Author Topic: Basic Australian Investing Thread  (Read 19245 times)

deborah

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Re: Basic Australian Investing Thread
« Reply #50 on: February 02, 2016, 09:17:51 PM »
This is exactly why you are the only person who can work out your CGT. You can decide exactly which investments you are selling. You record it on your sheet.

kaetana

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Re: Basic Australian Investing Thread
« Reply #51 on: February 04, 2016, 03:36:16 PM »
This is a really good thread, Deb. I sometimes get lost with all the speculation going on in the "advanced" investing thread. I invest mainly through my and my husband's super funds, and our strategy involves buying low-cost ETFs and rebalancing via new contributions when the deviation is greater than 5%. Anything else really goes over my head.

Lately I've been reading about tax loss harvesting. What does this involve? From what I understand, I would have to sell when a particular stock's value had decreased, triggering a capital loss event, and then buy a similar security back to maintain my asset allocation. Is that it? I'm also wondering about the documentation required. I assume that since I mainly invest in super funds (and in property via our house), the fund will take care of all the taxes. However I assume that if I invested outside of super, I would have to keep records of all of this on my own and include it in my tax return? I'm not sure how to do that.

On a separate note, I recently discovered an app called Acorns. It is an American app that has recently made its way to Australia. Basically, you hook up your bank account/credit card to it, and each time you make a purchase, it rounds the cost up to the nearest dollar and invests the difference for you. It looks like they invest in low-cost ETFs as well (like iShares, but no Vanguard). There are no fees for under-24s or students, and either $15 a year for balances under $5k or 0.27% for over $5k otherwise. The app's main selling point is that it is incredibly easy to set up and get started. I can see it would be good either for newbies who could benefit from a gateway drug into investing or for Mustachians who want a supplement to their regular investments. I'm using the app for "incidental investing" -- I fund this out of my "fun money" as a way to squeeze out a little more savings from money I would otherwise blow. I plan to use it for much smaller amounts.

deborah

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Re: Basic Australian Investing Thread
« Reply #52 on: February 04, 2016, 04:01:09 PM »
In general tax loss harvesting has become illegal in Australia. The ATO ruled on this a couple of years ago - and the ruling was retrospective, so as I had been doing a variation of it, I adjusted a couple of years' SMSF tax returns and resubmitted them, paid some extra tax, and ceased doing it.

What I was doing (which is not allowed), was selling shares after they had paid their dividend to me, and buying the same shares before they paid the dividend. This gave me two dividends, and two sets of franking credits, and because the shares were in the SMSF in pension phase they had no CGT. The franking credits also reduced the tax owed.

If you sell investments and buy the same investments in the same year, the ATO gets pretty narky and can penalize you. Obviously, you COULD sell investments and buy similar ones and they wouldn't get narky. But if I was selling the IShares ASX200 and buying the Vanguard ASX200, with the same money, I might document why I was doing it, so that I could give it to the tax office if they had a query (I suspect they wouldn't, as they are different ETFs, but they would have exactly the same underlying investments - if both actually exist - so the ATO might query it).

« Last Edit: February 04, 2016, 04:40:20 PM by deborah »

kaetana

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Re: Basic Australian Investing Thread
« Reply #53 on: February 04, 2016, 04:37:46 PM »
Okay. So does selling one ETF at a loss and buying a similar one still work to decrease taxes owed by offsetting capital gains? How often should that be done?

deborah

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Re: Basic Australian Investing Thread
« Reply #54 on: February 04, 2016, 05:00:02 PM »
Selling anything at a loss decreases the overall CGT you need to pay by offsetting the capital gains.

Everyone gets a bit het up about capital gains, but really, the tax on capital gains is generally rather small, especially in a super fund, where, even in accumulation phase the tax is only 15%. So, say you buy something for $100,000, and sell it a year and one day later at $120,000. You have made $20,000, but because it has been kept for more than a year, you actually pay CGT on $10,000, and 15% of that is $1,500. And, if you are following the buy and hold scenario, you never sell so you never have a CGT event. And, if you wait until after your superannuation goes into pension phase, you don't pay any CGT - not even when your husband dies and you get his superannuation, because you are his wife.

kaetana

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Re: Basic Australian Investing Thread
« Reply #55 on: February 04, 2016, 08:34:21 PM »
Okay, thanks, Deb. That makes sense. So really, tax loss harvesting wouldn't be that useful as we intend to live off the dividends from the hubby's super and are also following the buy and hold strategy.

