Author Topic: Australian Investing Thread  (Read 1149324 times)

BRAFRA

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Re: Australian Investing Thread
« Reply #4050 on: June 03, 2018, 10:24:57 PM »
I will add a few things:
-single 29
-Australian resident for tax purposes
-should be in the highest tax bracket in around 4 years
-plan to take a full gap year to travel (and liquidate all the CGT) in 5-6y

Ok. Obviously you are a beginner investor.
Mainly new to the country, completely different rules and investment models.

Shares should be bought and held for about 10 years - otherwise, because they have a lot of ups and downs (volatility), you are being risky. If you want to invest for a short period, things like bank term deposits are the traditional way to go. Divide the money into longer term and shorter term requirements, and invest it appropriately.
I don't mind volatility and keen to take risk.
My tax bracket is 37%, so 39% of the interests on a term deposit goes away, so 3% becomes 1.8%, less than the inflation.

CGT is really not much on what you are investing - it's only on the actual capital gain - not the full amount. If you've had the investments for more than a year the gain is halved, and then your marginal tax rate is applied. And, if you sell at a loss that can be used against years that you sell at a profit.
ATO: Individuals and small businesses (excluding companies) can generally discount a capital gain by 50% if they hold the asset for more than one year.
I will check more on the ATO website how they calculate the CGT and what they consider as an asset.
As I plan to travel during a FY, I want to liquidate all the assets with high CGT during this low income year.

Why do you want to reinvest dividends? It is the easiest way I can think of to get yourself in a muddle. You have to declare the dividends as income anyway. You have to keep tabs on exactly how many you bought at every dividend and when you sell each individual parcel. If you have more than one investment, dividend reinvestment will skew your portfolio.
Where I come from, the reinvested dividends can stay in the "product" and become part of the CGT when you sell the "product".
For example, VGS reinvests the net dividends. Does this mean Vanguard already paid my income tax or only the company tax ?
« Last Edit: June 04, 2018, 03:25:47 AM by BRAFRA »

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Re: Australian Investing Thread
« Reply #4051 on: June 04, 2018, 12:09:04 AM »
In my basic understanding, in ETFs all distributions (they don't pay dividends) are treated like cash for tax purposes. It doesn't matter if they are reinvested.

If you are on a Distribution Reinvestman Plan (DRP) they will use the distribution to buy 'new' units at the current market rate. I think this is what Deborah is getting at. When you sell, to calculate the CGT you'll have to use the difference between sale price and purchase price. This may be 16 different very small lots. 4 per year - each might be 6 or so units (depending on returns etc).

It isn't the end of the world - and just means you're better off keeping a spreadsheet to track purchase prices.

deborah

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Re: Australian Investing Thread
« Reply #4052 on: June 04, 2018, 11:49:14 AM »
Firstly, with any investment there are two ways to make money - income and capital gain. Shares give you income in the form of dividends, and may go up in value, so that when you sell them you get more money than when you bought them. Similarly, houses bought for investment give you income in the form of rent, and capital gain when you sell them.

In Australia, both the income and the capital gain are taxed separately.

Broadly speaking, any money you get as income is taxed, generally at the source. If you buy a stock and you donít give the company your TFN, they will tax your dividend at the highest marginal tax rate. If they have your TFN, they wonít tax it but theyíll send the tax office information about your dividend payment, and youíll have it already prefilled when you come to do your tax return (unless you fill out your tax return too early).

In Australia we have franking credits - as the company has probably already paid tax on the dividend they give you, you donít have to pay the tax again on that dividend (income). Because you are on a 37% marginal tax rate, and company tax is currently 30% your share dividends will probably mean you get little extra tax from your dividend income. However, some companies donít pay much tax (for instance mining companies setting up mines have a lot of expenses they can claim against their tax) so may give dividends without many franking credits. When you get your dividend statement it will tell you just how much tax has already been paid. The dividend income will be added to your other income, and then the franking credits youíve already paid will be taken off what you need to pay in tax. This is regardless of whether or not you are involved in dividend reinvestment.

If you spent money to earn that income, you can claim it against the income. In the past, your expenses for attending a companyís AGM could be deducted from your income, and if you have a loan for the investment itself, you can claim the interest of that loan as an income deduction. You have to be able to prove to the ATO that your deductions are solely related to the investment (donít take a holiday at the same time as you go to the AGM). I think attendance at an AGM was taken out in the last budget, but I donít go to any, so Iím not sure. Many people with investment property have more deductions than income from the property, so they end up with less income than they received from their job - this is called negative gearing. As you plan to buy shares without a loan, I assume you wonít be negative gearing.

Whenever you buy any investment (including in DRPs), you have a base price for that investment - what you paid. Base prices can be adjusted - for inflation, or if the capital value of the investment has changed in any other way. With shares, this can happen if the company decides to have a share split or various other mechanisms. When you sell your investment, the difference between the price you receive and the current base price is the capital gain. Occasionally, companies give you money other than dividends, and the ATO rules whether you have received a dividend or a capital gain (for instance when a company sells part of itself, like the banks are currently doing with their financial services arms) or something else. When you get the statement from the company, it will advise you where the ATO ruling is, so you can work out how to complete your tax return.

