WEBVTT - Is property inside super doomed? 0:00:10.080 --> 0:00:13.120 Hello and welcome to The Australian's Money Puzzle podcast. I'm 0:00:13.200 --> 0:00:16.840 James Kirby. Welcome aboard everybody. You would think now with 0:00:17.000 --> 0:00:20.800 property expected to rise over the next two years, I 0:00:20.840 --> 0:00:25.080 saw a report from Bank of Queensland economists Moncton during 0:00:25.120 --> 0:00:27.240 the week saying, you know, he expects ten to fifteen 0:00:27.280 --> 0:00:30.280 percent gains in the next two years, that it would 0:00:30.320 --> 0:00:34.599 be an ideal time to consider property investment, which I 0:00:34.840 --> 0:00:37.440 think it may be. But the issue I think on 0:00:37.760 --> 0:00:41.120 the table for everybody just now is the structure in 0:00:41.200 --> 0:00:45.400 which you own property. And many people have put in 0:00:45.560 --> 0:00:50.000 this fifty billion at least worth of property inside Super 0:00:50.960 --> 0:00:54.280 and I wonder this week, with what's going on, whether 0:00:54.720 --> 0:00:57.440 those people have made a mistake. My guest today is 0:00:57.480 --> 0:01:00.840 Stuart Weems of the pro Solution Private Client Group and 0:01:00.880 --> 0:01:05.119 the Investopperly podcast. We've been talking to each other about 0:01:05.120 --> 0:01:07.920 these changes. It's time that we did a podcast on it. 0:01:07.959 --> 0:01:08.720 Hawai is Stuart. 0:01:09.240 --> 0:01:11.280 I'm really well, James, thanks for having me back. 0:01:11.760 --> 0:01:14.440 You're welcome. Let's te x explain to people. First of all, 0:01:14.520 --> 0:01:20.640 like that property holding property inside Super, it's been great 0:01:20.640 --> 0:01:23.560 that you can put that on the table. There's two 0:01:23.560 --> 0:01:26.600 types of property you might hold inside Super, but they 0:01:26.640 --> 0:01:29.320 called business real property. That's if you had a business, 0:01:29.600 --> 0:01:33.120 their business premises can go in Super. That was always 0:01:33.120 --> 0:01:37.120 a terrific advantage which a lot of people liked. More recently, 0:01:37.200 --> 0:01:41.760 of course, with the long profitable history of residential property, 0:01:41.760 --> 0:01:44.679 people have been putting residential property into Super. I have 0:01:44.840 --> 0:01:49.600 done it now. The issue is, of course, that two 0:01:49.680 --> 0:01:51.880 things have happened right that make it less attracted than 0:01:51.880 --> 0:01:55.360 it used to be. The banks withdrew to some degree, 0:01:55.400 --> 0:01:59.960 and mid rates very expensive for people to have property 0:02:00.080 --> 0:02:03.000 inside Super. This is before we talk about the Super tax, folks. 0:02:03.160 --> 0:02:07.000 So what to explain to listen to everyone if you 0:02:07.040 --> 0:02:10.600 could about property and Super, the good, the bad, and 0:02:10.639 --> 0:02:11.359 the ugly if you. 0:02:11.440 --> 0:02:15.800 Like, Yeah, sure, James. And one of the main attractions, 0:02:15.880 --> 0:02:19.520 or I guess why people are so attracted to investing 0:02:19.560 --> 0:02:22.600 in property inside Super is that if they get into 0:02:22.639 --> 0:02:26.240 pension phase, you know, in retirement, that they can go 0:02:26.280 --> 0:02:29.280 and sell that property and as long as they're below 0:02:29.320 --> 0:02:32.000 the transfer balance cap, which in a few weeks time 0:02:32.000 --> 0:02:34.600 will be two million dollars per person, they won't pay 0:02:34.600 --> 0:02:38.280 any capital gains tax. And everyone knows, you know, property 0:02:38.320 --> 0:02:42.400 compounds and great capital growth, and that's where most of 0:02:42.440 --> 0:02:44.320 my return is going to be. So if I buy 0:02:44.320 --> 0:02:47.960 a million dollar property today, in twenty years time, you know, 0:02:48.000 --> 0:02:50.359 hopefully at seven point two percent, they'll be worth four 0:02:50.360 --> 0:02:53.520 million dollars. I make a three million dollar gross capital 0:02:53.560 --> 0:02:56.720 gain and I pay no tax. That's super attractive, and 0:02:56.760 --> 0:02:59.960 I think James, that's the main attraction of people want 0:02:59.919 --> 0:03:02.120 to invest in property inside SUPER. 