Author Topic: Australian Investing Thread  (Read 1126343 times)

misterhorsey

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Re: Australian Investing Thread
« Reply #3900 on: March 08, 2018, 03:47:15 PM »
And yet, I keep thinking, with buying, at least youíre retaining some of your cash and itís not going down the drain completely. With an offset account, youíre keeping even more as you negate interest.

There's more than one drain money can go down.

- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at. 
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).

I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer.  But renting gives such great flexibility one shouldn't always dismiss it out of hand.

I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.

But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.

http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/

These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).

Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.

https://www.millennial-revolution.com/rent/renting-will-make-you-rich/

But many of the ideas are relatable.  The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.

And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.

Good luck!

deborah

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Re: Australian Investing Thread
« Reply #3901 on: March 08, 2018, 03:56:18 PM »
It also really depends upon how long you live in a house. At some stage, I heard that on average, Australian houses are sold every 7 years. This is about when (traditionally) they said that it makes sense to buy rather than rent - so most people don't stay in their houses long enough for ownership to be worth while. If you follow MMM in the living-in-walking/riding-distance-from-work, and you change jobs as often as most Australians do, it would be much more sensible to rent.

simonpickard

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Re: Australian Investing Thread
« Reply #3902 on: March 08, 2018, 09:07:25 PM »
"Regardless the general concensus is that for Australians Vanguard is the way to go, either EFTís if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it."

Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.

I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).

Which Vanguard fund does everyone use? I just checked their website and there's quite a few.

Regards,
Simon

deborah

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Re: Australian Investing Thread
« Reply #3903 on: March 09, 2018, 12:17:59 AM »
"Regardless the general concensus is that for Australians Vanguard is the way to go, either EFTís if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it."

Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.

I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).

Which Vanguard fund does everyone use? I just checked their website and there's quite a few.

Regards,
Simon

If you have a super blance of over 100k, you are better off than most men who are less than 60 - see https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y

itchyfeet

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Re: Australian Investing Thread
« Reply #3904 on: March 09, 2018, 04:45:05 AM »
It also really depends upon how long you live in a house. At some stage, I heard that on average, Australian houses are sold every 7 years. This is about when (traditionally) they said that it makes sense to buy rather than rent - so most people don't stay in their houses long enough for ownership to be worth while. If you follow MMM in the living-in-walking/riding-distance-from-work, and you change jobs as often as most Australians do, it would be much more sensible to rent.

I think this is a very valid comment.

I am an extreme case, on the bad side, but I bought and sold 5 homes (not Investments props, although owned a couple of those too) over the course of 14 years.

I today shudder at the stamp duty and agent fee waste. I shuddered at the time, but it didnít stop me. Our 6th home we have now owned 8 years, so we finally beat the average, but will sell when we FIRE and move somewhere cheaper.

In hind sight I prob should have rented in our 20s until I was a bit more stable, although we did benefit from a fast rising market, which todayís buyers wonít enjoy.

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

marty998

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Re: Australian Investing Thread
« Reply #3905 on: March 09, 2018, 04:59:00 AM »

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #3906 on: March 10, 2018, 01:11:15 AM »
And yet, I keep thinking, with buying, at least youíre retaining some of your cash and itís not going down the drain completely. With an offset account, youíre keeping even more as you negate interest.

There's more than one drain money can go down.

- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at. 
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).

I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer.  But renting gives such great flexibility one shouldn't always dismiss it out of hand.

I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.

But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.

http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/

These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).

Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.

https://www.millennial-revolution.com/rent/renting-will-make-you-rich/

But many of the ideas are relatable.  The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.

And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.

Good luck!

Thanks. I had read all of those and was fully in the rent forever basket but with the first home buyer bonus and the fact that our rent currently is $40k a year, I keep thinking Iíd rather not piss that down the drain. And the fact that the SO wonít invest unless itís property. My hope was to live in for 5 years, pay off, the rent out.

Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.

I. Hate. This.

Eucalyptus

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Re: Australian Investing Thread
« Reply #3907 on: March 10, 2018, 02:45:17 AM »
Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.


This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.

asosharp

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Re: Australian Investing Thread
« Reply #3908 on: March 10, 2018, 05:29:43 AM »
I think it really depends though. Some people live in their homes forever. I know friends whose parents bought their first house together as a young married couple and they still live in it decades after.