If you sell an investment after less than twelve months, you are considered to be playing the market for a living rather than investing. Because of this, capital gains in the first twelve months are considered income, and after twelve months CGT is halved. So, the capital gain is the actual increase between the pile of money you had originally and the pile you received when you sold it (subject to changes in the base price as above).

This (or half of it) is considered to be income, and is treated similarly to other income. However, if you have a capital loss you can only offset it against capital gains, not against other sources of income. To make things more equitable, the loss can be carried forward, and offset against capital gains in future years.

However, like with negative gearing, itís a bit stupid to want a capital loss. You want your investments to grow, and capital gains are only taxing you for what you have earnt from your investment.

Now, in your particular situation, I donít understand why youíre bothered about capital gains. Surely you will take your gap year from January to December or something, so that you have two years at a very low marginal tax rate. If you continue to pay super during this time, you can virtually set your own marginal rate. Any capital gains on shares you sell during those two years will be taxed at almost nothing.
« Last Edit: June 05, 2018, 01:33:54 AM by deborah »

BRAFRA

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Re: Australian Investing Thread
« Reply #4053 on: June 06, 2018, 08:20:39 AM »
Thanks Deborah for sharing all this information, things are so clear now.

Now, in your particular situation, I donít understand why youíre bothered about capital gains.
Based on the Australian rules you described, there seem to be limited optimisation available around CGT minimisation.
I see one loophole: to get rid of some shares before moving to the next tax bracket and "save" in my case half of 45%-37%= 4% of the capital gain.

If you spent money to earn that income, you can claim it against the income. In the past, your expenses for attending a companyís AGM could be deducted from your income, and if you have a loan for the investment itself, you can claim the interest of that loan as an income deduction. You have to be able to prove to the ATO that your deductions are solely related to the investment (donít take a holiday at the same time as you go to the AGM). I think attendance at an AGM was taken out in the last budget, but I donít go to any, so Iím not sure.
Are the management fees, for example from a Vanguard wholesale fund, deductible ?

Luckyvik

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Re: Australian Investing Thread
« Reply #4054 on: June 06, 2018, 08:29:53 PM »
Either way, without knowing exactly how the money is invested means I'm not going to touch it.

I'm not interested in investing with them but their portfolio breakdown is actually quite informative and I found it quite easily just by clicking on the relevant thing and scrolling? Not only do they tell you exactly which companies are included, but they also provide a blurb on what each company is about. For the Universe one they also tell you why they like the company but tell you the risks as well.

I stand corrected - hadn't seen that!

Yeah you can see all the portfolio companies on https://www.spaceshipinvest.com.au/invest/universe and https://www.spaceshipinvest.com.au/invest/index
I was looking at the 'indexed investment' option for this fund and it concerned me that the listed investments under this investment option are picked by spaceship therefore it doesn't seem to reflect a particular index such as the ASX 200 or a worldwide index therefore it seems to me it's not an index fund it's an actively managed fund. I think the name index fund for this investment option is misleading.

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pistolpete

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Re: Australian Investing Thread
« Reply #4055 on: June 13, 2018, 05:53:28 PM »
Ok peeps, what would the best scenario be in regards to wanting to open a vanguard wholesale fund with the quoted 100k buy in?

I have around 100k in a issue lics (ago,  Milton,  Whitefield,  similar to vas but higher franking and smoother divs)

Looking to open the vanguard international fund and maybe another fund so 70k in and maybe 30k another wholesale fund.

Instead of using my own money I would borrow from the bank 100k even tho i have around 115k cash at bank and claim the interest at tax time and let the loan tick over and pay it off whilst reinvesting the distributions as well as dividend reinvestment of my lics.

Any feedback to approaches in how to get into the wholesale fund whilst also having my a aussie lics and blue chips???

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4056 on: June 21, 2018, 01:36:47 PM »
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.

Richmond 2020

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Re: Australian Investing Thread
« Reply #4057 on: June 21, 2018, 02:30:06 PM »
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.

Good question iím struggling with this one also.

In my case it will likely be a far less than ideal multifaceted strategy. A combination of dividends from stocks, selling some stocks, cash and rental income.

The less than ideal part of this strategy for us will be once weíre both drawing our pensions we may find we have too much money for the later part of our Retirement phase.

First world problem I guess. But the flip side is that if this is the case we have probably spent to much time slaving away 9 to 5. I guess it will come down to finding that sweet spot where we stop accumulating and start selling some shares.


Richmond 2020

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Re: Australian Investing Thread
« Reply #4058 on: June 21, 2018, 02:41:35 PM »
The other thing we are toying with his living OS in a LCOL area for a portion of the time between ER and being able to access our super. We would rent out our place and use the differential in rent to help fund the gap. Lots of potential issues with strategy including capital gains tax implications.

ozbeach

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Re: Australian Investing Thread
« Reply #4059 on: June 21, 2018, 02:43:10 PM »
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.