0:03:02.560 --> 0:03:04.400 A lot of people I talk to younger people who 0:03:04.400 --> 0:03:07.639 are thinking of but also love the idea that they 0:03:07.720 --> 0:03:10.760 have money in SUPER, which in many ways they feel 0:03:11.160 --> 0:03:15.360 they can't exploit if you like, or access. Obviously they 0:03:15.400 --> 0:03:18.399 can't access it till they tirement could be thirty years away, 0:03:18.400 --> 0:03:22.080 forty years away. But they can use the money in 0:03:22.160 --> 0:03:26.320 their super as a deposit, which they may not have. 0:03:27.240 --> 0:03:31.799 Most people don't have a deposit for a property in 0:03:31.919 --> 0:03:34.800 cash around the house, in the spare bank accountant there, 0:03:34.800 --> 0:03:36.640 it is in SUPER. So that's the other I suppose 0:03:36.720 --> 0:03:38.080 is that the other attraction. 0:03:38.960 --> 0:03:41.600 Yeah, And it's a very transparent way of investing your SUPER. 0:03:41.840 --> 0:03:44.640 I mean, you know, if you're putting industry fund, it's 0:03:44.720 --> 0:03:46.960 very difficult to kind of work out how it's invested. 0:03:47.080 --> 0:03:48.840 But if you've got a self marriage super funded and 0:03:48.840 --> 0:03:52.240 you go and buy an investment grade unit or something 0:03:52.320 --> 0:03:54.200 like that. You can drive past it, you know where 0:03:54.240 --> 0:03:57.960 it is, you can really monitor its performance, and it 0:03:58.000 --> 0:04:00.760 gives people, you know that bricks and mortar. Of course, 0:04:00.800 --> 0:04:03.000 property is half the volatility of the share market. That 0:04:03.080 --> 0:04:05.760 gives people a bit of comfort as well. But we 0:04:05.760 --> 0:04:09.160 should talk about the negatives well, because fossible. 0:04:09.840 --> 0:04:11.960 Why isn't it a mainstream Why are I is ended 0:04:12.000 --> 0:04:14.720 up in advertised? Why are the banks not offering loans 0:04:14.720 --> 0:04:15.320 in this area. 0:04:16.760 --> 0:04:19.440 It's a complex structure, and I don't think the banks. 0:04:19.520 --> 0:04:22.880 You know, typically that you're borrowing, the loan amounts are 0:04:22.880 --> 0:04:26.640 lower because you're borrowing so seventy percent, whereas someone investing 0:04:26.720 --> 0:04:29.680 property outside they typically borrow the full cost, so the 0:04:29.720 --> 0:04:32.120 loan amounts, the average loan size is the lower, and 0:04:32.160 --> 0:04:35.000 there's a lot of administration from the bank's perspectives. So 0:04:35.200 --> 0:04:37.760 I just think they view it as not a profitable 0:04:37.839 --> 0:04:40.520 part of the market, and they pulled out, you know, 0:04:40.680 --> 0:04:43.039 around this sort of just after the GFC, really a 0:04:43.040 --> 0:04:46.040 lot of them started exiting. I wouldn't be surprised if 0:04:46.040 --> 0:04:48.279 they come back into the market, though, particularly if there's 0:04:48.279 --> 0:04:51.359 a bit of a resurgence in terms of demand for 0:04:51.440 --> 0:04:54.240 borrowing because it's been it hasn't been that popular, I 0:04:54.279 --> 0:04:57.920 guess over the last few recent years. 0:04:56.800 --> 0:04:59.360 But who's doing the lending. 0:05:00.000 --> 0:05:07.480 Mostly mortgage managers, so they aren't eighty i's deposit institutions. 