1 00:00:09,039 --> 00:00:12,200 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:12,280 --> 00:00:16,640 Speaker 1: James Kirkby. Welcome aboard everybody. Now, since we did one 3 00:00:16,640 --> 00:00:19,000 Speaker 1: of our first shows of the year, we mentioned capital 4 00:00:19,000 --> 00:00:22,439 Speaker 1: gains tax was a potential change this year, I think 5 00:00:22,480 --> 00:00:25,279 Speaker 1: we can move that considerably forward now. As you would know, 6 00:00:25,400 --> 00:00:28,319 Speaker 1: there is a Senate inquiry this week. But more than that, 7 00:00:28,400 --> 00:00:30,480 Speaker 1: the government have made it very clear that they do 8 00:00:30,680 --> 00:00:35,559 Speaker 1: plan to change and that means raise capital gains tax. 9 00:00:36,320 --> 00:00:40,720 Speaker 1: The issue for our listeners, particularly is for property investors, 10 00:00:40,800 --> 00:00:44,920 Speaker 1: is that capital gains obviously is crucial really in terms 11 00:00:44,960 --> 00:00:48,760 Speaker 1: of property investing because it's certainly not a game in 12 00:00:48,840 --> 00:00:52,239 Speaker 1: the metropolitan markets for income yields are so low. I'm 13 00:00:52,280 --> 00:00:54,960 Speaker 1: going to talk about CGT today. I'm also going to 14 00:00:55,000 --> 00:00:59,080 Speaker 1: talk about interest rates and the sort of all I 15 00:00:59,160 --> 00:01:02,600 Speaker 1: say word narrative, the narrative that we have just kicked 16 00:01:02,640 --> 00:01:05,200 Speaker 1: off a new upward cycle that is now being questioned. 17 00:01:05,959 --> 00:01:08,320 Speaker 1: And I have some great questions from you on a 18 00:01:08,480 --> 00:01:11,880 Speaker 1: number of hot issues, including in Harrison's tax. My guest 19 00:01:12,280 --> 00:01:15,520 Speaker 1: is doctor Sam Widely of the Windlestone Education Group and 20 00:01:15,600 --> 00:01:16,520 Speaker 1: Melbourne Business School. 21 00:01:16,560 --> 00:01:19,160 Speaker 2: How are you Sam? Well? Great? Well, James, Thanks for 22 00:01:19,200 --> 00:01:20,120 Speaker 2: inviting me back. 23 00:01:20,720 --> 00:01:22,759 Speaker 1: Thanks for coming on the show. We have so much 24 00:01:22,800 --> 00:01:24,800 Speaker 1: we could talk about. We might even get to talk 25 00:01:24,840 --> 00:01:27,440 Speaker 1: about your goal video, which I thought was terrific as well. 26 00:01:27,440 --> 00:01:30,319 Speaker 1: But for today's purposes, because this is very much the 27 00:01:30,360 --> 00:01:34,760 Speaker 1: item on the agenda is CGT, could you actually, just 28 00:01:35,000 --> 00:01:39,880 Speaker 1: for the general listener, could you explain why we have 29 00:01:39,920 --> 00:01:44,720 Speaker 1: a capital gains tax and why most people understand it 30 00:01:44,760 --> 00:01:47,120 Speaker 1: as it's a taxi payer. When you sell something, you 31 00:01:47,160 --> 00:01:48,880 Speaker 1: pay it more or less at your income tax rate, 32 00:01:49,240 --> 00:01:51,760 Speaker 1: and you get a fifty percent they call it discount, 33 00:01:51,800 --> 00:01:53,880 Speaker 1: but it is reduced by fifty percent if you hold 34 00:01:53,880 --> 00:01:55,960 Speaker 1: from more than one year. Most people know that. Could 35 00:01:56,000 --> 00:01:59,840 Speaker 1: you explain in an academic fashion as to why it 36 00:02:00,080 --> 00:02:01,840 Speaker 1: exists and why it might be other question? 37 00:02:01,920 --> 00:02:06,600 Speaker 3: Now, Well, investors get returns in two forms, in the 38 00:02:06,600 --> 00:02:11,280 Speaker 3: form of income so dividends, rants, interest payments, et cetera. 39 00:02:11,840 --> 00:02:13,639 Speaker 3: And the form and in the form of the growth 40 00:02:13,680 --> 00:02:17,040 Speaker 3: of their assets, so shares going up in value, properly 41 00:02:17,160 --> 00:02:20,880 Speaker 3: going up in value, And the government wants a share 42 00:02:21,040 --> 00:02:25,640 Speaker 3: of each of those returns because everyone represent increases in wealth, 43 00:02:26,000 --> 00:02:29,200 Speaker 3: and the income tax applies to both of them. You know, 44 00:02:29,280 --> 00:02:33,640 Speaker 3: as has been said quite commonly recently, there really is 45 00:02:33,680 --> 00:02:36,239 Speaker 3: no capital gains tax or there is an income tax. 46 00:02:36,560 --> 00:02:38,880 Speaker 1: By that actually mean just in terms of just to clarify, 47 00:02:38,919 --> 00:02:41,080 Speaker 1: what do you mean there is if I own something 48 00:02:41,120 --> 00:02:43,960 Speaker 1: the day I go to sellers, I'm taxed at whatever 49 00:02:44,080 --> 00:02:45,840 Speaker 1: rate of taxipey on my income. 50 00:02:47,080 --> 00:02:48,400 Speaker 2: Okay, yeah, that's right. 51 00:02:48,280 --> 00:02:52,520 Speaker 3: Your capital income So whind at one hundred dollars today 52 00:02:53,120 --> 00:02:55,880 Speaker 3: in two years time, because you won't get the capital 53 00:02:55,880 --> 00:02:57,639 Speaker 3: gains discount unless you've hold it for more than a year. 54 00:02:57,800 --> 00:03:00,000 Speaker 3: In two years time, it's gone up to one hundred 55 00:03:00,080 --> 00:03:03,280 Speaker 3: and sixty dollars, then the government's going to say, we 56 00:03:03,360 --> 00:03:05,400 Speaker 3: bought it that one hundred, that's your basis for capital 57 00:03:05,440 --> 00:03:07,360 Speaker 3: gains purpose. You sold it at one hundred and sixty. 58 00:03:07,560 --> 00:03:10,440 Speaker 3: You made a capital gain of sixty. Now we are 59 00:03:10,440 --> 00:03:12,200 Speaker 3: going to tax that, but we're not going to tax 60 00:03:12,240 --> 00:03:13,600 Speaker 3: it at the standard income tax rates. 61 00:03:13,600 --> 00:03:15,040 Speaker 2: We're going to stand it. We're going to tax it 62 00:03:15,080 --> 00:03:15,720 Speaker 2: at half that. 63 00:03:15,919 --> 00:03:18,280 Speaker 3: We're going to give you a fifty percent discount, and 64 00:03:18,320 --> 00:03:20,160 Speaker 3: then we're going to add it to your income taxes. 