Only 50% (assuming you've had for more than 12 months) of the capital gains are considered as taxable income. So if you bought 20,000 shares five years ago at $10 per share (total $200K) and they are now worth $15 per share or $300K, you could sell 3,000 shares for $45K (to fund your living expenses for the year). The total capital gain is $5 per share x 3,000 = $15,000 and only $7,500 is taxed.


And don't forget the possible imputation credits on top of that.

deborah

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Re: Australian Investing Thread
« Reply #4060 on: June 21, 2018, 02:45:47 PM »
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

middo

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Re: Australian Investing Thread
« Reply #4061 on: June 22, 2018, 12:33:07 AM »
Does anyone have any insight into why our market is running up at the moment?  I see cheering online, but not explanation.

mrmoonymartian

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Re: Australian Investing Thread
« Reply #4062 on: June 22, 2018, 05:57:11 AM »
Iím curious about peopleís ER strategy. So, say you retire at 50. You canít touch your super for 10 years (presume you donít early withdraw at 55 because you donít want the tax hit). So, then what you can access is cash or investments outside of super. But if you sell your shares you get a CGT hit and then you impact the growth, which will impact what you need to have at 60 to live off 4% for life.

Currently Iím thinking, if I want to live off $40k a year, then take $18k from investments cause itís tax free, and have $22k in cash saved for 50-60. Does that make sense?

What are the rest of you doing? Rental income?

Iím perplexed.
As already noted, CGT is no big deal. If it is a big deal it means you're rich, so shouldn't care about a bit of tax.

I haven't finalised my pre-preservation plan yet. I had been thinking of a base comprising something like cash/certificate of deposit ladder/bonds and stock selling if/when conditions are suitable. Now I'm thinking a home equity loan/line of credit could replace a lot of that cash/bonds stuff for smoothing out the gaps when I don't want to sell stocks. I could live entirely off my home equity for the time between FIRE and preservation if desired.

If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.
I looked at the eligibility criteria and they seem pretty strict. For example, you have to sell down other assets before you can touch super. Is there something I'm missing?

Does anyone have any insight into why our market is running up at the moment?  I see cheering online, but not explanation.
Trade wars, bears in Asia, Aussies shovelling cash into super before EOFY? This is the first year personal contributions can be claimed back easily...

"From 1 July 2017, most people, regardless of their employment arrangement, will be able to claim a full deduction for personal super contributions they make to their super until they turn 75."

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-my-super/Personal-super-contributions/

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4063 on: June 22, 2018, 06:10:30 AM »
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.

deborah

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Re: Australian Investing Thread
« Reply #4064 on: June 22, 2018, 10:30:28 AM »
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.

Please note the part that Iíve highlighted.

There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.

Tax is just one part of the equation. You need to work on the total outcome.

When I was retiring, the best total outcome was to take super as early as possible. I canít see any changes that would make that different today.
« Last Edit: June 22, 2018, 10:39:17 AM by deborah »

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4065 on: June 22, 2018, 06:12:46 PM »
I was stupid, and had five yearís cash. I then planned to use super, but didnít for long because the cash lasted longer than I thought it would. Why worry about the tax hit - youíre going to be on a much smaller income, so the tax hit is much smaller than it would be now. I guess you could use insurance bonds if you start them soon enough.

The other thing is that tax is not something to be avoided. We get a lot of services for our taxes. Planning a strategy just to avoid tax is silly - you should adopt a strategy that maximises your overall outcome. If youíre going to end up with too much super anyway, why not start accessing it as soon as possible? One advantage of early access is that they are less likely to change the rules for you.

I appreciate your thoughts regarding tax. But I take the GoCurryCracker view, I should do everything legally possible to pay the least tax possible, everyone should. Iím not even talking about radical stuff.

Please note the part that Iíve highlighted.

There is no point in minimising tax if you are actually reducing your own outcomes. Many people who are minimising tax by having a negatively geared investment property are actually worse off - we have had people here who have bought investment properties in WA mining towns and lost everything.

Tax is just one part of the equation. You need to work on the total outcome.

When I was retiring, the best total outcome was to take super as early as possible. I canít see any changes that would make that different today.

Thanks for the clarity. Maybe Iím not understanding what you mean by total outcome? My singular goal is to live off of $40k a year from 50 onwards. I will only have 3 buckets: super, Vanguard and cash. My goal is to have that $40k but structured in a way to pay little or no tax from withdrawals/distributions. 

The current thinking is have $220k cash and withdraw $18k each year. Is there a flaw in that? Should all cash be redirect to Vanguard? Or get that all in super as after tax contribution?

I want something fairly simple. So I donít want to create a trust or anything too complex.

Or are you suggesting to Use cash 50-55, then use super from 55-?