0:05:08.120 --> 0:05:10.320 And that's a bit of a red flag for people 0:05:10.440 --> 0:05:14.719 because a lot of these small mortgage managers offer offset accounts, 0:05:14.760 --> 0:05:17.520 just like we have outside of super But just be 0:05:17.560 --> 0:05:19.440 careful with that because they're not going to get the 0:05:19.440 --> 0:05:23.159 government guarantee because they're not a bank. So it's okay 0:05:23.240 --> 0:05:25.800 to borrow from these people, and most of them they're regulated, 0:05:25.920 --> 0:05:28.800 they're safe, but just don't put too much cash with them. 0:05:28.960 --> 0:05:32.200 You're saying you can borrow from them because they're not guaranteed, 0:05:32.279 --> 0:05:35.520 so they're in trouble if they go wonder. But if 0:05:35.560 --> 0:05:38.280 you put money in, you're in trouble. Is that what 0:05:38.440 --> 0:05:38.760 y you? 0:05:38.960 --> 0:05:41.880 A blinder? They'll sell their loan book, right, so you're 0:05:41.880 --> 0:05:44.760 not really at risk that that's not such a problem. 0:05:44.800 --> 0:05:45.919 It's really the cash side. 0:05:45.920 --> 0:05:48.600 But I know you say the banks might come back 0:05:48.600 --> 0:05:51.200 into the business if property starters lift, as many people 0:05:51.200 --> 0:05:53.640 expect it will, but isn't there something of a sword 0:05:53.680 --> 0:05:57.360 hanging over the whole thing anyway about the allowance to 0:05:57.400 --> 0:05:59.240 be like, for want of a better word, that you 0:05:59.360 --> 0:06:03.400 can borrow to buy property and super that you can that, 0:06:03.560 --> 0:06:06.920 because isn't there isn't there a question mark that never 0:06:06.960 --> 0:06:09.520 goes away. But whether the government will just close down 0:06:10.279 --> 0:06:14.560 the ability to use your super fund to borrow for property, 0:06:14.640 --> 0:06:15.200 it could do. 0:06:15.520 --> 0:06:19.320 But I don't think. I mean it changed in nine 0:06:19.560 --> 0:06:21.159 or was it? I said no, it was even before 0:06:21.160 --> 0:06:23.000 that was a Howard government thing, wasn't it. So it's 0:06:23.000 --> 0:06:25.960 been around for a long time. I don't think, you know, 0:06:26.000 --> 0:06:28.960 I don't think there's much evidence that it's really been misused. 0:06:29.000 --> 0:06:30.719 Of course, there's always going to be people on the 0:06:30.720 --> 0:06:33.760 fringe that overborrow and do something silly and lose money. 0:06:34.200 --> 0:06:35.760 But I think in the main, you look at the 0:06:35.839 --> 0:06:39.000 numbers that are published in terms of the assets that 0:06:39.040 --> 0:06:42.800 are associated with these borrowing arrangements and the debt the 0:06:42.839 --> 0:06:45.800 equity is substantial. You look at those numbers, you go, whow, 0:06:45.839 --> 0:06:49.080 it's been great for investors. So I don't think it's 0:06:49.120 --> 0:06:52.760 going to go away, James, unless it starts being misused. 0:06:52.400 --> 0:06:58.120 About the Greens in Parliament. The Greens, who will have 0:06:58.240 --> 0:07:01.640 the balance of power in this past said, as part 0:07:01.720 --> 0:07:05.520 of their support for the new supertax, which we'll do 0:07:05.600 --> 0:07:09.279 it's soon that they want this band the ability of 0:07:09.480 --> 0:07:12.880 super funds to borrow. They wanted banned SMSs to borrow. 0:07:14.080 --> 0:07:15.400 So isn't that a threat? 0:07:15.960 --> 0:07:18.600 Well, it could be, but what will happen to pre 0:07:18.720 --> 0:07:21.320 existing arrangements? So you used to be able to have 0:07:21.560 --> 0:07:24.120 a bit technical but it used to be able to 0:07:24.200 --> 0:07:27.080 lend money into your own super funds. You didn't have 0:07:27.200 --> 0:07:30.480 to have a borrow from a third party a bank, 0:07:31.600 --> 0:07:34.160 but they closed that down, you know, your ability to 0:07:34.200 --> 0:07:36.640 be able to do that many years ago. But the 0:07:36.720 --> 0:07:41.000 existing arrangements, if they're there, can remain in place. So 0:07:41.040 --> 0:07:44.160 I guess my feeling would be if they did ban it, 0:07:44.160 --> 0:07:47.360 it'd be as of today, we can't do that anymore. 