65 00:03:20,200 --> 00:03:22,800 Speaker 3: So they will take one hundred and sixty, subtract one 66 00:03:22,880 --> 00:03:27,240 Speaker 3: hundred sixties giving you the discount. They'll add thirty dollars 67 00:03:27,280 --> 00:03:29,080 Speaker 3: to your income tax for this year. 68 00:03:29,800 --> 00:03:32,080 Speaker 1: Where did they come up with that? Who came up 69 00:03:32,120 --> 00:03:34,760 Speaker 1: with that idea that it was a fifty percent, that 70 00:03:34,800 --> 00:03:37,480 Speaker 1: they were reduced at fifty percent after one year? And 71 00:03:37,480 --> 00:03:38,440 Speaker 1: why did they do that? 72 00:03:38,960 --> 00:03:41,080 Speaker 3: Well, it came up in nine A ninety nine, So 73 00:03:41,440 --> 00:03:43,560 Speaker 3: there was no capital gains tax at all before nineteen 74 00:03:43,600 --> 00:03:46,800 Speaker 3: eighty five, and then when it was brought in, the 75 00:03:46,920 --> 00:03:50,680 Speaker 3: rule was that your basis, the price from which the 76 00:03:50,680 --> 00:03:53,280 Speaker 3: capital gains is a tax is taxed above that was 77 00:03:53,320 --> 00:03:56,120 Speaker 3: one hundred dollars in the previous example. Your capital gain 78 00:03:56,160 --> 00:03:59,040 Speaker 3: tax basis goes up with inflation, so you hold it 79 00:03:59,080 --> 00:04:03,720 Speaker 3: for to years inflation is ten percent. Then they say, well, 80 00:04:03,720 --> 00:04:05,520 Speaker 3: we're not going to start one hundred and sixty minus 81 00:04:05,640 --> 00:04:07,760 Speaker 3: one hundred and one hundred sixty minus one hundred and ten. 82 00:04:07,840 --> 00:04:09,880 Speaker 3: So that was the rule from nineteen eighty five when 83 00:04:09,880 --> 00:04:12,240 Speaker 3: the capital gain stacks came in, until nineteen ninety nine, 84 00:04:12,760 --> 00:04:15,440 Speaker 3: but then it was agreed by both parties that was 85 00:04:15,600 --> 00:04:18,400 Speaker 3: just it wasn't a good idea and it was too 86 00:04:18,480 --> 00:04:21,359 Speaker 3: difficult to administer, so they decided we're just going to 87 00:04:21,400 --> 00:04:24,000 Speaker 3: have a simple discount of fifty percent. 88 00:04:24,440 --> 00:04:26,720 Speaker 1: Okay, So it was in the interest of fairness, and 89 00:04:26,760 --> 00:04:30,159 Speaker 1: it was in the interest of simpleness ensuring that you 90 00:04:30,240 --> 00:04:33,080 Speaker 1: were taxed only on the real improvement in value as 91 00:04:33,120 --> 00:04:35,640 Speaker 1: opposed to the rafting up on inflation that you might 92 00:04:35,839 --> 00:04:41,680 Speaker 1: that's had anyway. Okay, so now they're talking about reviewing this. 93 00:04:42,880 --> 00:04:46,200 Speaker 1: Just tell us what you think. I'd ask you two questions, 94 00:04:46,200 --> 00:04:47,359 Speaker 1: what do you think they should do and what do 95 00:04:47,360 --> 00:04:50,560 Speaker 1: you think they will do? Very different questions. 96 00:04:51,800 --> 00:04:53,279 Speaker 2: Well, I think they should do nothing. 97 00:04:53,920 --> 00:04:58,000 Speaker 3: H what if they choose to introduce the capital gains tax, 98 00:04:58,040 --> 00:05:02,880 Speaker 3: then they should reduce the operative income tax, So instead 99 00:05:02,920 --> 00:05:05,480 Speaker 3: of taking a bigger chunk of tax as a part 100 00:05:05,520 --> 00:05:09,320 Speaker 3: of the total economy, they should just rebalance taxes from 101 00:05:09,640 --> 00:05:12,400 Speaker 3: less on income tax and more on capital gains tax. 102 00:05:12,920 --> 00:05:15,320 Speaker 3: What I think they will do is that they will 103 00:05:15,680 --> 00:05:18,600 Speaker 3: confine it to property. Now we don't know whether that 104 00:05:18,680 --> 00:05:22,080 Speaker 3: will be commercial property officers and retail and the like, 105 00:05:22,160 --> 00:05:26,320 Speaker 3: as well as residential property houses and apartments and the like, 106 00:05:27,400 --> 00:05:29,560 Speaker 3: So we don't know, but it is likely to be 107 00:05:29,640 --> 00:05:32,000 Speaker 3: contained to property. Katie Gallagher said that in front of 108 00:05:32,000 --> 00:05:34,640 Speaker 3: the Parliament just the other day. She's the Finance Minister. 109 00:05:34,720 --> 00:05:36,760 Speaker 3: It's likely to be contained, and I think it's likely 110 00:05:36,760 --> 00:05:38,760 Speaker 3: to be twenty five percent. I think that's what they'll 111 00:05:38,800 --> 00:05:41,640 Speaker 3: come in. They'll reduce the discount from fifty to twenty 112 00:05:41,680 --> 00:05:43,599 Speaker 3: five and it will be all about property. It won't 113 00:05:43,640 --> 00:05:46,640 Speaker 3: be about shares or bonds or real businesses or everything. 114 00:05:48,120 --> 00:05:49,799 Speaker 1: Just to wind back, Why did you think they should 115 00:05:49,960 --> 00:05:51,960 Speaker 1: leave it alone? Why do you think it works? 116 00:05:52,320 --> 00:05:54,400 Speaker 3: Well, look at a lot of companies which have very 117 00:05:54,480 --> 00:05:58,680 Speaker 3: dynamic economies don't have any capital gains tax. So there's 118 00:05:58,800 --> 00:06:03,080 Speaker 3: no capital gains tax in Singapore, for instance, And so 119 00:06:03,360 --> 00:06:05,640 Speaker 3: we went from having no capital gains tax to having 120 00:06:05,680 --> 00:06:09,080 Speaker 3: capital gains tax with a fifty percent discount by the 121 00:06:09,080 --> 00:06:11,160 Speaker 3: time we got to by the time we got to 122 00:06:11,240 --> 00:06:13,919 Speaker 3: nineteen ninety nine. And you know, I think that's a 123 00:06:13,920 --> 00:06:17,520 Speaker 3: good number. So it in center Bouz people to it 124 00:06:17,560 --> 00:06:20,920 Speaker 3: decernded by people both to save and to hold their 125 00:06:20,960 --> 00:06:25,080 Speaker 3: assets for a significant length of time. So you know, 126 00:06:25,200 --> 00:06:27,600 Speaker 3: I think I don't think they need to change it. 127 00:06:27,920 --> 00:06:30,040 Speaker 1: Well, what do you say to the argument? Obviously that 128 00:06:30,120 --> 00:06:33,280 Speaker 1: everyone's batting away, that is, everyone inside property is trained 129 00:06:33,279 --> 00:06:37,640 Speaker 1: to bat away. Is the argument is that the capital 130 00:06:37,720 --> 00:06:40,919 Speaker 1: making capital gain from residential property is the sort of inert, 131 00:06:41,560 --> 00:06:44,799 Speaker 1: non productive use of money, and that it was supposed 132 00:06:44,839 --> 00:06:49,120 Speaker 1: to be for dynamic investment in businesses because you do 133 00:06:49,160 --> 00:06:52,320 Speaker 1: actually pay the same If you have a startup and 134 00:06:52,320 --> 00:06:53,880 Speaker 1: put your sort of life on the line and kill 135 00:06:53,920 --> 00:06:57,320 Speaker 1: yourself building a company and you sell this, your CGT 136 00:06:57,520 --> 00:06:59,880 Speaker 1: is the same as if you just doporly bought a 137 00:07:00,480 --> 00:07:02,560 Speaker 1: house around the corner for ten years and solvet to 138 00:07:02,680 --> 00:07:05,280 Speaker 1: ten years later without doing a thing. So what do 139 00:07:05,320 --> 00:07:06,680 Speaker 1: you think of that argument. 