Australian Investing Thread

[liveintokyo]

Thanks for your PM dungoofed - I can't reply to it for some reason (keep getting an error and have done for the last couple of days) so just wanted to say thanks in case you thought I was ignoring you. Much appreciated.

[dungoofed]

haha no worries

[TJEH]

I found a monthly report containing lots of data on ASX LIC's and ETP's that may be of interest (I found it useful for comparing MER's, returns, etc)

http://www.asx.com.au/products/managed-funds/market-update.htm

[englyn]

I'm feeling very overweighted to ASX200 and so I'm buying some ALI (Argo Listed Infrastructure) international infrastructure. It's just IPO'd. Someone tell me I'm not nuts?

[TJEH]

I currently use etrade as my broker. I'm considering changing to a new broker, as I'll be making multiple trades\month over the next 12 months+, and etrade are on the expensive side.

I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.

As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to  transfer my existing holdings to the new broker.

If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?

[englyn]

No idea, but having recently done the opposite, I'm interested in the answer :)

[deborah]

I currently use etrade as my broker. I'm considering changing to a new broker, as I'll be making multiple trades\month over the next 12 months+, and etrade are on the expensive side.

I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.

As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to  transfer my existing holdings to the new broker.

If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?

When you transfer to dual names you have a CGT event. This is a problem with SMSFs when one partner dies. Brokers don't matter.

[PurpleEi]

@ englyn

I bought a small amount of ALI in the IPO (no brokerage =)) - I like the diversification with respect to both the infrastructure sector and the international sector.

The management costs are a wee bit high, but I couldn't find anything similar around for less, so I was happy to accept that (at least for the small amount I purchased).

[gogo419]

Does anyone on here thats in Australia have a discretionary trust setup with a corporate beneficiary to cap income tax at 30% for investments outside of super.

If so did you set it all up yourself and do you do all the accounting/tax yourself? Is there much work involved in keeping everything up to date?

At what value of investments did you decide to set it up?

cheers

[detrimental12]

Does anyone on here thats in Australia have a discretionary trust setup with a corporate beneficiary to cap income tax at 30% for investments outside of super.

I'm am also interested to hear people's thoughts on this.

[TJEH]

I currently use etrade as my broker. I'm considering changing to a new broker, as I'll be making multiple trades\month over the next 12 months+, and etrade are on the expensive side.

I hold all shares in my name, however I am thinking about opening a joint account with my wife, using a new broker. The intent is to purchase all new investments with a 50\50 split. I know there are other mechanisms, such as a trust, but I can't seem to convince myself to go that way.

As far as I know, it's possible to have multiple CHESS sponsored brokers, so in theory I do not need to  transfer my existing holdings to the new broker.

If I did, I'm just wondering what the implications would be. Presumably my wife would then assume 50% of all holdings at the cost basis when transferring? Anything else to consider?

When you transfer to dual names you have a CGT event. This is a problem with SMSFs when one partner dies. Brokers don't matter.

Thanks for your response deborah. So when I transfer shares in my name to a joint account (where I am still an account holder), I can see that I am effectively disposing of 50%, triggering CGT. For the other joint account holder, I would have thought that it would only be a CGT event for them on disposal, rather than acquisition?

On another note, is anyone using CMC or BellDirect as brokers? BellDirect state that they only give you an estimated dividend summary as a tax report and CMC have "outsourced" their tax reports to Sharesight (free for up to 10 holdings apparently). With etrade, they include a  tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.

[deborah]

It is a CGT event. For example see http://www.smartcompany.com.au/finance/tax/42854-husband-and-wife-sharing-and-caring-until-tax-law-do-us-part.html#

[englyn]

With etrade, they include a  tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.

My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.

[FFA]

It is a CGT event. For example see http://www.smartcompany.com.au/finance/tax/42854-husband-and-wife-sharing-and-caring-until-tax-law-do-us-part.html#

Deborah, is it CGT event on 100% or 50% though. I think the 50% transferred to the wife is indisputable having changed ownership. But for the 50% that has effectively remained under same ownership, does the tax law also consider this a CGT event? It's not clear to me from the link, it doesn't seem to specify in this level of detail.