0:07:47.400 --> 0:07:50.280 But anyone that has that pre existing arrangement, it's probably 0:07:50.320 --> 0:07:54.280 going to be quarantined or avoided from that, which I 0:07:54.320 --> 0:07:56.840 mean maybe then, you know, if people are contemplating it, 0:07:56.840 --> 0:07:59.200 maybe do it sooner rather than later if that's the case. 0:07:59.280 --> 0:08:01.360 But I don't think there's any reason to ban it. 0:08:01.800 --> 0:08:05.280 Okay, So what we've said so far. If you're listening 0:08:05.360 --> 0:08:09.120 and you're thinking of going using your superfund that's self 0:08:09.160 --> 0:08:11.920 managed super fund, that would be of course to invest 0:08:12.000 --> 0:08:14.800 in property. As Stuarts explain, there's a couple of issues. 0:08:14.920 --> 0:08:17.440 Their rates are high. They are the highest you can 0:08:17.480 --> 0:08:20.080 find in the market for a variety of reasons, one 0:08:20.120 --> 0:08:22.400 of them being a lack of competition in the market 0:08:22.440 --> 0:08:25.880 because the big banks aren't in there. Also, then this 0:08:25.960 --> 0:08:29.800 whole issue of whether you're allowed to continue to use 0:08:29.800 --> 0:08:33.120 your superfund and have the super fund borrowed to buy property. 0:08:33.160 --> 0:08:36.240 It's been under question for a long time. There was 0:08:36.240 --> 0:08:38.160 a report a few years ago by David Murray which 0:08:38.200 --> 0:08:40.480 was very powerful that it should be banned. It didn't 0:08:40.480 --> 0:08:44.920 actually get happen, and interestingly, the AP has never said 0:08:44.920 --> 0:08:48.320 that they would, but the Greens are saying that they 0:08:48.360 --> 0:08:51.520 want it banned as part of their support for the 0:08:51.559 --> 0:08:54.040 new supertax. So this is what we know so far. 0:08:54.160 --> 0:08:56.000 But we also know, as you say, it's your people 0:08:56.040 --> 0:09:02.040 are very usefully profitably using super to invest in property, 0:09:02.080 --> 0:09:05.080 either business property what they call business real property, or 0:09:05.120 --> 0:09:08.880 residential property. Across the country. There's at least fifty billion 0:09:08.920 --> 0:09:12.640 out there in that category. The big question, folks, is 0:09:12.800 --> 0:09:17.720 whether now on top of these restraints that are there, 0:09:18.400 --> 0:09:21.320 the new supertax will really finish this off in terms 0:09:21.360 --> 0:09:22.960 of whether it's worth the effort. We're going to talk 0:09:22.960 --> 0:09:40.599 about that after the break. Hello and welcome back to 0:09:40.640 --> 0:09:44.400 the Australians Money Puzzled podcast. James Kerby here, but Stuart Wiims, 0:09:44.720 --> 0:09:49.400 regular contributor of course to the Wealth section in the Australian. Stuart, 0:09:49.559 --> 0:09:53.560 let's talk now, let's really examine whether property is still 0:09:53.600 --> 0:09:55.880 worth it in Super. And before we do, one thing 0:09:55.920 --> 0:09:59.520 we didn't mention in the first segment was I remember 0:09:59.520 --> 0:10:01.400 you saying on the a few weeks ago, and I'd 0:10:01.440 --> 0:10:04.319 like you to just run this through once more. I 0:10:04.320 --> 0:10:06.760 remember you saying, why would you have it in Super anyway? 0:10:06.800 --> 0:10:10.520 Because outside Super the negative gearing is so much better. 0:10:10.559 --> 0:10:12.080 Could you explain how that all works? 0:10:12.840 --> 0:10:14.880 Yeah, I mean one of the attractions I said, I 0:10:14.920 --> 0:10:17.440 think most people who attracted is to avoid paying capital 0:10:17.440 --> 0:10:20.640 gains tax in retirement, which is a great saving. But 0:10:20.679 --> 0:10:23.680 there's always another side to the coin. With most things 0:10:23.760 --> 0:10:26.400 when we make a financial decision, and the downside to 0:10:26.520 --> 0:10:29.880 gearing inside Super is that the tax rate is much lower. 