What about asset allocation? I'm interested in yours or other retirees' allocations in particular (if you don't mind sharing). Did you also increase your percentage of bonds as you approached retirement? At the moment, we're doing 30% bonds, 35% Australian shares, 33% global/US shares, and 2% cash (the minimum for the super fund) in my husband's super. Does that sound reasonable given we aim to be FI in ~10 years, with him quitting full time work in ~4 years and me in ~6?

deborah

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Re: Basic Australian Investing Thread
« Reply #56 on: February 04, 2016, 10:09:45 PM »
Allocation is something I struggle with. Maybe not struggle, as I feel that I have a semi-reasonable allocation for me, but that my allocation is probably unsuitable for anyone else.

I do not have any property because I own my house, and that is already far too much exposure to the property market. I do not have bonds, as I have an indexed DB pension from the government, and that acts similar to bonds as a safety net. In fact, it supplies more than my base living expenses (not bad for being in the public service for only 10 years - but, unlike most, I put in as much as it would allow every year I was there). So the money in my SMSF is not necessary, and it is almost exclusively in shares because of where my other money is. Obviously, I need to keep some of it as cash because I need to take money out of the part of it that is in pension phase each year, but it gets enough in dividends that this is not an issue.

This is probably similar to a number of other retirees on the forum who have overshot and retired much later than we could have. It took a lot of convincing for me to retire, because I was sure I didn't have enough.

It is important for everyone to be comfortable with the risk associated with their own portfolio. There are a number of people in Australia who have portfolios that I would not be comfortable with. The fact that we had an employee share plan and I worked with the share department at my first workplace means I am probably more comfortable with shares than other people are.

Minion

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Re: Basic Australian Investing Thread
« Reply #57 on: February 05, 2016, 05:23:05 PM »
I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.

deborah

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Re: Basic Australian Investing Thread
« Reply #58 on: February 05, 2016, 07:40:11 PM »
I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.

But why? It seems to me that rolling money into the PSS is a waste, because anything rolled into it doesn't count as part of the DB arrangements. It only earns money as per the PSS earnings and must be taken out as a lump sum - see https://pss.gov.au/storage/2-PSF13.pdf

Minion

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Re: Basic Australian Investing Thread
« Reply #59 on: February 06, 2016, 05:26:02 PM »
I've been in the APS before (but not now), and am in the PSS. Looking to get back in one day and roll my external super back into it.

But why? It seems to me that rolling money into the PSS is a waste, because anything rolled into it doesn't count as part of the DB arrangements. It only earns money as per the PSS earnings and must be taken out as a lump sum - see https://pss.gov.au/storage/2-PSF13.pdf

Good point. Out of curiosity I should compare the PSS earnings to my Australian Super industry fund.

nnls

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Re: Basic Australian Investing Thread
« Reply #60 on: February 19, 2016, 02:45:00 AM »
Each investment available on the ASX may or may not have a DRP (dividend reinvestment plan), so to find out about Vanguard, I looked up Vanduard ETFs and ended up on this page -

https://www.vanguardinvestments.com.au/retail/jsp/investments/all-products#/etf

I then decided I was looking at VAS (as an example), and clicked on that PDF  and got

https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20160202|101500

In the top corner it has a grey box with overall information (see attachment below) which says that it pays dividends quarterly, and has a DRP.


Reading a similar retail fund fact sheet

https://www.vanguardinvestments.com.au/retail/jsp/investments/retail?portId=8129##overview-tab

It says right down the bottom that "Total returns are calculated after allowing for management and transaction costs. Returns assume reinvestment of all income distributions" - and thus I assume that you can do exactly the same thing with this managed fund.

thanks Deborah

So probably a total noob question but how do I sign up for the dividend reinvestment plan? I am on this page  https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500 and cant work out how to do it

I am sure its super obvious and I will look like a moron when its pointed out to me, but please help

Flyingkea

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Re: Basic Australian Investing Thread
« Reply #61 on: February 19, 2016, 03:08:00 AM »
I'm pretty sure you do it when you sign up for the account - you fill out the application paperwork, and one of the questions is "what do you want us to do with dividends?" And gives you a list of options. Not sure on how to do it once the account is set up - I think you can mail in a form

deborah

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Re: Basic Australian Investing Thread
« Reply #62 on: February 19, 2016, 06:07:04 AM »
So probably a total noob question but how do I sign up for the dividend reinvestment plan? I am on this page  https://static.vgcontent.info/crp/intl/auw/docs/etfs/dividendplans/ETF_DRP_Policy.pdf?20160212|092500 and cant work out how to do it

I am sure its super obvious and I will look like a moron when its pointed out to me, but please help
From the document...