And what the hell would someone do at 30 or 40?
« Last Edit: June 22, 2018, 07:37:32 PM by MrThatsDifferent »

mjr

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Re: Australian Investing Thread
« Reply #4066 on: June 22, 2018, 08:30:06 PM »
It's a hard question to answer, because we don't know how much you have outside of super.

The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation. 

Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax.  Your pre-super money is in taxable accounts, so you're going to pay tax. 

Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.

Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.

Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares.  Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.

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Re: Australian Investing Thread
« Reply #4067 on: June 22, 2018, 11:52:33 PM »
Hi all

I'm new here, and have an unusual question.
I'm an Aussie expat, born in Australia but currently living in a developing country.

As I'm not an Australian resident, the following rules appear to apply:
1. No CGT on sales of shares (regardless of domestic or not)
2. Australian shares get no franking credits and unfranked shares have 30% withheld.
3. With International shares (which would be unfranked), I do not pay Australian withholding tax as it is considered to be just passing through from an non Australian company to a non-resident.

Even though I'm a non-resident, I still invest through the ASX since my money is mostly in AUD in Australia, although I guess this is not a huge issue if I wanted to invest other exchanges.

My questions are about bonds.
1. They're unfranked, and I am assuming I would then lose 30% in withholding tax (?)
2. What about an international bonds ETF like VBND - is this is treated the same way as say VTS/VEU where it is unfranked but since it is not Australian that I would not be liable for the withholding tax?
3. Or if tax is withheld, I am thinking it might be best to invest outside the ASX for global bonds and wondering what your thoughts or experiences are on this?

Appreciate any information, thank you.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4068 on: June 23, 2018, 02:00:58 AM »
It's a hard question to answer, because we don't know how much you have outside of super.

The answer, as usual, comes down to your tolerance of risk and volatility and asset allocation. 

Although I'm not even close to Deborah's appreciation of paying tax to spendthrift governments, she is quite correct in that you should be looking at maximising your returns as opposed to drawing down on savings just to avoid paying tax.  Your pre-super money is in taxable accounts, so you're going to pay tax. 

Long-held capital gains is the lowest-tax option, so have as much in long-held capital as you can stomach.

Most Australian equity funds will be paying 4% in dividends whether you like it or not, so you'll be having that as an income stream and paying tax on it.

Personally, my dividends will be covering most if not all of my living expenses from 52 until 60, so I won't need to be liquidating shares.  Assuming that the ALP don't get in to bring in their no-refunds-of-franking-credits policy that is.

Thanks MJR, so, then youíre basically suggesting keep as much as you can in investment account and live of the dividends. I think that would be fine. Iíd probably keep $100k in a HISA as a safety net and to weather any market drops. So, right now Iím having all dividends reinvested, is the idea that you stop that at 52?  They just become a quarterly income stream?

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Re: Australian Investing Thread
« Reply #4069 on: June 23, 2018, 02:23:31 AM »
Yep, that's my suggestion.  I have money kept in HISA as well.  Waaaay too much, but that's only while I'm still working.

I said 52 only because I'm 52 and about to RE.  Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4070 on: June 23, 2018, 12:59:19 PM »
Yep, that's my suggestion.  I have money kept in HISA as well.  Waaaay too much, but that's only while I'm still working.

I said 52 only because I'm 52 and about to RE.  Yes, I want them to become my income stream - I'm being taxed on them as income, so may as well use it.

Ok MJR, thatís good, I get it. For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years? So, your plan is to live off the post-tax dividends from 52-60, and then take from your Super at 60? Or will you just take from 52-55 and then start accessing your Super like Deborah suggested and pay the tax? And how do you even know that your dividends will be enough?

I gave 50 for this thought exercise but on paper, Iím slated to pull the plug at 52 like you, so Iím very interested in how youíre making this work. Thereís no guidance for the after FIRE part of money management, itís all most accumulation phase focused.

Apologies for all the dumb questions, really appreciate you sharing.

deborah

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Re: Australian Investing Thread
« Reply #4071 on: June 23, 2018, 01:48:41 PM »
There are two forms of tax on super. Inside super itself, and your own income from super.

Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you donít need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire itís all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.

How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.

Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they arenít considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you canít pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didnít need to look into these, and after youíre 60, income from super is generally tax free, so itís only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).

If I was doing it again, Iíd live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.

mjr

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Re: Australian Investing Thread
« Reply #4072 on: June 23, 2018, 04:19:49 PM »

For some reason I was shying away from that because I thought you needed to have dividends reinvested for the invested money to double every 10 years?


Growth of your non-super assets will certainly be hampered by taking dividends, or by selling shares.  I don't quite understand your thinking here.  I don't expect my non-super assets to double every 10 years, nor do I need them to.

*My* plan is to draw down about $30k/year from my non-super portfolio of $1.2m. I'm getting more than that in dividends and interest now. I'll start drawing from super at my preservation age (60) from the funds in there (another $1.3m).  As you can see, I have a safety margin a mile wide, because that's the kind of person I am.  A more general plan would be to draw down on your non-super assets as long as you're comfortable it will get you to 60.