Also renting isn't for everyone. There is some peace of mind gained from owning your own home that you live in.

asosharp

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Re: Australian Investing Thread
« Reply #3909 on: March 10, 2018, 05:31:13 AM »
Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.

middo

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Re: Australian Investing Thread
« Reply #3910 on: March 10, 2018, 05:47:53 AM »
Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.


This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.

The fine print.  We moved to WA to retrain as teachers, from Vic. Part of the reason was we could move out of home, rent it out and have someone pay our mortgage. Then we rented while on austudy ( outdated I know) and got paid rent assistance. We were advised how to do this by a centerlink officer back when you could talk to a person.

Government policy can affect your financial decisions.

itchyfeet

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Re: Australian Investing Thread
« Reply #3911 on: March 10, 2018, 09:09:55 AM »

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!

Indeed. However, certainly wasnít possible. There were a couple of points during that time when interest rates went up and we were a bit stretched as it was.

Wadiman

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Re: Australian Investing Thread
« Reply #3912 on: March 11, 2018, 03:26:54 AM »
Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.

One solution is to do this via excel if you are familiar with spreadsheets?

Eucalyptus

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Re: Australian Investing Thread
« Reply #3913 on: March 11, 2018, 04:01:48 AM »
Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.


This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.

The fine print.  We moved to WA to retrain as teachers, from Vic. Part of the reason was we could move out of home, rent it out and have someone pay our mortgage. Then we rented while on austudy ( outdated I know) and got paid rent assistance. We were advised how to do this by a centerlink officer back when you could talk to a person.

Government policy can affect your financial decisions.


Agree Middo. Not sure what happened with my post above...the forum has converted the second paragraph to goggle-de-gook!


I said there something like: In my current situation I bought a small unit that I'm doing up in a great investment location. Its also 25mins walk to work (perfect moustachianism). I don't intend to move out any time soon, though, my current work situation is very uncertain. If my contract isn't renewed (workplace is short on cash) then I'll have to go on newstart or parenting payment single. If I stay in my house, with mortgage, I won't be able to afford it; although my mortgage repayments aren't much more than what rent for a similar place would be, I won't be eligible for rent assistance. However if I rent it out, it falls below the assets test, and, taking off costs (interest, council rates, strata fees), I'll be under the income threshold still for reducing my centrelink payments. And I'll get rent assistance for where I rent.


This is kind of stupid. I have to move out. Its disruptive. They could just pay me an equivalent amount for renting my place in rent assistance. The system is basically encouraging property investment. Which if you are aware of and can take advantage of, great. In my case it will quite disruptive to me and my little girl and suck.


^This was all my main worry in buying the place. I knew that I wouldn't be able to afford to stay in it (but wouldn't lose it), if I lost my job for some reason. But, I was very careful, and didn't want to buy a place (at this stage) that wouldn't be a suitable investment property in itself.

Rob_S

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Re: Australian Investing Thread
« Reply #3914 on: March 11, 2018, 04:52:15 AM »

Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.

I. Hate. This.

You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #3915 on: March 11, 2018, 02:11:03 PM »

Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.

I. Hate. This.

You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.

Yeah, but Iím almost at my max so it wonít help me much, the SO it would be good for but if we decide to not buy, then thatís cash we canít access for something else, like our live around the world plans in 6 years.

potm

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Re: Australian Investing Thread
« Reply #3916 on: March 14, 2018, 04:32:42 AM »
We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.


 


Rowellen

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Re: Australian Investing Thread
« Reply #3917 on: March 14, 2018, 05:05:51 AM »
I think you're on the money, potm. This has seriously got my knickers in a knot. I work with SMSFs. I can tell you most of my clients are not obscenely wealthy as Shorten would have the masses believe. Most are living of the nestegg they've saved by working hard and living below their means. There are a few with large balances but it's far more typical to see $200k to $700k and apart from their home, this is it. A main part of their strategy is to have franked dividends. It's also a blow to small businesses. A business run through a company pays tax then the owner takes the profit only to be double taxed. Talk about unfair. A real disincentive to saving. Shorten clearly doesn't understand the tax system or the way centrelink works from his comments. I hope he doesn't get in.

marty998

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Re: Australian Investing Thread
« Reply #3918 on: March 14, 2018, 05:13:32 AM »
I think you're on the money, potm. This has seriously got my knickers in a knot. I work with SMSFs. I can tell you most of my clients are not obscenely wealthy as Shorten would have the masses believe. Most are living of the nestegg they've saved by working hard and living below their means. There are a few with large balances but it's far more typical to see $200k to $700k and apart from their home, this is it. A main part of their strategy is to have franked dividends. It's also a blow to small businesses. A business run through a company pays tax then the owner takes the profit only to be double taxed. Talk about unfair. A real disincentive to saving. Shorten clearly doesn't understand the tax system or the way centrelink works from his comments. I hope he doesn't get in.