TJEH, why don't you consider opening the new account in your wife's name only. Then you can invest in your name and her name separately until you achieve 50/50% or whatever asset split you desire. It might be more flexible to optimise your tax this way too, if you're able to predict marginal tax rates and shift the asset split accordingly, if you wanted to do this.

[Shaz_Au]

TJEH, I use CMC Stockmarkets and I used their partnership with sharesight to help prepare my tax return this year. The reporting provided got me 90% of the way there, it was definitely helpful.  I still had to muck around in excel to get the VTS and VEU reporting right but that's because of exchange rates and different amounts of withholding tax, etc.

I am happy with CMC, I haven't had any problems but keep in mind that I have very limited funds invested, I follow a buy and hold strategy and haven't use another broker so YMMV.  They have performed well enough to convince me to convert my Issuer
Holdings to Chess with them.

[wombat]

This interest me as well. WE'll be heading back to for FIRE in a year from OS. We are non-residents for tax at the moment and hold all shares in joint accounts - NAB Trade has some but the bulk are through Interactive Brokers. It is my understanding that we can transfer the CHESS without too much hassle - I'll jsut need to consider if it is best to set up individual accounts or a joint account.

Complicating that decision is the fact that Mrs Wombat may want to re-enter the workforce if the 'perfect' job comes up. She loves her work, finds it very rewarding but, although I reckon we are FI, she feels she has some professional business unfinished. I respect that - she's worked hard to get to her level and the next step (the 'prefect' job) would allow her to make have a pretty important impact in her field.

I doubt I'll go back to work full time - but might consider some part time stuff if the right position comes up.

So I'll be talking to our accountant when we get back from summer holidays and asking about our investment set up for the following:

1. Neither of us ever work again
2. One of us goes back to work
3. Both of us go back to work

I assume that - as long as I make the changes before we become residents to tax purposes it will not trigger a CGT event, as there's no CGT on shares for non-residents. I just don't want to incur transaction costs if I don't need to.

[FFA]

as there's no CGT on shares for non-residents. I just don't want to incur transaction costs if I don't need to.

Generally yes, but there can be exceptions if you bought the shares before you went overseas and depending how you treated it on becoming non-resident. You can either deem sale and take the CGT event at that time, and then it's fine. Or if you didn't deem sale, then the shares are considered like Australian property and are still CGT liable. For shares that you bought while overseas then yes I agree they're CGT exempt and you should restructure before returning as a resident. That's my understanding but pls confirm with your accountant.

[qwerty8675309]

This has gotten me thinking about franked distributions. Does this sound right? Lets say that I have $500k invested in shares. For simplicity, lets assume that all the shares offer fully franked distributions yielding 4% a year. The income would be $20k p.a. Assuming that you don't earn any income from other sources, am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -

(ignoring medicare levy)
100% franked Pre-tax dividend income = $50,000
Tax refund on first $18,200 = 18200 x 0.3 = $5,460
Tax refund on $18,201 - $37,000 = 18799 x 0.15 = $2820
Tax paid on rest = 12999 x 0.025 = 325

Total post tax income = 50000 + 5460 + 2820 - 325 = $57955

This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/

[FFA]

am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -

Yes correct, you should get a tax refund, but these calculations don't look right at all. Pls check the 50k taxable income. Should be more like 29k I think with franking credits.

[wombat]

FFA - Yep, pretty much all of the shares were purchased after I became a non-resident for tax. I'll talk to the accountant  to see what course of action to take. At the moment all shares are held in a joint account.

Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.

[deborah]

This has gotten me thinking about franked distributions. Does this sound right? Lets say that I have $500k invested in shares. For simplicity, lets assume that all the shares offer fully franked distributions yielding 4% a year. The income would be $20k p.a. Assuming that you don't earn any income from other sources, am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -

(ignoring medicare levy)
100% franked Pre-tax dividend income = $50,000$20,000 (what you said above)
Franking Credits = 30% x $20,000 = $6,000(this is the tax you have paid)
Total pre-tax income = $26,000 (dividends + franking credits)
Tax you should have paid = ($26,000 - $18,201) x 0.15 = $7,799 x 0.15 = $779.90 + $389.95 = $1169.85

Total refund owed = 6000 - 1169  = $4831

This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/

[qwerty8675309]

Total post tax income = 20000 + 5460 - 1169  = $24291

Opps thanks for fixing it up. That's quite good, as long as you can live on $20k a year!