Maximise returns and minimise taxes for your non-super assets and your super in both the accumulation phase and pension phase.  You have more options open to you after you turn 60.

deborah

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Re: Australian Investing Thread
« Reply #4073 on: June 23, 2018, 05:02:33 PM »
If you have trouble getting to your preservation age, there is always the possibility of using your mortgage offset account (if you have one - I didn't). If you have a mortgage, and can fully offset it (so you aren't charged interest), it can be of value keeping this until you can access your super.

Firstly, banks are reluctant to lend to people who aren't working, so having the account allows you to use it as a loan or a line of credit when you need it.

Secondly, no-one manages to get their retirement budget right before they've retired. Everyone I have met spends differently in retirement than they predicted. Everyone bar one spends less, so it isn't really something to worry about, but having the offset as a backup would allow you to draw on it if your dividends etc. don't work out as well as expected. If you repay it as soon as you get your dividends, you shouldn't be charged too much interest.

If you are retiring early, you know how to save, so you aren't likely to fall into the traps associated with using your mortgage. Having this could reduce the risks associated with early retirement until you have access to your super.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4074 on: June 24, 2018, 01:52:24 AM »
Thanks MJR and Deborah, thatís all very helpful. I wonít have anything like what you have MJR. Iím hoping to have around $300k in super, $600k in Vanguard and $100k cash by 52. In theory, theory, that should get me $40k for life. I guess the idea would be to access the cash first, Vanguard second, leave super until 60 and transfer whatever is left in Vanguard to super at 60?

No Deborah, no offset account as I buying a property would probably set me back at least 2 years from retiring.

deborah

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Re: Australian Investing Thread
« Reply #4075 on: June 24, 2018, 03:32:51 AM »
You'll have 8 years between retirement and superannuation.

During this time your Vanguard dividends will be income, and your interest (if any) on your cash deposit will be income, so I suspect that you will count as a low income earner for the money the government gives out when low income earners put money into super. You probably won't want your Vanguard dividends to increase, as that will increase your taxable income. So, instead of dividend reinvestment (during this period), if you don't need all the dividend to spend, you probably should put it into super. You get the low income rebate directly from the ATO into your superannuation account, based on your tax return, so you can put the money into super on the last day of the financial year, and still get the rebate.

This has the added bonus of reducing your CGT liability if you transfer any of your Vanguard to super.

You have 2.5 years of cash, so I'd be gradually running it down during this period, using it as an emergency fund and as a top up for the dividends (if necessary). Then, at the end, when you've got all your money needs for the remainder of the period, I'd look at how I want to distribute my money between super and non-super accounts, and start to do so.

I personally think that having as much as you can in super by age 65 is a definite advantage. Super receives enormous tax benefits, which is why they are putting the cap on it. After 65, unless you meet the work requirements, you can't put anything into super and you can withdraw as much as you want to at any time.

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4076 on: June 24, 2018, 06:49:08 AM »
You'll have 8 years between retirement and superannuation.

During this time your Vanguard dividends will be income, and your interest (if any) on your cash deposit will be income, so I suspect that you will count as a low income earner for the money the government gives out when low income earners put money into super. You probably won't want your Vanguard dividends to increase, as that will increase your taxable income. So, instead of dividend reinvestment (during this period), if you don't need all the dividend to spend, you probably should put it into super. You get the low income rebate directly from the ATO into your superannuation account, based on your tax return, so you can put the money into super on the last day of the financial year, and still get the rebate.

This has the added bonus of reducing your CGT liability if you transfer any of your Vanguard to super.

You have 2.5 years of cash, so I'd be gradually running it down during this period, using it as an emergency fund and as a top up for the dividends (if necessary). Then, at the end, when you've got all your money needs for the remainder of the period, I'd look at how I want to distribute my money between super and non-super accounts, and start to do so.

I personally think that having as much as you can in super by age 65 is a definite advantage. Super receives enormous tax benefits, which is why they are putting the cap on it. After 65, unless you meet the work requirements, you can't put anything into super and you can withdraw as much as you want to at any time.

This is gold! Thanks Deborah. Iím going to copy this and save it for when Iím ready.
« Last Edit: June 24, 2018, 06:50:59 AM by MrThatsDifferent »

lush

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Re: Australian Investing Thread
« Reply #4077 on: June 24, 2018, 07:26:43 PM »
There are two forms of tax on super. Inside super itself, and your own income from super.

Once any portion of super is in pension phase, that portion is not taxed, and that portion must generate an income for you (at first, you must withdraw 4% a year...). If you leave any portion in accumulation phase, it still gets taxed at 15% on its income and you donít need to withdraw any of it - you can use this portion to withdraw lump sums if you like. Before you retire itís all in accumulation phase. If you have more than $1.6million in super, the portion over the cap must stay in accumulation mode.

How are you planning to access super at 55? I would expect your preservation age (the age at which you can access super) to be higher than that - although there are some exceptions.