0:10:30.000 --> 0:10:34.000 It's a flat fifteen percent as we know, whereas outside 0:10:34.040 --> 0:10:36.400 of Super, you know, going to pay somewhere between thirty 0:10:36.400 --> 0:10:40.480 and forty seven percent. It just means that the negative gearing, 0:10:40.520 --> 0:10:44.400 the tax benefit associated with holding that property is much 0:10:44.440 --> 0:10:48.800 higher outside Super. And that is really valuable because obviously 0:10:49.000 --> 0:10:51.520 a saving today is worth a lot more to me 0:10:51.600 --> 0:10:54.000 than a potential saving in twenty years time when I'm 0:10:54.040 --> 0:10:57.400 going to retire. So when you model this out, James, 0:10:57.400 --> 0:11:01.240 and compare the lower level of gearing inside Super, you 0:11:01.280 --> 0:11:03.280 know you can only borrow, so for seventy eighty percent, 0:11:03.280 --> 0:11:05.720 you've got to put some cash in together with the 0:11:05.840 --> 0:11:08.880 highest higher interest rates. Interest rates are about one to 0:11:08.920 --> 0:11:12.240 one and a half percent higher inside Super compared to outside, 0:11:12.600 --> 0:11:16.920 and then lower negative gearing. It offsets the capital gains 0:11:16.920 --> 0:11:20.200 tax savings. It's about neutral when you balance it all 0:11:20.240 --> 0:11:23.439 out compared to you know, investing property outside Super versus 0:11:23.559 --> 0:11:26.760 inside Super. So I think people need to be really 0:11:26.800 --> 0:11:29.400 careful about, you know, if that carrot is dangled in 0:11:29.400 --> 0:11:30.760 front of their eyes, say, look, you're not going to 0:11:30.760 --> 0:11:33.839 pay any capital gains tax, that's great, But what am 0:11:33.840 --> 0:11:36.320 I forgoing in order to achieve that outcome? 0:11:36.400 --> 0:11:40.000 It's like an opportunity cost. So you're saying, listen, yes 0:11:40.240 --> 0:11:42.719 you forget that property. If you had bought it as 0:11:42.760 --> 0:11:45.960 a present, you're paying forty seven percent tax. You've got 0:11:46.000 --> 0:11:49.960 no tax bricks. Your entire expenses come to two thousand dollars. 0:11:50.480 --> 0:11:52.679 If you had a property in there, you could add 0:11:52.880 --> 0:11:56.319 that could multiply by ten by twenty. Okay, So you're 0:11:56.320 --> 0:11:58.559 saying it's neutral. The perfect time to ask the question. 0:11:58.720 --> 0:12:02.160 It was. It was, it's noutral, it was beautifully balanced. 0:12:02.320 --> 0:12:06.600 And now here comes the new supertax. Okay, very briefly, folks, 0:12:06.720 --> 0:12:08.800 I'm sure you have got a grasp on it. But 0:12:08.880 --> 0:12:13.600 just to recap the new tax, which is du believe 0:12:13.640 --> 0:12:18.400 it or not, to effectively begin on July one, covering 0:12:18.400 --> 0:12:22.480 its first financial year to July one, twenty twenty six, 0:12:22.559 --> 0:12:26.480 when they start to collect on this tax, for people 0:12:26.520 --> 0:12:29.800 with amounts over three million and super, the tax will 0:12:29.840 --> 0:12:34.760 be imposed. It's a new tax. It's fifteen percent, and 0:12:34.840 --> 0:12:38.400 if you recall, there's already a tax of fifteen percent 0:12:38.520 --> 0:12:40.400 once it goes over once you have more than two 0:12:40.440 --> 0:12:43.800 million and super starting July one, under this new law, 0:12:43.960 --> 0:12:45.920 once you have over three million in super, there's an 0:12:45.960 --> 0:12:49.400 extra fifteen percent and it's based on realized gains. That 0:12:49.520 --> 0:12:52.960 means the paper value of the property that you had 0:12:53.000 --> 0:12:56.320 thought you were holding for twenty years inside your super account. 