[FFA]

Calc is still not right, franking credits multiply the fully franked dividend by 30/70 or 42.8% , not 30% (even though that is the company tax rate, it needs to be "grossed up"). So franking credits around 9k (rounding up) and taxable income is 29k as I posted earlier. Should be a bigger tax refund I think.

[FFA]

Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.

I haven't but understand you can do, look for Off Market Transfer. Best to call you share broker, there might be stamp duty or other costs involved.

[marty998]

This has gotten me thinking about franked distributions. Does this sound right? Lets say that I have $500k invested in shares. For simplicity, lets assume that all the shares offer fully franked distributions yielding 4% a year. The income would be $20k p.a. Assuming that you don't earn any income from other sources, am I correct in saying that post tax income would be even higher (ie, you would receive a nice tax refund because companies have paid 30% tax for you) -

(ignoring medicare levy)
100% franked Pre-tax dividend income = $50,000$20,000 (what you said above)
Franking Credits = 30% x $20,000 = $6,000(this is the tax you have paid)
Total pre-tax income = $26,000 (dividends + franking credits)
Tax you should have paid = ($26,000 - $18,201) x 0.15 = $7,799 x 0.15 = $779.90 + $389.95 = $1169.85

Total refund owed = 6000 - 1169  = $4831

This is based on individual tax rates for 2015-2016: https://www.ato.gov.au/Rates/Individual-income-tax-rates/

Calc is still not right, franking credits multiply the fully franked dividend by 30/70 or 42.8% , not 30% (even though that is the company tax rate, it needs to be "grossed up"). So franking credits around 9k (rounding up) and taxable income is 29k as I posted earlier. Should be a bigger tax refund I think.

Hi yes FFA is right. Deborah your income tax rates are wrong as well (sorry for the pedantry). The marginal rate for 18201-37000 is 19%.

So lets work this out.

Dividend income: $20,000
Franking credits: $8,571 (assuming all franked dividends)

Total income: $28,571
Taxable income: $28,571 (assuming no deductions)

Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)

Gross tax payable: $2,541.91

Subtract refundable franking credits: ($8,571.42)

Net refund due: $6,029.51

[deborah]

Thanks very much for clearing that up! I got so confused by the original post, I had to do the calculations three times (by hand as my calculator wasn't working) - and I assumed the tax rates were right (during the calculations I realised that EVERY thing else in the original calculations was wrong, so why didn't I look them up). I also should have thought more about the 30% franking.

[TJEH]

This is a nice lazy way of calculating franking credits:

http://frankingcredits.com.au/franking-credit-calculator/

[TJEH]

With etrade, they include a  tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.

My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.

englyn - thanks for the reminder, I remember my accountant telling me something about a portal they can access when I forgot to include some info for them one year!

[TJEH]

It is a CGT event. For example see http://www.smartcompany.com.au/finance/tax/42854-husband-and-wife-sharing-and-caring-until-tax-law-do-us-part.html#

Deborah, is it CGT event on 100% or 50% though. I think the 50% transferred to the wife is indisputable having changed ownership. But for the 50% that has effectively remained under same ownership, does the tax law also consider this a CGT event? It's not clear to me from the link, it doesn't seem to specify in this level of detail.

TJEH, why don't you consider opening the new account in your wife's name only. Then you can invest in your name and her name separately until you achieve 50/50% or whatever asset split you desire. It might be more flexible to optimise your tax this way too, if you're able to predict marginal tax rates and shift the asset split accordingly, if you wanted to do this.

thanks deborah, FFA. I must admit I found the info in the link a little ambiguous. Anyway, yes, my original thought was to open a new account in my wife's name only. I actually didn't know you could have joint share trading accounts until I started researching brokers. I was hoping to simplify things by just holding a  handful of ETF's in a 50/50 split, which would have been simplest with the joint account. I'll give a bit more thought how to structure things re the trades\split - as you say there is some added flexibility with separate accounts.

[TJEH]

TJEH, I use CMC Stockmarkets and I used their partnership with sharesight to help prepare my tax return this year. The reporting provided got me 90% of the way there, it was definitely helpful.  I still had to muck around in excel to get the VTS and VEU reporting right but that's because of exchange rates and different amounts of withholding tax, etc.