Moving on to your own tax... Lump sums are not taxed when you receive them - for some reason they arenít considered to be income - yet. Pension withdrawals are considered to be income. Lump sums can come from money in either phase. However, if you are considering removing lump sums while on a transition-to-retirement, you canít pull out more than 10% in a lump sum. There are tax reduction possibilities because of these distinctions, but I didnít need to look into these, and after youíre 60, income from super is generally tax free, so itís only of any value between your preservation age and 60 (which is rapidly becoming a non-issue as preservation age increases).

If I was doing it again, Iíd live off dividends until my preservation age, and take super as soon as I hit my preservation age (thus reducing the super tax component) and put my investments into super after 60, when my pension is tax free, thus negating any CGT (you can really only do this between 60 and 65 unless you pass the work test), and making your investment income tax free too.

Deborah you always provide such great financial insights! can I clarify:  If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.

deborah

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Re: Australian Investing Thread
« Reply #4078 on: June 24, 2018, 08:45:04 PM »
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
Why do you have $1.3million outside super? How much do you expect to need each year after you have retired early?

There are several numbers related to superannuation contributions:

Concessional Contributions

Each year you can put  maximum of $25,000 into super as a concessional (before tax) contribution. This number includes what your employer contributes (the 9.5% super guarantee). As there are huge fines if you put in too much, you need to be very careful as you reach the full amount. You can put in extra yourself, or you can get it directly docked from your wages as a salary sacrifice. But it must not exceed $25,000 or whatever the government decided this year you can put in. You can now put in more the following year if you didn't reach the limit in the preceding five years - https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-concessional-contributions-cap/

Quote
From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which you can access unused concessional contributions is 2019Ė20.

You will only be able to carry-forward your unused concessional contributions cap if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.

Non-concessional Contributions

You can put up to $100,000 per year into super as an after tax contribution if you have less than $1.6million inside super. Again, there are penalties if you get it wrong and put in too much. There is a bring-forward rule, where you can put in 3 years worth at once, but then no more for a few years - this is useful if you are about to turn 65, or have a year when you have a much lower income than normal and you are incurring CGT to move the money into super.

Contributions Cap

$1.6million.


So, if you want to put $1.3million into superannuation, I suspect that you can't. You certainly can't do it in one hit - it would take a minimum of 11 years to transfer that amount into superannuation - thus the reason for my initial questions. If you don't need much during your early retirement, you should be putting more into super now.

Secondly, if you have more than $300,000 in super already, you can never put the whole $1.3million into super. You will be able to put in as many full $25,000 concessional contributions as you want to, but you won't be able to add any non-concessional contributions after you have hit the contributions cap.

Note: all the above assumes that you aren't already doing some of this stuff. The non-concessional contribution limits (for example) have been reduced from $180000 last year to $100000 this year, so people who have already started the "bring forward" before this year have the ability to do things that are different to what I have said.

Also, you really have to watch when your employer contributions arrive into your superannuation account, if you are trying to put the maximum concessional contribution in, as they have the option of depositing your contribution up to about three months after your pay slip (legally), and some are more behind than that.
« Last Edit: June 24, 2018, 09:19:29 PM by deborah »

lush

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Re: Australian Investing Thread
« Reply #4079 on: June 24, 2018, 09:41:29 PM »
If I was to sell my entire Vanguard Portfolio of approx.. $1.3M to put into super at the age of 60 Ė when selling this I will get CGT right? I am trying to get an idea of what you mean by negating the CGT between 60 -65.
Quote
Why do you have $1.3million outside super? How much do you expect to need each year after you have retired early?

Thanks Deborah.

An overview of our situation : Aim to get to $1.3M in about 6-8 months. I am 43 and my other half 46. We both want to go into part-time work in about 1- 2 years, then maintain this for maybe another 2 years before early retirement. Currently each of us almost hit the $25k Super contributions via our employers and each have about $180k in our super accounts. 

The $1.3M is to provide us with about $40-60K per year in distributions is to carry us through the 10 year gap before we can assess our super Ė by which time combined we estimate an amount of approx. $600k.   We donít intend to sell off any units from our $1.3M over the period leading up to our super, hence why it caught my attention when you mentioned that you can transfer investments without any CGT impacts over into super.

Given the information you have provided we would need to start to move $100k non-concessional amounts starting from our 50ís to move a significant amount. Having said that by pulling down on the $1.3M to move into super this would mean the yearly distributions would be impacted negatively. In addition, for each sale of the $100k there would be CGT impacts so we would need to work out the cost of the CGT and also how it affects our distributions and really if all that is worth it.

deborah

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Re: Australian Investing Thread
« Reply #4080 on: June 24, 2018, 10:29:14 PM »
Firstly, there are two of you, not one. So every number can be halved or doubled because you are separate people. This means you can do it.

When you make a concessional contribution into super, you are reducing your income by that amount. This should offset the CGT associated with withdrawing from Vanguard. If you have EFTs in Vanguard and a SMSF, you could do an ďin specieĒ transfer from yourself to your SMSF. I understand that some WRAP accounts also allow this. However, this is just part of the mechanics.