Explain the bolded @Rowellen ? The shareholder is not going to be paying any additional tax over and above the corporate tax rate, unless their marginal rate is higher than the corporate tax rate, which is the status quo, so I don't see how it will be "double tax". The tax rate paid will be the corporate tax rate, and this fixes a problem with Labor's Trusts policy.

And besides, you are going to generate a lot of additional fees when everyone comes to you for advice... this will be good for your business :)

Rowellen

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Re: Australian Investing Thread
« Reply #3919 on: March 14, 2018, 05:15:37 AM »
Sorry missed a couple of words. When they take the profit as dividends...

limeandpepper

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Re: Australian Investing Thread
« Reply #3920 on: March 14, 2018, 05:58:52 AM »
Thank for running the example potm. Yeah it's not great isn't it. I was talking to my uncle the other day, he's retired so it would affect him. He's not happy about the idea at all, but he thinks it's probably not going to happen - I hope he's right!

asosharp

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Re: Australian Investing Thread
« Reply #3921 on: March 14, 2018, 06:47:36 AM »
Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.

One solution is to do this via excel if you are familiar with spreadsheets?

I can use Excel but just the basic stuff. No pivots etc.

Ozlady

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Re: Australian Investing Thread
« Reply #3922 on: March 14, 2018, 03:52:55 PM »
Re Franking Credits

I think this Shorten fella  is so short term and panders to a particular segment of society with envy of the wealthy..the worrying thing is  don't think it is not going to happen as the gap between the 2 parties is very narrow.

I can only speak for myself ..going into retirement soon...i was planning to increase my allocation of funds to LICs but going forward , not so sure..this will certainly impact how i invest...ah well...i might as well hold my monies in offset now..why bother to take the risk for the lower return rate..or buy another property.

This may lead people to pull money out of the stock market..or view the stock market more for capital gains rather than dividends focused more similar to the US market.

And i also foresee with lower franking credits for retirees, more will be reaching out for the aged pension..so it really defeats the purpose isn't it?

Another short term policy the Labour comes out with now ..and don't get me started on that whinny high pitch voice..man..that really turns me off !

Rant over!

one piece at a time

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Re: Australian Investing Thread
« Reply #3923 on: March 14, 2018, 04:01:14 PM »
We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.

My understanding is that if the shares were held in Super then you'd be exempt from the $7k in the first place, this makes it an $11k turn around when comparing pre and post shorten tax. Obviously to utilize the super tax free status you have to be old enough, and I've yet to find a way make that happen any faster through badassity.

Ozlady

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Re: Australian Investing Thread
« Reply #3924 on: March 14, 2018, 04:12:09 PM »
We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.

Hi Potm
Can you explain where you got the figures 137K and 37K from ? (last 3 lines...)

potm

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Re: Australian Investing Thread
« Reply #3925 on: March 14, 2018, 05:59:01 PM »
@One piece
Yes the impact is greater the lower your tax rate is and in super it is 0-15% even at very high levels of income. This is what shorten is selling the policy as, targeting these rich people. I canít disagree with super benefits being too generous but they should be targeted directly, not a blanket hit on franking credits that effects people with modest levels the hardest.

Another point to note is that apparently APRA funds will have plenty of tax obligations to net out any franking credits so the full benefit is still received. This just shows again how stupid the policy is. Itís not hitting the rich. Itís hitting those who choose to manage their own super and those on low incomes with fully franked dividends.

@Ozlady
$37k is when the tax rate increases above 30% so each additional dollar of dividend income uses more franking credit offset than it generates so at 37k the lost refund would be greatest. $137k is the point where the average overall tax rate is 30% so all franking credits get utilised so there is no lost refund.

Ozlady

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Re: Australian Investing Thread
« Reply #3926 on: March 14, 2018, 06:57:36 PM »
Thanks Potm

And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?