I am happy with CMC, I haven't had any problems but keep in mind that I have very limited funds invested, I follow a buy and hold strategy and haven't use another broker so YMMV.  They have performed well enough to convince me to convert my Issuer
Holdings to Chess with them.

Shaz_Au - I'm leaning towards CMC, so glad to hear you've had a positive experience with them. I'm going for a buy and hold strategy too, aiming to buy each month over the next year or so.

[marty998]

With etrade, they include a  tax report with all the required info that I just pass onto my accountant come tax time. Only seems like a small thing I guess, but I like having all the details handy come tax time.

My accountant says they get info direct from ATO if the provider has submitted it; which I guess includes anything CHESS; you just need to keep buy/sell confirmations in case of later audit.

englyn - thanks for the reminder, I remember my accountant telling me something about a portal they can access when I forgot to include some info for them one year!

You log into the share registries... Computershare or Link Market Services

Go to the investor login section - input your HIN or SRN, postcode, stock code...

[Grogounet]

Entering the conversation now.
Age: 36
2 kids: turning one and a 5 YO
two properties worth: $1.1m, both IO
Offset: $360k on $400k mortgage
Super: $60k in each (arrived in OZ in 2009)
Cars: $10k

Loans of $400k in PPOR and $400k on IP

Now looking at Super. Am with AMP (my company pays for TDP and death, approx $25 a month).
Looking at current investment mix - Fees are quite low as I get a 1.15% rebate from work so around 0.65% a year
International Share Index   34.00
Growth Index   33.00
Australian Share Index   33.00

Have started doing salary sacrifice, purely for tax purposes, as you all, I don t plan to retire at 65..
By end of 2015, PPOR will be paid off
Priorities for 2016: One more IP and starting investing into index funds, automated

[slothman]

Looking forward to day where I can sit back in my hammock and collect $20,542 p.a. in fully franked dividends.

This provides $8,804 in franking credits and results in $29,346 in after-tax income and tax payable being $0.

If my partner is on the same setup, then this means a household income of $58,691 tax-free. Which is plently for living expenses and a bit of travel once the house is fully paid off.

edit: updated from $20,500 to $20,542 to milk the last cent out and pay $0 tax

[slothman]

Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)

Gross tax payable: $2,541.91

Subtract refundable franking credits: ($8,571.42)

Net refund due: $6,029.51

I believe you are forgetting about the low income offset and the medicare levy exemption for low income earners. The tax payable should be $0 according to the comprehensive tax calculator provided by the ATO.

https://www.ato.gov.au/Calculators-and-tools/Comprehensive-tax-calculator/

[englyn]

Priorities for 2016: One more IP and starting investing into index funds, automated

Hi Grogounet, you're already heavily exposed to the property market and underallocated into other investments. I'd strongly suggest re-examining that plan for another IP.
- yields on Australian IP are terrible
- if your preference is to leverage cheap mortgage rates to invest, you can already do that using home equity
- if you believe property investment is safer because it never goes down, consider opportunity cost in a flat property market + inflation vs. average share market returns

[englyn]

Does anyone know if I can transfer CHESS to a sole account? Has anyone done this?
For Eg: 100 VAS shares held through NAB in joint a/c - I'd transfer 50 shares to my individual a/c and 50 to my wife's.

I haven't but understand you can do, look for Off Market Transfer. Best to call you share broker, there might be stamp duty or other costs involved.

I have done this. It is an off market transfer, but with NAB there's a discount for an off market transfer to a different account within nabtrade. No stamp duty etc. It was very straightforward.

[englyn]

Thank you to everyone on this thread doing the maths on franking credits & tax rates. I knew about both and yet it never occurred to me that after tax income would actually come out higher than before tax income. Awesome.

[marty998]

Tax on taxable income: $1970.49
Add medicare levy: $571.42 (@2%, but having a kid or 2 may make you eligible for a reduced levy)

Gross tax payable: $2,541.91

Subtract refundable franking credits: ($8,571.42)

Net refund due: $6,029.51

I believe you are forgetting about the low income offset and the medicare levy exemption for low income earners. The tax payable should be $0 according to the comprehensive tax calculator provided by the ATO.

https://www.ato.gov.au/Calculators-and-tools/Comprehensive-tax-calculator/

Yes did not include LITO deliberately to keep the calc still relatively simple. Any offset you can get will be a bonus on top.