140 00:07:06,960 --> 00:07:10,960 Speaker 3: Well, look, the government doesn't like people turning income into 141 00:07:11,000 --> 00:07:14,400 Speaker 3: capital gains. That's what negative gearing does. So you take 142 00:07:14,440 --> 00:07:16,240 Speaker 3: some of your income that would have been taxed at 143 00:07:16,240 --> 00:07:18,560 Speaker 3: forty seven percent if you're on the top rate, and 144 00:07:18,640 --> 00:07:22,160 Speaker 3: you put it into supporting the property because the rents 145 00:07:22,240 --> 00:07:24,000 Speaker 3: you receive are less than the interest you have to pay, 146 00:07:24,320 --> 00:07:26,440 Speaker 3: so you've got to pump money into the property. You're 147 00:07:26,480 --> 00:07:29,200 Speaker 3: taking some of your income and you're turning it into 148 00:07:29,840 --> 00:07:33,200 Speaker 3: delayed capital gains in capital gains that you will receive 149 00:07:33,240 --> 00:07:35,720 Speaker 3: in the future, and the government really doesn't like that, 150 00:07:35,960 --> 00:07:38,000 Speaker 3: and that's what it's got to target on. They want 151 00:07:38,000 --> 00:07:41,640 Speaker 3: to sort of shut down any avenues that prevent you 152 00:07:41,760 --> 00:07:43,880 Speaker 3: from paying forty seven percent tax if you're on the 153 00:07:43,880 --> 00:07:47,600 Speaker 3: top tax rate. Look, I think they should cut the 154 00:07:47,640 --> 00:07:50,440 Speaker 3: top tax rate. Bill Kelty was on about this the 155 00:07:50,480 --> 00:07:52,680 Speaker 3: other day. I think they should cut the forty seven 156 00:07:52,680 --> 00:07:54,840 Speaker 3: percent tax rate. And if they don't want to introduce 157 00:07:55,040 --> 00:07:58,640 Speaker 3: capital gains tax, then then fair enough they should do that, 158 00:07:58,760 --> 00:08:01,040 Speaker 3: but then cut the top cut the top tax rate, 159 00:08:01,160 --> 00:08:05,600 Speaker 3: which is just beautitive, and it really starties people's incentive 160 00:08:05,680 --> 00:08:08,320 Speaker 3: to produce wealth, to work hard and produce wealth. 161 00:08:09,160 --> 00:08:11,280 Speaker 1: And as you say, it is the rech you pay 162 00:08:12,280 --> 00:08:14,640 Speaker 1: on your capital gain in any event, or the rate 163 00:08:14,720 --> 00:08:16,880 Speaker 1: from which you get a fifty percent discount. Let's say 164 00:08:16,880 --> 00:08:19,880 Speaker 1: they change it to twenty five percent. What impact do 165 00:08:19,960 --> 00:08:22,080 Speaker 1: you think I've read You know, again, it depends on 166 00:08:22,080 --> 00:08:24,840 Speaker 1: who you're really. The property industry will say this will 167 00:08:24,920 --> 00:08:27,760 Speaker 1: be very detrimental, if we'll push up rents, if we'll 168 00:08:27,840 --> 00:08:32,280 Speaker 1: damage the market. Economists say, actually, you know, it will take. 169 00:08:32,480 --> 00:08:34,920 Speaker 1: It might produce some private investors in the markets, will 170 00:08:34,920 --> 00:08:37,079 Speaker 1: bring more home buyers in, and it will have very 171 00:08:37,080 --> 00:08:37,760 Speaker 1: little impact. 172 00:08:38,320 --> 00:08:42,880 Speaker 2: Who do we believe well it will look. 173 00:08:42,880 --> 00:08:45,200 Speaker 3: I don't think the effect on property investors will be 174 00:08:45,320 --> 00:08:48,079 Speaker 3: as great as some people think, because there's two things 175 00:08:48,120 --> 00:08:51,120 Speaker 3: going on in capital gains. There's two good things about 176 00:08:51,160 --> 00:08:55,280 Speaker 3: capital gains for investors of all kinds. One is the discount, 177 00:08:55,720 --> 00:08:57,840 Speaker 3: and that's what's going to be effect by the government's changes. 178 00:08:57,880 --> 00:09:00,240 Speaker 3: But the other is the delay in the pain of 179 00:09:00,280 --> 00:09:02,360 Speaker 3: capital gains. So you get a discount, but you also 180 00:09:02,480 --> 00:09:06,760 Speaker 3: with capital gains, unlike income, you have the discretion over 181 00:09:06,840 --> 00:09:09,680 Speaker 3: the year in which you're going to realize the capital gains. 182 00:09:10,160 --> 00:09:11,800 Speaker 3: So you know, if we switched to shares for just 183 00:09:11,840 --> 00:09:16,200 Speaker 3: a second, your income is the dividend that BHP pays you, 184 00:09:16,240 --> 00:09:18,000 Speaker 3: and you don't have any discretion over that. The board 185 00:09:18,000 --> 00:09:20,000 Speaker 3: of BHP decides that, and then you just have to 186 00:09:20,040 --> 00:09:22,560 Speaker 3: pay your income tax. But when it comes to selling 187 00:09:22,600 --> 00:09:25,080 Speaker 3: your BHP shares and realizing capital gain, that's up to you. 188 00:09:25,559 --> 00:09:28,880 Speaker 3: And the longer you delay that, the lower the effective 189 00:09:28,960 --> 00:09:31,960 Speaker 3: tax rate is. So you know, just take an example. 190 00:09:32,040 --> 00:09:35,040 Speaker 3: Let's say that we have an asset like a property 191 00:09:35,040 --> 00:09:38,680 Speaker 3: that where our investment is growing at ten percent per year. 192 00:09:39,080 --> 00:09:41,640 Speaker 3: If we only held it for one year, then the 193 00:09:41,679 --> 00:09:43,720 Speaker 3: government would take twenty three and a half percent of 194 00:09:43,760 --> 00:09:45,920 Speaker 3: our ten percent return, so our ten percent return would 195 00:09:45,920 --> 00:09:49,200 Speaker 3: go down to seven point six five percent. But if 196 00:09:49,240 --> 00:09:51,680 Speaker 3: we held it, if we add it for twenty five years. 197 00:09:52,200 --> 00:09:55,000 Speaker 3: Then the governments take would go down from twenty three 198 00:09:55,080 --> 00:09:57,160 Speaker 3: and a half percent of our ten percent down to 199 00:09:57,200 --> 00:09:58,320 Speaker 3: ten point two percent. 200 00:09:59,200 --> 00:10:01,600 Speaker 2: It really huge effect to delay. 