month so you get around the illiquidity if you need to access the money early (in retirement) or make an asset allocation change.

Obviously you could spread this out if you wanted a 6 Month or longer ladder as well/instead, or you could invest smaller amounts weekly if you wanted to improve liquidity further (but with additional work as you'll have to either set them to auto roll-over or be reinvesting a term deposit every week).

Similarly if you had an SMSF you could build a ladder of Term Deposits (although using multiple banks would require a fair bit more paperwork in that case).  If you stay within limits for each bank, SMSF cash can also be government guaranteed.

Note that even in my parents' case we'll be keeping some fixed income in bonds, partly for diversification (I could be wrong!) and partly because it is not worthwhile financially in their other fund given their particular asset allocation.

Why would I not invest like this?

- If you had a higher allocation to growth assets, as mentioned above, you might see more diversification benefit from longer-term bonds if shares fall in a crisis and you are willing to rebalance regularly when this happens
- If you have a smaller balance in defensive assets (10s rather than 100s of thousands) the fixed admin costs swamp the difference in interest rates
- If you are a nervous investor who looks at their investments individually and seeing larger fluctuations in the non-defensive parts of your portfolio whenever you log in to roll a term deposit would stop you sleeping well at night.  In this case an all-in-one "Conservative" option is probably better for your sanity
« Last Edit: June 24, 2017, 07:19:51 AM by superannuationfreak »

FFA

  • Pencil Stache
  • ****
  • Posts: 512
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3197 on: June 24, 2017, 04:23:59 PM »
hi superannuationfreak, fully agree. I'm in this boat and hold nearly all my defensive in cash in online savers. I have UB, ING, RAMS. Used to have ME Bank but found the weekly paywave a bit too stressful, especially after they dropped the rate it is not worth it now... In addition to what you've explained, another key benefit I see is tax given the portability of cash. Currently I'm working but mrs ffa isn't, so all the cash is in her name. If I stop working we can easily switch the cash 50/50. If mrs ffa starts working and I'm still off, we can put the cash all in my name. Unlike other assets where you would incur transaction costs, CGT, etc. Furthermore the flexibility, e.g. if my parents want to downsize I can lend them money to buy the new place first so they can take their time to sell their current place, rather than bothering with bank loans to bridge, etc. I see lots of advantage, on top of the fact you get a better return as you've pointed out. Maybe in another decade when the QE experiment has finally run it's course and we can better judge the final consequences, the bond market might eventually re-normalize and I would re-assess having more bonds in my defensive assets. 

Edit to add: One further tax benefit might be to keep majority growth in Super, and defensive ex Super. Since in the long-term your growth assets are going to earn bigger returns, it's best to keep them in the lower tax environment. Of course this depends on your net assets and marginal tax rate ex Super. If you are on the tax free threshold it might be the opposite. But for us we pay higher tax ex Super than inside, so directionally it's better to put higher returning assets in the lower tax environment.
« Last Edit: June 24, 2017, 04:27:06 PM by FFA »

superannuationfreak

  • Stubble
  • **
  • Posts: 116
  • Location: Melbourne, Australia
Re: Australian Investing Thread
« Reply #3198 on: June 24, 2017, 06:11:11 PM »
Thanks FFA.  Completely on the same page regarding the flexibility of cash.

Re: taxes, it's less clear in my view.  Keep in mind that there's still currently a 50% discount on long-term capital gains outside super, so depending on your expected tax bracket in retirement Shares outside Super may make more sense.  Australian Shares are often high dividend paying which points in the other direction for those perhaps.  And if you're still in a higher tax bracket there can be a significant difference to the tax on Cash/Bond interest (15% in Super vs. 40-50% outside Super).

Little Bird

  • 5 O'Clock Shadow
  • *
  • Posts: 11
  • Location: SE Asia
Re: Australian Investing Thread
« Reply #3199 on: June 26, 2017, 10:08:08 PM »
Just wondering what is the best way for a US citizen to invest in Australia? I understand that by having shares you avoid the passive tax levied instead if you had Vanguard mutual funds, is this correct?
I hold a lot of shares from before I became a USC and am now wanting to organise my portfolio and realising that now being a USC complicates things somewhat...
Thanks!