Taking it further...where do you stop? Could have mentioned family tax benefits, allowances etc...


On Medicare Levy...addition of franking credits will put your taxable income above the low income medicare levy threshold?

[nick69]

Joining the thread now :)

Age: 27
Debt: 20k HECS student debt. Currently renting so no mortgage or credit card debt.
Investments: ~$5000 in various ASX stocks and precious metals.
Super: ~$50k

[slothman]

On Medicare Levy...addition of franking credits will put your taxable income above the low income medicare levy threshold?

As far as I can tell, the medicare levy is calculated based on your taxable income, before the Franking tax offset (imputation credit). Exempt up to $20,896.

[marty998]

But taxable income includes the franking credits gross up.

So therefore if you want to stay under $20,896, you need to have under $14,627 in fully franked (cash) dividends?

[slothman]

Not according to the Comprehensive tax calculator, but happy to stand corrected.

[Eamesy]

Hello All

Thought i would introduce myself.
Age: 25
No Debt
Renting with partner $700.00 per month inclusive of utilities.
Minimal cost of living with one 4 cylinder car and 100cc scooter between us.

$85,000.00 cash
$30,000.00 shares (15k VAS & 15k VGS)

I am very new to the idea of FIRE and was wondering if this is the only Australian based thread on MMM? Any other Australian related threads or websites any of you would recommend? 
 

Thanks in advance

[DrowsyBee]

There are a couple of threads in the Tax section and a few random ones in Investor Alley. Other than that, most Australians stick to the journals of one another!

[deborah]

Look for journals with Australia in the title (in fact most threads in any subforum have Australia in the title - otherwise we have some very strange comments). This investing thread is very well used. A property thread was started, but unfortunately an American decided he knew more about Australian property than we did, so it didn't stay around like this one has.

[settlement]

Hey folks. Quick question: Mr money mustache talks a lot about investment with vanguard providing a (virtually)  guaranteed return in the US. Is there an equivalent to this strategy in Australia? Also can anyone recommend basic reading for someone on this method of investing?

For what it's worth:

Age: 25
Savings: $45,000.00
Super: $0 (just arrived in Australia)
Rent: $1000 a month. (Melbourne)
No investments or property
Debt: $0

[steveo]

Vanguard America is in my opinion the same as Vanguard Australia. Its just an index fund.

Go to boogleheads to read about index investing.

[englyn]

There are a few important differences between Vanguard Australia and Vanguard US:
1. Vanguard Australia does not offer a total stock market index fund. You're limited to ASX300 (300 biggest companies)
2. (partly because of 1) VAS (Vanguard's ASX300 index ETF) is heavily weighted towards banks and mining. There isn't nearly as much diversification to health, tech and other industries as the Vanguard US funds.
3. Australian companies tend not to have as much international exposure as some of the major players in the US index

I haven't figured out how to fix 1. But 2 and 3 can both be corrected by some asset allocation into international index funds, I'm currently using Vanguard funds that are ASX listed: VEU & VTS

As to what proportion of assets should be allocated into those to counteract problems 2 and 3, I have no idea, still working that out, would love advice.

Go to boogleheads to read about index investing.

*bogleheads :)

[englyn]

Some very good stuff for Aus beginners to index investing here, especially down the page the comment by Damien and reply by JlCollins
http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

[englyn]

This is what I'm talking about with the problem with VAS only indexing ASX300:

Bogle is adamant that the discipline of index investing is only effective when using the broadest possible measure of the sharemarket which means not only ignoring the double inverse leveraged ETFs but even the S&P 500 itself.

Another of Bogle’s career achievements was to develop the Vanguard Total Stock Market fund, which takes in not only the S&P 500 but also the Wilshire 4500 (for a grand total of 5000 listed stocks) and is the broadest measure of the US sharemarket available today.

http://www.afrsmartinvestor.com.au/p/specialist-investments/why_jack_bogle_hates_your_etf_BNx51AzguBRlezMSMRNoyI