(my head actually hurts when i am typing this ...)

potm

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Re: Australian Investing Thread
« Reply #3927 on: March 14, 2018, 09:42:37 PM »
Yes see my comments to one piece in the previous post.

middo

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Re: Australian Investing Thread
« Reply #3928 on: March 14, 2018, 10:17:22 PM »
Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

marty998

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Re: Australian Investing Thread
« Reply #3929 on: March 15, 2018, 01:59:42 AM »
Thanks Potm

And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?

(my head actually hurts when i am typing this ...)

Retail and Industry funds are much more diversified across International shares, Infrastructure, Fixed Income, Private Equity and Property. Consequently (the funds that are in accumulation mode) will have other tax liabilities that franking credits will be utilised against.

It is the comparatively un-diversified SMSF sector that will see returns suffer, unless they decide to (IMO) do the right thing and diversify themselves into a more appropriate asset allocation.

If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can. The underlying performance of the companies won't change just because a pissed off retiree has decided to cut their nose to spite their face.

Article published today (I forget where) demonstrated that the Industry Fund sector will see no impact at all to returns, with the biggest drop experienced by SMSFs.

mjr

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Re: Australian Investing Thread
« Reply #3930 on: March 15, 2018, 04:00:32 AM »
Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

So, your advice is to work long enough to save so much that you are immune from any possible policy change ?

Most people retire when they get to "that age".  For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.

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Re: Australian Investing Thread
« Reply #3931 on: March 15, 2018, 04:03:05 AM »

Consequently (the funds that are in accumulation mode)

It is the comparatively un-diversified SMSF sector that will see returns suffer

If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can.

Yeah, those people managing their own super in pension mode deserve everything they get.

itchyfeet

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Re: Australian Investing Thread
« Reply #3932 on: March 15, 2018, 04:43:54 AM »
I agree 100% that the superannuation laws in Australia are meddled with far too much to give anyone the confidence they would want heading into retirement. But unfortunately the laws are far from perfect and  need reform!!

 I would also contend that the clear message on this forum is that withdrawal rates should be conservative when planning an early retirement. If you are basing your retirement planning on say a 6% dividend yield plus a further 20-30% kicker from dividend imputation credits, then you have strayed into aggressive retirement planning territory.

My personal view is that the tax benefits of superannuation are too great and need reform. Capping the asset base that can be held in Super (or: the 1.6m super cap) and taxing incomes from super above a certain (fairly significant) threshold would achieve this. The tax incentive to invest in Super should remain to encourage everyone to save for their retirement. But the incentive must have a limit.

I also believe the imputation credit system should remain in place. If a company you own pays taxes in Australia, why should you be double taxed once you take after tax profits out of your company?? Owners of companies should not be frozen out of the tax free threshold, and low marginal tax rates.
« Last Edit: March 15, 2018, 07:14:02 AM by itchyfeet »

mjr

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Re: Australian Investing Thread
« Reply #3933 on: March 15, 2018, 02:57:13 PM »
Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.

But now Keating's systen has been in place for nearly 30 years.  That's a lot of people who've been taxed on Super and are now approaching retirement.  Hell of a.mess to try and turn that ship around now.

Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry  than it was about managing retirement incomes.

marty998

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Re: Australian Investing Thread
« Reply #3934 on: March 15, 2018, 03:04:34 PM »
Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.


You can't have this because then you'd be taxing the "after tax" contributions you've put in.

Remember the old rebates for "undeducted purchase price of annuities?" It's complex and costly to implement and maintain.

The better thing to do is simply leave a 15% tax on all earnings.

middo

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Re: Australian Investing Thread
« Reply #3935 on: March 15, 2018, 08:04:34 PM »
Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

So, your advice is to work long enough to save so much that you are immune from any possible policy change ?

No.  My advice is to assume things will change.  It has happened in the past and will happen again.  Assuming it won't is making yourself vulnerable to the whims of the electorate and the government of the day.


Most people retire when they get to "that age".  For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.