Quote
Application to participate
3.1 Applications
An Investor may apply to participate in the Plan either in writing or by election through Vanguard’s appointed Registrar.
Sounds like you could send them an e-mail - but they probably need an actual letter, signed by you with your account number on it.

marty998

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Re: Basic Australian Investing Thread
« Reply #63 on: February 19, 2016, 02:49:26 PM »
When you buy the ETF shares they send you welcome docs in the mail with a Computershare website link.

The first thing they ask is for you to update your bank EFT details (they want this so they don't have to pay you a cheque for dividends).

Only after that you get the option of switching to a DRP plan... just keep playing around with preferences and payment options till you find the screen. Can't recall off the top of my head exactly where it is.

nnls

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Re: Basic Australian Investing Thread
« Reply #64 on: February 19, 2016, 03:36:21 PM »
When you buy the ETF shares they send you welcome docs in the mail with a Computershare website link.

The first thing they ask is for you to update your bank EFT details (they want this so they don't have to pay you a cheque for dividends).

Only after that you get the option of switching to a DRP plan... just keep playing around with preferences and payment options till you find the screen. Can't recall off the top of my head exactly where it is.

Thank you, I knew it would be something simple

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #65 on: July 21, 2016, 10:08:58 PM »
I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
This drops your effective top tax bracket from 37%, well into the 32% territory.
Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?


faramund

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Re: Basic Australian Investing Thread
« Reply #66 on: July 21, 2016, 10:50:34 PM »
I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
This drops your effective top tax bracket from 37%, well into the 32% territory.
Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?
I believe you are correct - but I am not 100% confident about my belief (which I guess is the same as your own level of belief). Up thread I voiced an opinion on something about tax - which other people disagreed with. So I rang ATO, and after I explained what I was asking, they were happy to tell me I was wrong. So maybe try calling them to get an absolute answer. If you do so, it would be good if you put in this thread what they said.

Well... you should probably wait a bit before contacting the ATO, as maybe someone who actually knows something, might soon reply to your query.

deborah

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Re: Basic Australian Investing Thread
« Reply #67 on: July 21, 2016, 11:03:01 PM »
I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
This drops your effective top tax bracket from 37%, well into the 32% territory.
Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?


Your taxable income is now  63075+7000. Sort of...

You would probably have some franking credits.  What are franking credits? When a company pays you a dividend, it can pay it pre or post tax. Pretax dividends don't have franking, whereas posttax dividends do. Australian companies pay 30% tax, so if you get 100% franking (which you won't), you would get 7000*30% = 2100 franking credits. This is subtracted from your final tax bill, but it is also added to your income.

That means your taxable income is  63075+7000 +2100 = 72175 but the tax on this amount is reduced by 2100 after everything has been taken into account. This means the dividends haven't paid two sets of tax.

englyn

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Re: Basic Australian Investing Thread
« Reply #68 on: July 21, 2016, 11:25:02 PM »
Ah, I forgot about this thread. Glad it's been revived.

I need to go and track my share purchases better for CGT. I have so far only sold shares for which it's really clear (one-off lump sum purchase). Otherwise, I've been mostly paying an accountant to make the problem go away...

I have two questions:
1. If you get to choose which shares at what cost base you've sold, how would you track in a CGT spreadsheet which shares at which cost base got sold?
2. I used to own a parcel of shares bought at $X per share in an account owned 50% by me and 50% by my ex. The entire parcel was transferred to me as part of separation settlement, at $Y per share. How the heck do I calculate the cost base? Did I 'buy' half the number of shares at $X and half the number at $Y?

I also still feel a little dumb for not understanding how the dividend reinvestment plans work with respect to cost base, but I'll have a bash at it and read this thread several more times and see how I go.

deborah

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Re: Basic Australian Investing Thread
« Reply #69 on: July 21, 2016, 11:49:05 PM »
1. Just say that you sold this parcel (or part of it) and the date you sold them.