201 00:10:01,640 --> 00:10:03,720 Speaker 3: And the reason for that, James, of course, is that 202 00:10:03,960 --> 00:10:06,480 Speaker 3: if you delay the realization of capital gains, you get 203 00:10:06,800 --> 00:10:11,360 Speaker 3: the benefit of the compounding of your return before tax 204 00:10:11,440 --> 00:10:14,679 Speaker 3: kicks in, So you get the whole ten percent compounding 205 00:10:14,760 --> 00:10:17,280 Speaker 3: over the twenty five years, and then the twenty three 206 00:10:17,320 --> 00:10:19,200 Speaker 3: and a half percent tax the half of forty seven 207 00:10:19,200 --> 00:10:24,040 Speaker 3: percent kicks in. So delaying capital gains is as big 208 00:10:24,160 --> 00:10:26,640 Speaker 3: or bigger part of the benefit of capital gains as 209 00:10:26,679 --> 00:10:27,359 Speaker 3: the discount. 210 00:10:27,840 --> 00:10:29,120 Speaker 2: And the discount is. 211 00:10:29,080 --> 00:10:31,360 Speaker 3: Going to be reduced, but the ability to delay capital 212 00:10:31,360 --> 00:10:34,960 Speaker 3: gains is not. So it's easy to overestimate full effect. 213 00:10:35,000 --> 00:10:36,960 Speaker 3: I don't think it'll be as damaging as a lot 214 00:10:36,960 --> 00:10:37,600 Speaker 3: of people think. 215 00:10:38,840 --> 00:10:44,160 Speaker 1: And that ability to manage your crystallization event very important, 216 00:10:44,320 --> 00:10:47,560 Speaker 1: you reckons more important than the discount. Okay, okay, very good. 217 00:10:47,800 --> 00:10:50,320 Speaker 1: That's an interesting point of view. All right, Well hold 218 00:10:50,320 --> 00:10:52,160 Speaker 1: it there for one second. One of the things we're 219 00:10:52,160 --> 00:10:55,040 Speaker 1: going to talk about, folks, also is rates. You may 220 00:10:55,040 --> 00:10:56,960 Speaker 1: be under the impression that we had a rate lift 221 00:10:56,960 --> 00:10:59,079 Speaker 1: and this is the beginning of a cipher we question 222 00:10:59,240 --> 00:11:13,360 Speaker 1: that would be back at the moment. Hello, Welcome back 223 00:11:13,360 --> 00:11:16,800 Speaker 1: to The Australian's Money Puzzle podcast. James Kirby here with 224 00:11:16,840 --> 00:11:19,280 Speaker 1: doctor Sam Wiley of the Melbourne Business School and the 225 00:11:19,320 --> 00:11:23,080 Speaker 1: Windlestone WI N D L E S t O ND 226 00:11:23,200 --> 00:11:26,000 Speaker 1: Group Education Group. I talked to Sam Regley and all 227 00:11:26,040 --> 00:11:27,800 Speaker 1: sorts of issues and he can talk about all sorts 228 00:11:27,800 --> 00:11:30,800 Speaker 1: of issues, which is terrific. So we mentioned about capital 229 00:11:30,840 --> 00:11:34,439 Speaker 1: gains tax there and we have made the assumption Sam 230 00:11:34,480 --> 00:11:36,839 Speaker 1: that it will be restricted to property. I think that's 231 00:11:36,880 --> 00:11:39,360 Speaker 1: safe enough because this Senate inquiry which is on this week, 232 00:11:39,640 --> 00:11:42,400 Speaker 1: which is why we're getting so much attention, it's restricted 233 00:11:43,280 --> 00:11:46,120 Speaker 1: to CGT on property because this whole debate is really 234 00:11:46,559 --> 00:11:49,800 Speaker 1: or certainly seen through the prism of housing, and so 235 00:11:50,000 --> 00:11:55,400 Speaker 1: it seems that activity will be quarantined within residential property. 236 00:11:55,600 --> 00:11:59,160 Speaker 1: Annie knock on effects of that, I mean, wouldn't it be? 237 00:12:00,000 --> 00:12:00,840 Speaker 2: I mean we're much. 238 00:12:00,640 --> 00:12:04,280 Speaker 1: Better off buying shares, even shares and property companies. If 239 00:12:04,320 --> 00:12:07,520 Speaker 1: you're getting a fifty percent discount on your capital gain 240 00:12:07,960 --> 00:12:11,640 Speaker 1: tax on your shares but only twenty five on your property. 241 00:12:12,440 --> 00:12:16,319 Speaker 3: Well, people who can undertake negative gearing. People are on 242 00:12:16,360 --> 00:12:18,319 Speaker 3: the highest tax rate and have a lot of income 243 00:12:18,360 --> 00:12:22,080 Speaker 3: that'll be taxed at forty seven percent, and who are 244 00:12:22,080 --> 00:12:24,760 Speaker 3: able to undertake negative gearing, meaning that they've got the 245 00:12:24,840 --> 00:12:28,720 Speaker 3: ability to borrow money it's negative gear and give some 246 00:12:28,800 --> 00:12:31,600 Speaker 3: free benefits. It turns income into capital gains they get 247 00:12:31,640 --> 00:12:33,760 Speaker 3: then they get the capital gains discount, and they get 248 00:12:33,760 --> 00:12:34,840 Speaker 3: the ability to delay it. 249 00:12:34,920 --> 00:12:37,080 Speaker 2: So it's really terrific. 250 00:12:37,600 --> 00:12:39,760 Speaker 3: And even if it goes from fifty down to twenty 251 00:12:39,800 --> 00:12:41,880 Speaker 3: five percent, I think many people are still going to 252 00:12:41,880 --> 00:12:43,840 Speaker 3: be better off in negative gearing than in shares. 253 00:12:44,080 --> 00:12:46,080 Speaker 1: But dollar for dollar, I mean I could negatively gear 254 00:12:46,160 --> 00:12:48,640 Speaker 1: my shares as well. So like just dollar for dollar, 255 00:12:48,720 --> 00:12:50,960 Speaker 1: if one thing offers me a tax discount of fifty 256 00:12:51,000 --> 00:12:53,320 Speaker 1: and the other thing offers me a tax discount of 257 00:12:53,360 --> 00:12:57,400 Speaker 1: twenty five, isn't the other thing being non property share, 258 00:12:58,240 --> 00:13:01,520 Speaker 1: hasn't it got an advantage system if they do that. 259 00:13:02,120 --> 00:13:04,400 Speaker 2: Look, there's definitely a role for both, and I love 260 00:13:04,440 --> 00:13:07,679 Speaker 2: them both, And for most Australian investors, the pillars of 261 00:13:07,880 --> 00:13:13,000 Speaker 2: their of their portfolio should be Ossie property and US shares. 262 00:13:14,360 --> 00:13:16,520 Speaker 1: But it says out just down the question does the 263 00:13:16,559 --> 00:13:19,880 Speaker 1: shareholder have a tax advantage over the property owner. 264 00:13:21,440 --> 00:13:23,680 Speaker 3: Well, you can't borrow as much in shares as you 265 00:13:23,720 --> 00:13:26,280 Speaker 3: can in property, so you can pretty easily get up 266 00:13:26,320 --> 00:13:29,680 Speaker 3: to an LVR loan evaluation ratio. You can pretty easily 267 00:13:29,760 --> 00:13:32,160 Speaker 3: borrow eighty to eighty five percent of the property that 268 00:13:32,200 --> 00:13:36,160 Speaker 3: you in, whereas borrowing more than twenty five to thirty 269 00:13:36,200 --> 00:13:39,520 Speaker 3: percent of the share portfolio is exposing you to the 270 00:13:39,640 --> 00:13:41,920 Speaker 3: risk of margin. Course that the market goes down a 271 00:13:41,920 --> 00:13:45,280 Speaker 3: lot and you're fort to sell your portfolio. 