This is a forum for those that retire BEFORE they get to "that age", so I don't really see how that is relevant, However, I do agree with you that tinkering with the super rules is problematic.  It is one of the reasons I did not pour larger $ into super earlier in my working life, and regret it a bit now.  At least this tinkering is clear and out there before Labor get elected, rather than what happens usually.  It is up front with the electorate.  There will be losers, as it is designed to raise more revenue.  I agree with it.  You may not.  We get a vote in 15 months time on the future of the country.

potm

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Re: Australian Investing Thread
« Reply #3936 on: March 15, 2018, 08:14:13 PM »
Yep super tax rate should have never gone from 15% to 0%, especially uncapped.
What was Howard thinking. He even opened the flood gates and let you put in as much as you wanted for a bit.
Although I aim to be one of the more well off and benefit from it, I donít understand why super doesnít have progressive tax rates like income tax. It should start at 0, go up to 15% at a decent amount and then go to 30% at a much higher amount. That is how you take from the rich Shorten, not a policy that hits people at all levels.

deborah

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Re: Australian Investing Thread
« Reply #3937 on: March 15, 2018, 08:16:24 PM »
Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.

But now Keating's systen has been in place for nearly 30 years.  That's a lot of people who've been taxed on Super and are now approaching retirement.  Hell of a.mess to try and turn that ship around now.

Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry  than it was about managing retirement incomes.
But theyíre bringing back Keatingís system, and removing one of the changes made by Howard and Costello. Everyone knows that the many changes made by Howard and Costello were unsustainable, and that many of the recent changes have been effectively rolling them back. In fact, if it wasnít for the Howard and Costello changes, super would have had a lot fewer changes recently, and everyone would be a lot more comfortable with super.

itchyfeet

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Re: Australian Investing Thread
« Reply #3938 on: March 15, 2018, 09:44:09 PM »
Agreed. Super is still in the experimentation phase. A few generations from now and it will probably be more settled 🤨

In the mean time we continue to play the game with our fingers crossed.

JuicyCrab

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Re: Australian Investing Thread
« Reply #3939 on: March 23, 2018, 02:35:22 AM »
Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

The plan is to move:

  • Aus Shares (IOZ) 38.00%
  • World ex US (VEU)28.50%
  • Emerging Markets (IEM)5.00%
  • US shares (Large, Medium, Small Cap. IVV, IJH, IJR) 28.50%

all into

Vanguard Diversified High Growth Index ETF (VDHG) 0.27% p.a

  • Vanguard Australian Shares Index Fund (Wholesale) 36.0 %
  • Vanguard International Shares Index Fund (Wholesale) 26.5 %
  • Vanguard International Shares Index Fund (Hedged) - AUD Class (Wholesale)  16.0 %
  • Vanguard International Small Companies Index Fund (Wholesale)  6.5 %
  • Vanguard Emerging Markets Shares Index Fund (Wholesale)  5.0 %
  • Vanguard Global Aggregate Bond Index Fund (Hedged) 7.0%
  • Vanguard Australian Fixed Interest Index Fund (Wholesale)  3.0%

It all seems fairly logical as the vanguard ETF broadly matches what I'm trying to achieve and also has the income/bond component I have been wanting to adopt.

Does this seem like a smart move to cut down on time? Or am I missing some risks here?

Cheers!
« Last Edit: March 23, 2018, 02:40:28 AM by JuicyCrab »
insert any quote from Alan Watts....

misterhorsey

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Re: Australian Investing Thread
« Reply #3940 on: March 23, 2018, 03:31:55 AM »
Sounds like a great plan. I wish these ETFs were around when I first started.

The only issues I see are:

- CGT liability.

Are you sitting on any capital gains on your old ETFs?

It's a bit painful to realise a capital gain to  simply to change investment structure (albeit, a more streamlined easier to manage structure). 

You could get around this by buying into the new Vanguard ETF and withdrawing your positions from the old ETFs when you have accumulated losses from somewhere, or if you are planning a low income year in the near future. It does mean double dealing for a bit and it's a bit of a pain. Just depends on how big your tax bill might be to determine whether it's worth it. Someone else might have some clever ideas too.

- Fund route

If you have 100k you can buy the Wholesale Fund. It has a slightly higher .29% fee.

Why would you? Well, you can BPAY your savings into it instead of waiting to accumulate enough to offset the cost of brokerage.

https://www.vanguardinvestments.com.au/adviser/adv/investments/product.html#/fundDetail/wholesale/portId=8134/assetCode=balanced/?overview

The difference between .027% and .29% on $500k is........$100 a year.

Also, buying ETFs on market always does my head in a little bit. I always waste time trying to get a best price.

marty998

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Re: Australian Investing Thread
« Reply #3941 on: March 23, 2018, 04:35:20 AM »
Ooof. Markets took a beating today.

As we near the end of another quarter, please remember your Vanguard ETFs go ex-distribution on 3rd of April. If you want the distributions, you need to purchase your shares by Thursday.