2. From the ATO site

https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

seems to indicate that the cost base for all the shares is $X.

faramund

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Re: Basic Australian Investing Thread
« Reply #70 on: July 21, 2016, 11:58:07 PM »
1. Just say that you sold this parcel (or part of it) and the date you sold them.

2. From the ATO site

https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

seems to indicate that the cost base for all the shares is $X.
Deborah, I know last time I disagreed with you, I was in the wrong. But I only think that makes sense if there was no payment. Usually when money changes hands, it alters the cost base.

So, Englyn I think you should use the half and half approach you said - but based on my track record with Deborah - you should probably listen to her.

deborah

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Re: Basic Australian Investing Thread
« Reply #71 on: July 22, 2016, 12:41:16 AM »
1. Just say that you sold this parcel (or part of it) and the date you sold them.

2. From the ATO site

https://www.ato.gov.au/general/capital-gains-tax/in-detail/changes-in-family-circumstances/marriage-or-relationship-breakdown-and-transferring-of-assets/

seems to indicate that the cost base for all the shares is $X.
Deborah, I know last time I disagreed with you, I was in the wrong. But I only think that makes sense if there was no payment. Usually when money changes hands, it alters the cost base.

So, Englyn I think you should use the half and half approach you said - but based on my track record with Deborah - you should probably listen to her.
I agree with you Faramund as I also expected the cost base to change. I was quite surprised when I found this advice on the ATO site. But it is from the ATO site, and it does say that the cost base is transferred in these circumstances.

englyn

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Re: Basic Australian Investing Thread
« Reply #72 on: July 22, 2016, 02:30:57 AM »
Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
Quote
the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.

deborah

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Re: Basic Australian Investing Thread
« Reply #73 on: July 22, 2016, 06:07:03 AM »
Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
Quote
the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.

You may also want to look at the other tabs (left hand side) especially the "conditions for marriage or relationship breakdown rollover" to make sure it applies to your case.

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #74 on: July 22, 2016, 07:39:26 AM »
I have a question (that I feel dumb about) with regards to the tax effects of Salary Sacrificing Super, particularly on investment income

Note: not asking whether to do it or not, just trying to understand the mechanism better and what happens.

Ok, lets say you earn $85k/yr. You get the current min 9.5% Super contribution by your employer also put into your super. ($8075)
That leaves $21925 out of the $30,000 allowable for concessional contributions (taxed at 15% not your top tax rate).
Let say you contribute the max, so $85,000 - $21925, leaving your before tax income of $63075.
This drops your effective top tax bracket from 37%, well into the 32% territory.
Now what happens to your investment income outside of super? I'm talking your ETFs that you are carefully putting away to achieve early retirement/FI?
Lets say its an "average" year. You have $100,000 in ETFs. They earn 7%. So, $7000 investment earnings.
How does the ATO treat that, now, that you have reduced your income through salary sacrificing? Do they tax it at 32% or 37% and charge you for it on your tax return? Is your taxable income $85000+7000 or 63075+7000?
If you had much more investment income (say 7% of $400k ETFs), would you thus be back into the next tax bracket? Ie, 63075+28000=$91075? Would you be charged 37% on the bit over $80,000, and 32% on the bit under, of that investment income?

If I'm correct in assuming they treat your taxable income like this, then would Salary Sacrificing Super make sense, depending on where you are in the tax brackets in particular, as it would help reduce the effective tax you are paying on your investment income?


Your taxable income is now  63075+7000. Sort of...

You would probably have some franking credits.  What are franking credits? When a company pays you a dividend, it can pay it pre or post tax. Pretax dividends don't have franking, whereas posttax dividends do. Australian companies pay 30% tax, so if you get 100% franking (which you won't), you would get 7000*30% = 2100 franking credits. This is subtracted from your final tax bill, but it is also added to your income.

That means your taxable income is  63075+7000 +2100 = 72175 but the tax on this amount is reduced by 2100 after everything has been taken into account. This means the dividends haven't paid two sets of tax.

Awesome, thanks Deborah!

So at some point in the future, it might make extra sense to salary sacrifice  some super...more so when I get into that next tax bracket. Plenty of time to wait until I make that decision...

faramund

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Re: Basic Australian Investing Thread
« Reply #75 on: July 24, 2016, 10:40:06 PM »
Thank you so much! I had looked for that on the ATO site previously and not found it. It does definitely apply and (now that I have read it like 4 times) does seem to say that cost base is transferred:
Quote
the first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer.