272 00:13:44,720 --> 00:13:47,240 Speaker 2: Down at the bottom of the market. Now that never 273 00:13:47,320 --> 00:13:47,920 Speaker 2: really happened. 274 00:13:48,960 --> 00:13:50,959 Speaker 1: You can borrow much more with property, but dollar for 275 00:13:51,120 --> 00:13:56,320 Speaker 1: dollar on leveraged, doesn't the share ownership have a tax 276 00:13:56,320 --> 00:13:57,920 Speaker 1: advantage over the property ownership. 277 00:13:58,520 --> 00:14:01,480 Speaker 3: Yeah, and not just to take acidvantage, just to return 278 00:14:01,520 --> 00:14:02,920 Speaker 3: advantage as well. 279 00:14:03,640 --> 00:14:06,880 Speaker 2: It is, but it's not, but it isn't a fair comparison. 280 00:14:07,120 --> 00:14:10,800 Speaker 3: I mean to say, investing in property without leverage is 281 00:14:10,800 --> 00:14:14,040 Speaker 3: to really take away the best part of investing in proty. 282 00:14:14,240 --> 00:14:16,640 Speaker 3: So it's not a mattle apples comparison. But look, there 283 00:14:16,679 --> 00:14:18,760 Speaker 3: is a big role for both. People should have shares 284 00:14:18,800 --> 00:14:20,680 Speaker 3: and property in their portfolio. 285 00:14:21,360 --> 00:14:24,200 Speaker 1: Do you think there would be any behavior distortion if 286 00:14:24,240 --> 00:14:27,760 Speaker 1: they went ahead along the lines I'm talking about. 287 00:14:28,320 --> 00:14:31,000 Speaker 3: Oh, yes, there will, but I don't think it'll be 288 00:14:31,080 --> 00:14:34,520 Speaker 3: very large. There'll be some substitution. Of course, if taxes 289 00:14:34,560 --> 00:14:36,680 Speaker 3: go up on property and they don't go up on shares, 290 00:14:36,720 --> 00:14:40,080 Speaker 3: then people who are indifferent between the two are going 291 00:14:40,160 --> 00:14:40,920 Speaker 3: to shift to shares. 292 00:14:40,960 --> 00:14:42,760 Speaker 2: But I don't think that'll be very large. 293 00:14:42,920 --> 00:14:45,280 Speaker 3: But look, it is to the extent that people pull 294 00:14:45,320 --> 00:14:47,800 Speaker 3: back from negative gearing that is going to be hard 295 00:14:47,800 --> 00:14:51,240 Speaker 3: for renters. It'll be good for people who go from 296 00:14:51,280 --> 00:14:54,080 Speaker 3: being renters to buying homeowners. And that's what the government 297 00:14:54,280 --> 00:14:57,600 Speaker 3: is thinking, is that we'll have for the same supply 298 00:14:57,640 --> 00:15:00,840 Speaker 3: of housing, there will be less that is owned by 299 00:15:00,960 --> 00:15:04,440 Speaker 3: wealthy investors and more that is owned by first home buyers. 300 00:15:04,480 --> 00:15:07,480 Speaker 3: And that's terrific. But what about the renders? What about 301 00:15:07,480 --> 00:15:11,200 Speaker 3: people who never buy? That puts them behind the eight ball? 302 00:15:11,280 --> 00:15:13,280 Speaker 3: And that's what's being forgotten here a little bit. 303 00:15:13,760 --> 00:15:15,960 Speaker 1: So the rental vacancy would stay the same, if not 304 00:15:16,320 --> 00:15:19,440 Speaker 1: worse than if it could worsen, that could happen. 305 00:15:19,520 --> 00:15:23,200 Speaker 3: Yeah, you know, so Bill Shorten in twenty nineteen when 306 00:15:23,200 --> 00:15:26,200 Speaker 3: he brought his when he brought his agenda, a really 307 00:15:26,240 --> 00:15:29,560 Speaker 3: comprehensive agenda of tax reform, including the lowering of income 308 00:15:29,640 --> 00:15:33,440 Speaker 3: tax rates. When he brought that to the election in 309 00:15:33,520 --> 00:15:36,440 Speaker 3: twenty nineteen, he said that he wanted to get rid 310 00:15:36,480 --> 00:15:40,680 Speaker 3: of negative gearing completely except for new houses. So you 311 00:15:40,720 --> 00:15:43,400 Speaker 3: could negatively gear. You could have the benefit of that, 312 00:15:43,640 --> 00:15:45,600 Speaker 3: but it had to be it had to involve the 313 00:15:45,600 --> 00:15:46,960 Speaker 3: increase in the supply of housing. 314 00:15:47,240 --> 00:15:49,520 Speaker 2: You could only do it. You could only negatively gear. 315 00:15:50,040 --> 00:15:52,120 Speaker 3: It was going to grand fast father all the old houses, 316 00:15:52,160 --> 00:15:53,760 Speaker 3: but you could only if you entered in the new 317 00:15:53,760 --> 00:15:56,640 Speaker 3: negative gearing arrangement. It had to be related to the 318 00:15:56,680 --> 00:15:59,560 Speaker 3: connection of new housing. Yeah, and that had some merit 319 00:15:59,600 --> 00:16:00,400 Speaker 3: to it, that idea. 320 00:16:01,600 --> 00:16:04,920 Speaker 1: Yes, okay, Yeah, it's gone quiet on that obviously because 321 00:16:04,920 --> 00:16:07,960 Speaker 1: it was an election loser as such. Okay, just another chack, 322 00:16:08,040 --> 00:16:11,360 Speaker 1: but highly relevant to all property investors, particularly at all 323 00:16:11,360 --> 00:16:16,920 Speaker 1: investors in terms of the future course of interest rates. 324 00:16:17,440 --> 00:16:22,720 Speaker 1: The RBA did a raise recently and it was seen 325 00:16:22,760 --> 00:16:25,040 Speaker 1: as as surprise by some, but it was also seen 326 00:16:25,400 --> 00:16:27,800 Speaker 1: then largely taken that was the first raise in a 327 00:16:27,880 --> 00:16:29,680 Speaker 1: series of raises that we were on the start of 328 00:16:29,680 --> 00:16:32,720 Speaker 1: a new upward cycle. It's very important for anyone investing 329 00:16:32,880 --> 00:16:34,200 Speaker 1: and leveraging in any fashion. 330 00:16:34,280 --> 00:16:38,560 Speaker 3: What's your view, Well, it's crucial of course for people 331 00:16:38,560 --> 00:16:40,680 Speaker 3: who have a lot of leverage into their property, which 332 00:16:41,320 --> 00:16:44,160 Speaker 3: as property investors do. I don't think rates are going 333 00:16:44,240 --> 00:16:47,800 Speaker 3: up too much. The the RBA has got a bit 334 00:16:47,840 --> 00:16:50,440 Speaker 3: of egg on its face. It's only in August of 335 00:16:50,480 --> 00:16:53,840 Speaker 3: twenty twenty five that they can't raise from three point 336 00:16:53,840 --> 00:16:55,720 Speaker 3: eight five down to three point six zero. And then 337 00:16:55,840 --> 00:16:58,440 Speaker 3: and then in February, just six months later, they are 338 00:16:58,520 --> 00:16:59,320 Speaker 3: raising rates. 