Let us talk about one of you. You have $650k that you will want to put into super, from 60-64.9. You also estimate that you will have $300k in super at that time, and you wonít have made any concessional contributions for 5 years (or more). So, in the first year, you could make 5 years of concessional contributions ($125k), and 1year of non concessional contributions ($100k). This will put you over $500k, which means that you will only be able to make 1 year of concessional contributions from then on, with no catch up allowed. From then, each year you can make a full concessional, and a full non concessional contribution ($25k + $100k). In the last year, you can use the ďbring forwardĒ rule with non concessional contributions to put up to $300k into super (plus the concessional contribution of $25k).

This could work if the rules donít change. Iíd check it with someone from your superannuation fund to make sure.

CGT is reduced in early retirement because you simply donít have the income that you had. The $100k that youíre taking out of Vanguard each year may consist of $80k of original savings, and $20k of capital gains. The capital gains are halved to $10k, and this is added to your income. If youíre on a lower tax rate, the tax is much smaller. Once your super is giving you a pension, it isnít counted, so you could be on zero income from a tax perspective. As you move your Vanguard to super, you'll be lowering your income each year, and paying less CGT. You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

lush

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Re: Australian Investing Thread
« Reply #4081 on: June 24, 2018, 11:06:15 PM »
Firstly, there are two of you, not one. So every number can be halved or doubled because you are separate people. This means you can do it.

When you make a concessional contribution into super, you are reducing your income by that amount. This should offset the CGT associated with withdrawing from Vanguard. If you have EFTs in Vanguard and a SMSF, you could do an ďin specieĒ transfer from yourself to your SMSF. I understand that some WRAP accounts also allow this. However, this is just part of the mechanics.

Let us talk about one of you. You have $650k that you will want to put into super, from 60-64.9. You also estimate that you will have $300k in super at that time, and you wonít have made any concessional contributions for 5 years (or more). So, in the first year, you could make 5 years of concessional contributions ($125k), and 1year of non concessional contributions ($100k). This will put you over $500k, which means that you will only be able to make 1 year of concessional contributions from then on, with no catch up allowed. From then, each year you can make a full concessional, and a full non concessional contribution ($25k + $100k). In the last year, you can use the ďbring forwardĒ rule with non concessional contributions to put up to $300k into super (plus the concessional contribution of $25k).

This could work if the rules donít change. Iíd check it with someone from your superannuation fund to make sure.

CGT is reduced in early retirement because you simply donít have the income that you had. The $100k that youíre taking out of Vanguard each year may consist of $80k of original savings, and $20k of capital gains. The capital gains are halved to $10k, and this is added to your income. If youíre on a lower tax rate, the tax is much smaller. Once your super is giving you a pension, it isnít counted, so you could be on zero income from a tax perspective. As you move your Vanguard to super, you'll be lowering your income each year, and paying less CGT. You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

Deborah this is all new to me. Just amazing! Thanks so much! This should lead to some really good future planning.

I guess there might also be an opportunity to start the process of transferring funds into super in our mid 50ís as I believe you can start getting super at the age of 60 if you are not employed. Thanks again!

marty998

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Re: Australian Investing Thread
« Reply #4082 on: June 27, 2018, 05:52:00 AM »
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.

deborah

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Re: Australian Investing Thread
« Reply #4083 on: June 27, 2018, 10:57:42 AM »
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.
+1

MrThatsDifferent

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Re: Australian Investing Thread
« Reply #4084 on: June 27, 2018, 03:26:16 PM »
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.
+1

Youíre amazing Deborah. Iíve copied in pasted all of that into my FIRE notes.  Now, Iím sure between now and when I retire, things will change but Iím understanding the value of super and how to structure my accounts. Thank you so much!

one piece at a time

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Re: Australian Investing Thread
« Reply #4085 on: June 27, 2018, 03:57:48 PM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

lush

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Re: Australian Investing Thread
« Reply #4086 on: June 27, 2018, 04:03:15 PM »
Lush - you really need to get proper tax advice on this. Deborah is essentially right but you should go to a good fee-for-service Financial Planner to crunch all the exact numbers.

Hi Marty yes totally agree. I am going to build a few scenarios and this should help with the next steps of getting the Financial advise. Having said that, I have spent a bit of money across Financial Advisors / Accounts for planning advise over the years and must say they have been a bit disappointing! I have found better advise / information within this forum. If you know of any awesome Financial Planners in Sydney let me know :).

Thanks!

GT

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Re: Australian Investing Thread
« Reply #4087 on: June 27, 2018, 04:25:47 PM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

steveo

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Re: Australian Investing Thread
« Reply #4088 on: June 27, 2018, 05:41:15 PM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.

deborah

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Re: Australian Investing Thread
« Reply #4089 on: June 27, 2018, 05:53:33 PM »
Itís not dodgy. Itís because super is taxed at 15%, so to get low income earners (who may be on less than 15% tax) to add anything to super, the government gives a rebate.