Alternatively if you want to avoid the taxable income you can purchase your shares/units cheaper after Easter :)


krustyburger

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Re: Australian Investing Thread
« Reply #3942 on: March 23, 2018, 05:14:19 AM »
Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.


I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

JuicyCrab

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Re: Australian Investing Thread
« Reply #3943 on: March 23, 2018, 05:54:19 AM »
Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.


I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

Not a bad idea actually!

Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/

Thanks for the advice guys!
insert any quote from Alan Watts....

marty998

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Re: Australian Investing Thread
« Reply #3944 on: March 27, 2018, 01:27:27 AM »
Patience is a virtue. I have written in this thread a few times about my little gamble on a Brazilian copper miner Avanco Resources (AVB). After 6 years of reasonably flat share price movement Oz Minerals (OZL) lobbed a takeover bid today. Share price up 101%.

For me that's a nice tidy earner of about $10k profit (*jumps and clicks heels*). Probably would have done just as well in an index fund over 6 years but at least I have an exit path now from this one.


Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.


I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

I think there will naturally come a "right time" to sell out and clean up the holdings. You mightn't know now when it will be, but you'll know when the time comes. Nothing ever needs to be rushed.
« Last Edit: March 31, 2018, 04:14:09 AM by marty998 »

asosharp

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Re: Australian Investing Thread
« Reply #3945 on: March 28, 2018, 09:08:42 PM »
Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.


I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

Not a bad idea actually!

Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/

Thanks for the advice guys!

I have thought about the VDGR/VDHG but I'm concerned about retirement. Aggressive growth in VDHG means that it's probably not suitable for retirement because by the end of the day you should have more bonds as a rule of thumb for income generation right? So based on this, eventually you will have to sell your VDHG off and put it into something less risky. Wouldn't this trigger a big CGT even when you try to move it across to something more balanced/less risky?

Also what happens if others sell theirs off because they're moving away to less risky investments? How does that affect the fund?

Llewellyn2006

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Re: Australian Investing Thread
« Reply #3946 on: March 29, 2018, 12:57:32 AM »
Well at least Magellan will be saving some money after tearing up their sponsorship deal with the cricket!

marty998

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Re: Australian Investing Thread
« Reply #3947 on: March 29, 2018, 05:15:24 AM »
Well at least Magellan will be saving some money after tearing up their sponsorship deal with the cricket!

It was price sensitive enough that they posted an ASX announcement.

From what I gather the sponsorship was $20m over 3 years. I am disappointed they terminated the arrangement with Cricket Australia and did not opt to transition the sponsorship to the women's team, who seem to be much more deserving of the reward, recognition and attention.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #3948 on: March 30, 2018, 05:47:25 PM »
Hey all, dumb question time: the basic rule is that invested money doubles every 10 years, right? Does that mean that you have to re-invest your dividends or is that extra? Iím wondering because Iím trying to work out, if I had, say $250k invested in Vanguard at age 50 and left alone until Iím 60, could I keep all the dividend payouts, and the stache would still grow to $500k? If so, this would give a nice boost to the money Iíll need to have from 50-60.

Also, Iím sure this has been discussed but how do Aussies handle the draw down period since we canít do what Americans can do with accessing retirement earlier (without a major tax hit)?

misterhorsey

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Re: Australian Investing Thread
« Reply #3949 on: March 30, 2018, 06:20:35 PM »
Not a dumb question (there is no such thing!)

The basic rule that money invested doubles every 10 years is based on the assumption that the investments will see an average growth rate of around 7% per annum.

This is based on the Rule of 72:

https://en.wikipedia.org/wiki/Rule_of_72

So the time period for doubling depends on the actual growth rate of your investments.  According to the table in the wiki article, 5% growth will take 14 years to double, whereas a growth rate of 12% amounts to 6 years.

Growth in your investments is typically expressed as a percentage figure.  It usually includes a capital growth component (i.e. the price of shares), combined with income (i.e. dividends), less fees and taxes.

So whether you choose to reinvest or spend your dividends will affect your average growth rate over a given period. If you reinvest, your average growth will be higher and doubling will be quicker, but if you spend your dividends you will lower your growth rate and it will take longer to double.

But if spending your dividends means putting food on the table then it's not a bad thing to do, even if it makes it longer for your stash to grow.

 
« Last Edit: March 30, 2018, 08:22:18 PM by misterhorsey »