339 00:16:59,600 --> 00:17:01,400 Speaker 2: Now, what happened between August and. 340 00:17:01,360 --> 00:17:04,280 Speaker 3: February, of course, is that that inflation went up in 341 00:17:04,320 --> 00:17:06,439 Speaker 3: the December quarter, went up quite a lot. They got 342 00:17:06,440 --> 00:17:09,359 Speaker 3: a bit spooked and panicked and they pressed the button 343 00:17:09,400 --> 00:17:14,320 Speaker 3: to raise rates. But the RBA, through COVID. You know, 344 00:17:14,320 --> 00:17:16,840 Speaker 3: if we jump back to what happened through COVID, the 345 00:17:16,960 --> 00:17:19,840 Speaker 3: RBA didn't raise rates as much as other central banks. 346 00:17:19,840 --> 00:17:22,560 Speaker 3: It didn't raise rates as much as the FED. The 347 00:17:23,080 --> 00:17:25,520 Speaker 3: US Federal Reserve put rates up to five point three five. 348 00:17:25,680 --> 00:17:28,000 Speaker 3: We only put it dours up to four point three five. 349 00:17:28,600 --> 00:17:30,360 Speaker 3: In New Zealand. They went up to five point five 350 00:17:30,400 --> 00:17:33,040 Speaker 3: in the UK and Canada. Everywhere else they went up more. 351 00:17:33,480 --> 00:17:35,720 Speaker 3: So the RBA said, well, we're not putting it up 352 00:17:35,760 --> 00:17:38,440 Speaker 3: as much, and they were later as well. 353 00:17:38,880 --> 00:17:39,720 Speaker 2: And what they had in. 354 00:17:39,640 --> 00:17:43,199 Speaker 3: Mind was that the inflationary spike from COVID, from all 355 00:17:43,200 --> 00:17:45,320 Speaker 3: the government spending and all of the printing of new money, 356 00:17:45,560 --> 00:17:47,720 Speaker 3: that spike would pass and that we would go back 357 00:17:47,760 --> 00:17:49,920 Speaker 3: to what we had before COVID, which was very powerful 358 00:17:50,320 --> 00:17:54,880 Speaker 3: deflationary forces and very powerful forces pushing inflation down. That's 359 00:17:54,920 --> 00:17:57,440 Speaker 3: what the RBA thought would happen. So they didn't raise 360 00:17:57,520 --> 00:18:00,280 Speaker 3: rates as much. But if you don't raise rates as much, 361 00:18:00,400 --> 00:18:02,760 Speaker 3: then you have to hold them at a higher level 362 00:18:03,000 --> 00:18:05,960 Speaker 3: for longer. You know, what doesn't go up can't come down, 363 00:18:06,160 --> 00:18:08,920 Speaker 3: as they say, and the RBA hasn't done that. 364 00:18:09,400 --> 00:18:11,000 Speaker 2: They didn't raise rates as much. 365 00:18:11,080 --> 00:18:14,439 Speaker 3: They were later, and then they started cutting rates with 366 00:18:14,520 --> 00:18:17,359 Speaker 3: everyone else, and they overdid it and they cut them 367 00:18:17,400 --> 00:18:19,560 Speaker 3: too much, and now they've been forced to put them up. 368 00:18:19,640 --> 00:18:21,400 Speaker 3: But I don't think there's going to be very much 369 00:18:22,000 --> 00:18:24,560 Speaker 3: in that. Of course, the problem Jones is that there's 370 00:18:24,600 --> 00:18:27,720 Speaker 3: too much government spendings out of control in Australia. 371 00:18:27,760 --> 00:18:28,720 Speaker 2: Really, so sorry. 372 00:18:28,840 --> 00:18:30,960 Speaker 1: Do you think it's a cycle, an upward cycle, or 373 00:18:30,960 --> 00:18:33,359 Speaker 1: do you think it was literally a race that was 374 00:18:33,359 --> 00:18:34,640 Speaker 1: a stabilizer as such? 375 00:18:34,920 --> 00:18:36,040 Speaker 2: I think it's a stabilizer. 376 00:18:36,080 --> 00:18:37,959 Speaker 3: There might be one more, and then I think they 377 00:18:37,960 --> 00:18:41,879 Speaker 3: will hold them there for between aight ay between twelve 378 00:18:41,920 --> 00:18:44,080 Speaker 3: and twenty four to say eight a months, and then 379 00:18:44,119 --> 00:18:47,119 Speaker 3: I think we will be back to cutting rates and 380 00:18:47,160 --> 00:18:49,320 Speaker 3: we'll go back to the world that we had before. 381 00:18:49,680 --> 00:18:51,240 Speaker 3: We'll go back to the world that we had before 382 00:18:51,520 --> 00:18:56,920 Speaker 3: COVID and of significantly lower interest rates. People forget that 383 00:18:57,160 --> 00:19:00,520 Speaker 3: immediately before COVID the cash rate was your own point 384 00:19:00,560 --> 00:19:03,639 Speaker 3: seven five percent. And that's before COPE. That was on 385 00:19:03,680 --> 00:19:06,719 Speaker 3: the first of October twenty and nineteen. That's four months 386 00:19:07,240 --> 00:19:11,680 Speaker 3: before the Corona and nineteen virus came came to public knowledge. 387 00:19:11,760 --> 00:19:15,240 Speaker 3: So before COVID, the cash rate was at zero point 388 00:19:15,280 --> 00:19:18,359 Speaker 3: seven five percent. People forget that before COVID, we have 389 00:19:18,560 --> 00:19:21,560 Speaker 3: very powerful deflationary forces in the world, and I think 390 00:19:21,600 --> 00:19:22,640 Speaker 3: we are going back to that. 391 00:19:23,440 --> 00:19:26,720 Speaker 1: So if you're right, we will have actually for properly 392 00:19:26,760 --> 00:19:30,320 Speaker 1: investors better conditions in terms of lower rates, but for 393 00:19:31,080 --> 00:19:34,480 Speaker 1: income investors, particularly people who do some extent depend on 394 00:19:34,560 --> 00:19:38,680 Speaker 1: term deposits and cash, that that problem emerges again that day. 395 00:19:38,720 --> 00:19:42,160 Speaker 1: It's not enough, okay, we should We have some great 396 00:19:42,200 --> 00:19:44,720 Speaker 1: questions I've kept for you there are on issues that 397 00:19:44,760 --> 00:19:46,800 Speaker 1: have been bouncing around on the show for weeks, and 398 00:19:46,840 --> 00:19:48,560 Speaker 1: I think you've been a great position to answer them. 399 00:19:48,600 --> 00:19:51,560 Speaker 1: The takes short breakfolks, and we will come back to inheritance, 400 00:19:51,600 --> 00:19:53,880 Speaker 1: We'll come back to CGT in a way. We'll also 401 00:19:53,920 --> 00:19:58,800 Speaker 1: come back to what might be called super recontribution strategy 402 00:19:58,880 --> 00:20:02,280 Speaker 1: or what someone here calls laundering. Well we did call 403 00:20:02,359 --> 00:20:04,160 Speaker 1: it washing out the show, so it's not that far away. 404 00:20:04,200 --> 00:20:05,119 Speaker 2: Back in a moment. 405 00:20:14,280 --> 00:20:17,119 Speaker 1: One, Hello, Welcome back to the Australian's Money Puzziti podcast. 