GT

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Re: Australian Investing Thread
« Reply #4090 on: June 27, 2018, 08:27:53 PM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.

As @deborah said, it's not dodgy.

IIRC I'll have racked up something like $18K all up this year.  A bit of residual work and my Long Service payout (8 years worth - moving due to my wifes transfer got me early access to it) from the job I had to quit before we moved from Brisbane to Melbourne.  I topped up my super with $1K to get the $500 match.  It's not even a drop in the pond compared to what would have been added if I still worked, but I'll take it, as it's there for people like me who don't earn enough money to have Super go up in happy increments on a regular basis.

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Re: Australian Investing Thread
« Reply #4091 on: June 28, 2018, 03:47:36 PM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

My case is; My super $207k, wife's $78k, $353k in arg, veu, vae (total), and about $10k in cash. Single take home pay of $85 (net of super and tax). We're both 39 and two kids at primary school. We own our low maintenance, solar equipped, home in a bike friendly(ish) LCOL location. My aim is to get to a 25*$35k and then retire. My calcs have suggested that super will take care of itself simply by compounding between my retirement date and the 65 years I need to live to access it. We also anticipate at least some inheritance from parents, which further reduces the value of super savings.

Any reason to put more in super?? The low income matching is attractive (for my wife). But future money seems so far away!

steveo

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Re: Australian Investing Thread
« Reply #4092 on: June 28, 2018, 08:02:31 PM »
@one piece at a time - I'm in a similar situation and my opinion is that you need to save outside Super. You need to be able to get to Super. Your total portfolio matters so I have two components. One is total portfolio including Super and the other is my portfolio excluding Super that needs to get me to Super. I wouldn't want to fail getting to Super but actually be okay from a total portfolio perspective.

deborah

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Re: Australian Investing Thread
« Reply #4093 on: June 28, 2018, 09:04:15 PM »
Iíve started a new thread about early retirement in Australia and put most of this discussion in there. Can we continue this in that thread, so that people have a good resource for their early retirement investment decisions?

https://forum.mrmoneymustache.com/australia-tax-discussion/early-retirement-australia/

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Re: Australian Investing Thread
« Reply #4094 on: July 02, 2018, 02:43:05 AM »
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.

Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.

@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.


Adram

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Re: Australian Investing Thread
« Reply #4095 on: July 02, 2018, 06:28:25 AM »
You obviously donít need to move it all - there is a low income threshold for tax, so keeping the amount that generates up to the threshold outside super is quite reasonable.

ahhh...still some time to go before I start my super saving.

Why?

If you are a low income, dropping extra cash into Super gets you a government match, even if you're not going to see it in your hand for decades, it'll certainly help bump up the available funds at the end.

If you're not low income, then there are other reasons why it might be useful.

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.

This wouldn't work actually. You need at least 10% of your total income to be eligible income from employment or other self employment or business income to gain access to the co-contribution.

I have seen low income people with trust business income miss out on this because trust income is not eligible income.

Grogounet

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Re: Australian Investing Thread
« Reply #4096 on: July 02, 2018, 07:53:39 PM »
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.

Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.

@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.

Who do you trade with Marty?
I really love IB but I have to say I can't really understand how much dividend I receive and when.. Annoying

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Re: Australian Investing Thread
« Reply #4097 on: July 02, 2018, 07:55:22 PM »
@one piece at a time - I'm in a similar situation and my opinion is that you need to save outside Super. You need to be able to get to Super. Your total portfolio matters so I have two components. One is total portfolio including Super and the other is my portfolio excluding Super that needs to get me to Super. I wouldn't want to fail getting to Super but actually be okay from a total portfolio perspective.

I ll go even further. You can take Super into account for ER to get a nice kick in your 60s
Definitely something to take into account when you FIRE

marty998

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Re: Australian Investing Thread
« Reply #4098 on: July 03, 2018, 03:10:29 AM »

How about this. I retire at 50 and have a taxable income of say 20 grand. Can I take money out of my out of Super stash, put it into Super and get the government to chip in money as well. It sounds dodgy and it probably is but I like the idea.

This wouldn't work actually. You need at least 10% of your total income to be eligible income from employment or other self employment or business income to gain access to the co-contribution.

I have seen low income people with trust business income miss out on this because trust income is not eligible income.

It also wouldn't work because you are 50 and cannot take money out of Super at that age.

marty998

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Re: Australian Investing Thread
« Reply #4099 on: July 03, 2018, 03:11:30 AM »
Estimated Vanuguard Australian Shares (VAS) distribution payable on July 17 is $1.02 per unit.

Chomp chomp, reinvested will be another 33 shares for me :) And with a big fat tax return and (hopefully a) work bonus too I will be loading up on some more this quarter.

@Rob_S - the VHY one is $1.79! Quite the very high yield it is turning out to be.

Who do you trade with Marty?
I really love IB but I have to say I can't really understand how much dividend I receive and when.. Annoying

Commsec.

Dividends have nothing to do with the Broker you are with.... I don't fully understand your question here. Can you elaborate?