You may also want to look at the other tabs (left hand side) especially the "conditions for marriage or relationship breakdown rollover" to make sure it applies to your case.
I've been thinking about this more - and think, boringly, once again, deborah you are correct.

This is because I've been thinking that because I assume englyn's ex never paid the ATO capital gains when the shares were transferred, consequently, the ATO would want to still use the original capital base.

Thinking about it - even though englyn paid for the shares when they were transferred. I assume that was part of a greater overall settlement plan - which it seems that the ATO tries to stay away from the details of - and so just uses the original capital base.

After all, even though englyn says it was for half of the shares - I'm sure the settlement could have been arranged in multiple ways - with maybe saying the shares were englyn's, some other things were her ex's and in the end there was some transfer of cash to equal it all out.

deborah

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Re: Basic Australian Investing Thread
« Reply #76 on: July 24, 2016, 11:52:22 PM »
I do get things wrong, just like everyone else, so it is helpful to have a nay-sayer.

englyn

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Re: Basic Australian Investing Thread
« Reply #77 on: July 25, 2016, 12:29:54 AM »
I did, thank you! I'm not going to post any more specifics on the public internets, but the whole parcel of shares was to transfer to me as part of the settlement, ex got other things as his share, and the situation does apply as per the conditions in the other tabs.

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #78 on: August 03, 2016, 06:25:30 AM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

Trevor Reznik

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Re: Basic Australian Investing Thread
« Reply #79 on: August 03, 2016, 06:29:25 AM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #80 on: August 03, 2016, 06:30:42 AM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

Damn, that wasn't what I was wanting to hear

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #81 on: August 03, 2016, 06:34:55 AM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

Damn, that wasn't what I was wanting to hear

So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?

happy

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Re: Basic Australian Investing Thread
« Reply #82 on: August 03, 2016, 06:42:59 AM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

Thats just what this thread is for!

faramund

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Re: Basic Australian Investing Thread
« Reply #83 on: August 03, 2016, 06:07:04 PM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

Damn, that wasn't what I was wanting to hear

So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?

That sounds like an ok argument - but make sure you understand franking credits - because of them Australian dividends are very attractive.

deborah

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Re: Basic Australian Investing Thread
« Reply #84 on: August 03, 2016, 06:08:01 PM »
Ok, I'm too embarressed to ask in the main thread. But just want to double check my interpretation!

With ETFs in Aus, if I fill out the form, and all my dividends get automatically reinvested as more shares in the ETF, do I have to put those dividends down on my tax return? Ie, will they count as income for the year? Or are they now capital growth/gains? And thus only taxable if I sell off some of the ETF shares?

The fact you've chosen to forgo the dividend cash and reinvest them is not relevant, it's still dividend income which you need to put down on your tax return, the good news is you put down any franking credits too.

Damn, that wasn't what I was wanting to hear

So if I wanted to increase the ratio of capital growth to dividends, in order to reduce my total income, I would be better off say with more international ETFs as opposed to Aus ones, which typically have a higher amount of dividends?
I really don't know where to start on this statement.

Australian shares have typically had more capital growth than international shares. However the ratio between capital growth and dividends depends upon the share sector. For instance, mining shares (the mining sector) tend to have low dividends because they put most of their profit into new mines (rather than dividends), and they are capital intensive. The banking sector, on the other hand, tends to generate money, so they put out big dividends. There are ETFs that are sector based, so you can invest in an ETF that will give you less dividends by investing in a sector (or set of sectors) that have low dividends.

As much of the Australian share market is banks, our dividends tend to be higher. This is no bad thing because we get franking credits (see above for an explanation of these - you are basically allowed to reclaim the tax paid by the Australian company in your own tax return). These lower the tax we pay. You cannot get franking credits for international shares, so you pay much MORE tax on the international dividends than you do on Australian dividends.

However, it is good to have both international shares and Australian shares. International shares are often up when Australian shares are down. The Australian share market is very small and (as mentioned in a previous paragraph) heavily biased towards only a couple of sectors, so you have a much bigger exposure to more of the world's productivity if you are in international shares. You are also exposed to currency variations by having international shares (unless you hedge), so when our currency goes down, your international shares are worth more. It is worth having some Australian shares (usually people talk about a 60/40 split) for currency risk in the opposite direction.