406 00:20:17,200 --> 00:20:20,520 Speaker 1: James Kirby with doctor Sam Wiley, well known lecture at 407 00:20:20,640 --> 00:20:24,600 Speaker 1: Melbourne Business School and also runs the Windlestone Education Group, 408 00:20:24,600 --> 00:20:26,439 Speaker 1: which isn't a kind of investor school, but I call 409 00:20:26,440 --> 00:20:27,320 Speaker 1: it an investor school. 410 00:20:27,359 --> 00:20:28,960 Speaker 2: Is that fair enough? That's right. 411 00:20:29,080 --> 00:20:31,960 Speaker 3: It's a ten waight course, ten step program to get 412 00:20:32,000 --> 00:20:33,880 Speaker 3: everything about your investing in great shape. 413 00:20:35,320 --> 00:20:37,920 Speaker 1: And Sam also does some great videos. He's got one 414 00:20:37,960 --> 00:20:40,119 Speaker 1: on Gold out there at the moment. Just put in 415 00:20:40,160 --> 00:20:44,040 Speaker 1: Sam Wiley on Gold on YouTube and it's Sam. It's 416 00:20:44,240 --> 00:20:47,159 Speaker 1: very good, except for one thing. It's not even a 417 00:20:47,240 --> 00:20:50,200 Speaker 1: I don't remember did you say after all that he 418 00:20:50,320 --> 00:20:51,680 Speaker 1: thought it was going to keep going up or not, 419 00:20:53,480 --> 00:20:53,720 Speaker 1: did you. 420 00:20:54,400 --> 00:20:59,040 Speaker 3: Yeah, I think, okay, demand that the sources of demand 421 00:20:59,359 --> 00:21:02,840 Speaker 3: are several and very strong, and the ability for supply 422 00:21:02,960 --> 00:21:04,400 Speaker 3: the increase is quite restricted. 423 00:21:04,520 --> 00:21:04,720 Speaker 2: You know. 424 00:21:04,920 --> 00:21:08,320 Speaker 1: I do like it a lot for the active investor 425 00:21:08,359 --> 00:21:11,920 Speaker 1: as a proportion of their portfolio. The Morgan Stanley is 426 00:21:11,920 --> 00:21:15,919 Speaker 1: at Mike Williams ciolsoys twenty percent and then it drops 427 00:21:15,920 --> 00:21:18,280 Speaker 1: from there. Mostly put on the show seem to say, 428 00:21:19,440 --> 00:21:21,720 Speaker 1: in the order of five percent, is there a number 429 00:21:21,760 --> 00:21:23,679 Speaker 1: that you think is to be recommended? 430 00:21:24,960 --> 00:21:28,119 Speaker 2: Well, it depends. It depends. 431 00:21:28,160 --> 00:21:30,160 Speaker 3: And I'm not going to bang on about this parageous 432 00:21:30,200 --> 00:21:32,320 Speaker 3: change because I do that in the video the but 433 00:21:32,400 --> 00:21:35,840 Speaker 3: the it depends upon whether you are investing in gold 434 00:21:35,880 --> 00:21:39,359 Speaker 3: as an investment theme or whether you're using gold at hedge. 435 00:21:40,080 --> 00:21:41,720 Speaker 2: Now if you and I just. 436 00:21:41,760 --> 00:21:43,399 Speaker 1: Jump in and say I'm just using it as an 437 00:21:43,400 --> 00:21:44,360 Speaker 1: investment theme. 438 00:21:45,320 --> 00:21:47,920 Speaker 3: Well okay, Well there's lots of investment themes around, so 439 00:21:48,080 --> 00:21:50,960 Speaker 3: you look, I like two to three percent in gold 440 00:21:51,040 --> 00:21:54,400 Speaker 3: as an investment theme, you know, and as uncertainty grows 441 00:21:54,600 --> 00:21:56,479 Speaker 3: then maybe a bit higher than that, But there are 442 00:21:56,520 --> 00:21:59,960 Speaker 3: many competing investment themes. As a hedge, I think five 443 00:22:00,000 --> 00:22:01,760 Speaker 3: percent is a good number, but only if. 444 00:22:01,640 --> 00:22:06,000 Speaker 1: You're hedging interesting. All right, very good. Now questions from 445 00:22:06,040 --> 00:22:09,919 Speaker 1: Ben when you talk about a seventeen percent inheritance tax 446 00:22:10,520 --> 00:22:14,119 Speaker 1: on superannuation, is that only for money in super or 447 00:22:14,200 --> 00:22:16,320 Speaker 1: is there a tax on where that is passed on 448 00:22:16,480 --> 00:22:20,000 Speaker 1: outside of Super? Okay? And you have many other related questions. Ben, 449 00:22:20,080 --> 00:22:22,879 Speaker 1: we will clarify on that there is no official inheritence 450 00:22:22,920 --> 00:22:26,320 Speaker 1: tax in Australia Part one, Part two. If you, as 451 00:22:26,320 --> 00:22:32,040 Speaker 1: an adult in Harris your parents super, there is tax. 452 00:22:32,080 --> 00:22:34,240 Speaker 1: Could you explain how it works some? 453 00:22:35,440 --> 00:22:37,960 Speaker 3: So if you if your SUPER goes to your spouse, 454 00:22:38,400 --> 00:22:40,320 Speaker 3: then there's no top up tax. If it goes to 455 00:22:40,359 --> 00:22:42,920 Speaker 3: a dependent child, even if they're older than ad A, 456 00:22:43,640 --> 00:22:44,040 Speaker 3: there's no. 457 00:22:44,119 --> 00:22:44,879 Speaker 2: Top up tax. 458 00:22:45,320 --> 00:22:48,080 Speaker 3: But if it goes to anyone else then you have 459 00:22:48,119 --> 00:22:50,560 Speaker 3: to pay a seventeen percent top up tax. And it's 460 00:22:50,520 --> 00:22:53,840 Speaker 3: stopping up from the fifteen percent you paid when the 461 00:22:53,920 --> 00:22:58,399 Speaker 3: money went into super originally up to thirty two percent, 462 00:22:58,440 --> 00:23:01,120 Speaker 3: which the government thinks is a reasonable way. It's actually 463 00:23:01,160 --> 00:23:04,159 Speaker 3: topping up to thirty percent plus the medi care Levee 464 00:23:04,560 --> 00:23:05,400 Speaker 3: the extra too. 465 00:23:06,040 --> 00:23:10,760 Speaker 1: So if you an adult dependence non dependents who inherit 466 00:23:11,040 --> 00:23:15,760 Speaker 1: super pay it at seventeen percent roughly and that's seventeen percent. 467 00:23:16,000 --> 00:23:20,720 Speaker 1: First of all, that's the fact. Secondly, someer's explaining it's 468 00:23:20,760 --> 00:23:23,119 Speaker 1: seen as a clawback. Basically, Sam, is it for the 469 00:23:23,160 --> 00:23:27,360 Speaker 1: tax concessions that your parents might have had when they 470 00:23:27,480 --> 00:23:29,359 Speaker 1: put money into SUPER in the first place, on a 471 00:23:29,400 --> 00:23:30,640 Speaker 1: tax concession. 472 00:23:30,800 --> 00:23:33,160 Speaker 3: It's seen as you know, you were given the tax 473 00:23:33,200 --> 00:23:36,520 Speaker 3: concession for SUPER so that it would support your retirement. 