And, I don't like being in dividend reinvestment plans, but that is another topic.

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #85 on: August 03, 2016, 06:13:17 PM »
And, I don't like being in dividend reinvestment plans, but that is another topic.

On that topic, is that so that you can choose where to send the dividends in order to rebalance your Assett Allocation more easily?

deborah

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Re: Basic Australian Investing Thread
« Reply #86 on: August 03, 2016, 07:08:18 PM »
Dividend Reinvestment Plans automatically reinvest your dividends in the same shares (or ETF) that the dividend came from.

The mechanics.

You have some number of shares, and they pay a dividend - generally twice a year. Let us say that you have shares in XYZ (fictitious) which is always worth $50 per share (no capital gains), and you have 100 of them ($5000 worth). They pay $4.45 per share each time they give a dividend, so each dividend is worth $445. So the first time you get a dividend, they give you 8 new shares, and they keep $45 in their DRP account. You don't have access to that money, but you pay tax on having received it.

The next time, your dividend is worth $445 + $35.60 = $480.60, with the $45 you didn't get last time, you have $525.60, so you get 10 shares, and you have not received $25.60 ... So every year you get two parcels of these shares which you have to keep track of separately for capital gains purposes. Very soon you have an enormous spreadsheet with all these little purchases of shares.

Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

The final thing is that you are locked into paying a particular price. The DRP price is whatever the market price is at the time of the dividend. This is usually slightly lower than at other times because they have just paid a dividend, so all the shares are worth that much less than they were a few days ago, but it may not be.

On the other hand, DRPs are easy to set and forget. They don't charge brokerage, so they are a cheap way to buy very small parcels of shares.

Eucalyptus

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Re: Basic Australian Investing Thread
« Reply #87 on: August 03, 2016, 07:13:07 PM »
Dividend Reinvestment Plans automatically reinvest your dividends in the same shares (or ETF) that the dividend came from.

The mechanics.

You have some number of shares, and they pay a dividend - generally twice a year. Let us say that you have shares in XYZ (fictitious) which is always worth $50 per share (no capital gains), and you have 100 of them ($5000 worth). They pay $4.45 per share each time they give a dividend, so each dividend is worth $445. So the first time you get a dividend, they give you 8 new shares, and they keep $45 in their DRP account. You don't have access to that money, but you pay tax on having received it.

The next time, your dividend is worth $445 + $35.60 = $480.60, with the $45 you didn't get last time, you have $525.60, so you get 10 shares, and you have not received $25.60 ... So every year you get two parcels of these shares which you have to keep track of separately for capital gains purposes. Very soon you have an enormous spreadsheet with all these little purchases of shares.

Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

The final thing is that you are locked into paying a particular price. The DRP price is whatever the market price is at the time of the dividend. This is usually slightly lower than at other times because they have just paid a dividend, so all the shares are worth that much less than they were a few days ago, but it may not be.

On the other hand, DRPs are easy to set and forget. They don't charge brokerage, so they are a cheap way to buy very small parcels of shares.

Awesome, thanks that makes a lot of sense :-)

englyn

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Re: Basic Australian Investing Thread
« Reply #88 on: August 03, 2016, 08:48:13 PM »
Thank you deborah!

JourneyAnt

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Re: Basic Australian Investing Thread
« Reply #89 on: February 13, 2017, 04:33:55 PM »
Following :)

Any assistance with a spreadsheet to track ETF purchases / tax accounting would be great
http://forum.mrmoneymustache.com/investor-alley/australia-dumb-vanguard-managed-fund-query/

There is also this (Canadian)

XIRR seems more applicable than IRR

XIRR is a more powerful function in Excel for calculating internal rate of return or annualized yield for a schedule of cash flows occurring at irregular intervals.

mjr

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Re: Basic Australian Investing Thread
« Reply #90 on: February 13, 2017, 08:30:36 PM »
Also, your share portfolio is getting unbalanced. The shares that pay more dividends will grow faster than the shares that pay less.

Careful with this.  Profitable companies can choose to not pay dividends but rather reinvest the surplus funds, which will result in capital growth of the shares, which has the same affect on asset allocation.  The issue with DRPs is that you don't get the choice of allocating the dividends to other classes if you wish to rebalance.