474 00:23:36,600 --> 00:23:40,000 Speaker 3: Now you didn't spend the money, so you actually there's 475 00:23:40,000 --> 00:23:43,240 Speaker 3: a part of your SUPER which became a mechanism instrument 476 00:23:43,280 --> 00:23:46,520 Speaker 3: for you to transfer wealth across generations, and that's not 477 00:23:46,560 --> 00:23:49,240 Speaker 3: the purpose of SUPER. So the government says, okay, well 478 00:23:49,320 --> 00:23:51,639 Speaker 3: that happens fair enough that you've got to pay a 479 00:23:51,720 --> 00:23:54,879 Speaker 3: top up tax. Everything other than the part of SUPER 480 00:23:55,520 --> 00:24:00,080 Speaker 3: that you contributed after tax, the non concessional whatever, how 481 00:24:00,119 --> 00:24:03,360 Speaker 3: do you put in non Concessionally, there's no top up tax. 482 00:24:03,200 --> 00:24:05,080 Speaker 2: Because you could have just as easily given that to 483 00:24:05,160 --> 00:24:08,400 Speaker 2: your children. But everything else tax. 484 00:24:08,600 --> 00:24:11,159 Speaker 1: Some people have been on saying, you know, you misunderstand it. 485 00:24:11,359 --> 00:24:14,360 Speaker 1: We don't misunderstand it. I would just say to generalize, Sam, 486 00:24:14,880 --> 00:24:17,360 Speaker 1: the vast majority of people, the vast majority of money 487 00:24:17,400 --> 00:24:21,520 Speaker 1: is SUPER is subject to this task. Because most people 488 00:24:21,600 --> 00:24:24,399 Speaker 1: don't put in concession. Is that an overgener Am I 489 00:24:24,400 --> 00:24:25,240 Speaker 1: on the right track there? 490 00:24:25,680 --> 00:24:29,639 Speaker 3: No, that's correct if you discuss previous In previous shows 491 00:24:30,520 --> 00:24:34,080 Speaker 3: that people have recontribution strategies where they take money out 492 00:24:34,080 --> 00:24:38,919 Speaker 3: of soup and then recontributed that right to reduce the 493 00:24:39,000 --> 00:24:42,040 Speaker 3: amount that can be of the top up tax that 494 00:24:42,119 --> 00:24:45,199 Speaker 3: absent that and even including that's a small part of 495 00:24:45,240 --> 00:24:48,160 Speaker 3: the total of the total four and a half trillion 496 00:24:48,200 --> 00:24:50,879 Speaker 3: dollars in SUPER, only a very smaller part of it 497 00:24:50,880 --> 00:24:53,520 Speaker 3: has come from non concessional contributions. 498 00:24:53,840 --> 00:24:54,440 Speaker 2: I would have thought. 499 00:24:54,480 --> 00:24:56,240 Speaker 1: So, okay, Actually I can jump to a question from 500 00:24:56,359 --> 00:24:59,960 Speaker 1: Andrew here, which is he talks about that Super recontribution 501 00:25:00,080 --> 00:25:03,680 Speaker 1: and strategy. You know, just to go back over that, folks, 502 00:25:03,880 --> 00:25:06,080 Speaker 1: I won't call it simple. I call it mightily ridiculous. 503 00:25:06,080 --> 00:25:08,639 Speaker 1: But this is how it works. Once you are at 504 00:25:08,640 --> 00:25:11,399 Speaker 1: the appropriate age, you can withdraw money from SUPER and 505 00:25:11,480 --> 00:25:13,240 Speaker 1: when it comes out and you can put it back 506 00:25:13,240 --> 00:25:16,199 Speaker 1: in and it goes in as a tax free So 507 00:25:16,640 --> 00:25:20,639 Speaker 1: in doing so, each time you recontribute your own money 508 00:25:20,640 --> 00:25:23,800 Speaker 1: back into your own front, you reduce the taxable component, 509 00:25:24,080 --> 00:25:26,640 Speaker 1: which is the tax ability if you like, of what's 510 00:25:26,680 --> 00:25:30,720 Speaker 1: going to be inherited. Andrew asks, following your recent discussion 511 00:25:31,080 --> 00:25:34,119 Speaker 1: on SUPER recontribution strategy, It's hard to see how this 512 00:25:34,160 --> 00:25:37,480 Speaker 1: is any different to money washing or laundering. This is 513 00:25:37,480 --> 00:25:39,560 Speaker 1: surely a loophole and should be tightened up. 514 00:25:39,920 --> 00:25:43,560 Speaker 3: What do you say to that so well, Andrew, you 515 00:25:43,600 --> 00:25:46,600 Speaker 3: could just take the money out before you pass away, 516 00:25:47,720 --> 00:25:51,200 Speaker 3: And that's actually most people's strategy, not to recontribute. Most 517 00:25:51,200 --> 00:25:55,440 Speaker 3: people's strategy is that I'm not going to die suddenly. 518 00:25:55,800 --> 00:25:58,080 Speaker 3: That's what they think. I'm not going to die suddenly, 519 00:25:58,160 --> 00:26:01,040 Speaker 3: so before I do die, I'm going to take all 520 00:26:01,080 --> 00:26:03,080 Speaker 3: the money out of SUPER and I'm just going to 521 00:26:03,119 --> 00:26:05,040 Speaker 3: give it to my children, or I'm going to put 522 00:26:05,040 --> 00:26:06,720 Speaker 3: it into my family trust. I'm just going to gift 523 00:26:06,720 --> 00:26:08,280 Speaker 3: it into my family trust. So I'm going to do 524 00:26:08,359 --> 00:26:11,120 Speaker 3: something with it. You can just take the money out 525 00:26:11,160 --> 00:26:15,480 Speaker 3: of SUPER and then no tax is due, so it's 526 00:26:15,520 --> 00:26:18,480 Speaker 3: not really a loophole. It's just an artifact of the 527 00:26:18,520 --> 00:26:21,160 Speaker 3: way the tax rules are written. I don't think anyone's 528 00:26:21,160 --> 00:26:23,280 Speaker 3: saying that I take the money out of SUPER and 529 00:26:23,280 --> 00:26:26,240 Speaker 3: give it to my children is sort of tax avoidance 530 00:26:26,359 --> 00:26:29,119 Speaker 3: or a loophole. But that's actually most people's plans and 531 00:26:29,160 --> 00:26:31,880 Speaker 3: that's a lot more common than the cold recontribution. 532 00:26:32,440 --> 00:26:35,280 Speaker 1: Okay, well, with good answer, Sam, and a fair answer too. 533 00:26:35,520 --> 00:26:37,320 Speaker 1: I hope that's clear to you Andrew. As you can 534 00:26:37,359 --> 00:26:41,680 Speaker 1: see you know it's not a loophole, it's a pain. Well, 535 00:26:41,680 --> 00:26:45,080 Speaker 1: it's just how things actually work and there is an 536 00:26:45,080 --> 00:26:48,240 Speaker 1: explanation for it all. Okay, and do keep in mind 537 00:26:48,240 --> 00:26:52,120 Speaker 1: that they as always this is information only, not advice. 538 00:26:52,200 --> 00:26:55,080 Speaker 1: Take you very much, Sam, Doctor Sam Wiley there from 539 00:26:55,160 --> 00:26:59,680 Speaker 1: Melbourne Business School and the Windlestone Education Group. Today's show 540 00:26:59,760 --> 00:27:03,119 Speaker 1: what produced by Leah Sammon glue and do keep those questions. 541 00:27:03,119 --> 00:27:05,720 Speaker 1: They're soaked. Those questions are terrific folks that give me 542 00:27:05,720 --> 00:27:07,840 Speaker 1: great ideas for developing the show as well. Keep them 543 00:27:07,920 --> 00:27:11,720 Speaker 1: rolling the money puzzle at the Australian dot com dot au. 544 00:27:11,960 --> 00:27:12,640 Speaker 1: Talk to you soon.