0:12:56.800 --> 0:13:00.000 You could get a bill to be paid by you 0:13:00.320 --> 0:13:06.319 each year on the paper notional theoretical gain of that property. 0:13:06.880 --> 0:13:09.120 And if the Greens have there ware, the threshold will 0:13:09.240 --> 0:13:12.720 drop from three millions two million. And if they don't indexit, 0:13:12.800 --> 0:13:16.240 which they don't plan to, many more people will be 0:13:16.280 --> 0:13:20.160 brought into the net every year. God feeling Stewart about 0:13:21.360 --> 0:13:23.720 let's assume that old's going to happen. Everything tells us 0:13:23.720 --> 0:13:25.240 it's going to happen. The government are in a very 0:13:25.240 --> 0:13:28.320 strong position. They don't have to really buckle for anything 0:13:28.400 --> 0:13:30.320 just now they've just been reelected. What do you think. 0:13:32.120 --> 0:13:35.040 The other thing too, James, is that you pay fifteen 0:13:35.080 --> 0:13:38.280 percent tax on the unrealized gain. But then when you 0:13:38.320 --> 0:13:41.160 come to sell that asset, you were taxed on the 0:13:41.200 --> 0:13:44.080 original cost base of the assets, so you'll pay ten percent, 0:13:44.120 --> 0:13:46.760 So essentially you'll end up paying twenty five percent. 0:13:48.320 --> 0:13:50.480 It can be clarify. That's if you sell it before 0:13:50.520 --> 0:13:51.040 you retire. 0:13:52.520 --> 0:13:54.560 That's well, that's if you sell it before you tire. 0:13:54.679 --> 0:13:57.440 Correct or you're over the transfer balance cap, so you 0:13:57.480 --> 0:13:59.679 have more than two, which is probably going to be 0:13:59.720 --> 0:14:02.280 the case, of course, because the tax kicks in at three. 0:14:02.760 --> 0:14:05.600 So you're going to pay somewhere between fifteen and twenty 0:14:05.600 --> 0:14:08.640 five percent in capital gains tax as a result of 0:14:08.679 --> 0:14:12.000 these tax which is look and look are you're going 0:14:12.040 --> 0:14:15.440 to I saw something over the weekend that the average 0:14:15.520 --> 0:14:19.000 top ten self managed super funds on average told four 0:14:19.120 --> 0:14:21.920 hundred and twenty million dollars or something like that in them. 0:14:21.920 --> 0:14:23.960 So I don't think anyone sitting here going, well, they 0:14:23.960 --> 0:14:25.440 shouldn't pay twenty. 0:14:25.120 --> 0:14:28.280 Five I mean, unfortunately, it's because of these people that 0:14:28.320 --> 0:14:31.480 the whole damn thing has been yet through and it's 0:14:31.560 --> 0:14:34.360 trying to get at this what we don't know but 0:14:34.440 --> 0:14:37.040 this tiny number of people with enormous amounts and super 0:14:37.080 --> 0:14:39.400 that are legally in there by the way, But of 0:14:39.400 --> 0:14:41.160 course no one can stand. No one's going to stand 0:14:41.160 --> 0:14:43.560 on a hill to defend them because it doesn't stack up. 0:14:43.600 --> 0:14:49.480 But here's the thing, it becomes the everyday tax situation 0:14:49.640 --> 0:14:53.600 for property and super So does it as it stand, 0:14:53.720 --> 0:14:57.840 really undermined the attractions of property and super Well. 0:14:57.880 --> 0:15:01.200 I did some financial modeling using a scenario that I 0:15:01.240 --> 0:15:05.040 think is really realistic. So if you have a couple 0:15:05.320 --> 0:15:08.720 that they're in their mid thirties, have one hundred and 0:15:08.800 --> 0:15:12.000 sixty thousand dollars of super each, so three hundred and 0:15:12.040 --> 0:15:15.400 twenty all up, they go and buy a million dollar property, 0:15:15.440 --> 0:15:19.880 borrow seventy percent in a self managed superfund, it should 0:15:19.880 --> 0:15:22.760 work out okay for them. That is that their balance 0:15:22.800 --> 0:15:26.000 should be only the north of about three million dollars 0:15:26.000 --> 0:15:28.760 by the time that they get into their sixties, which 0:15:28.760 --> 0:15:32.320 will give them some flexibility to withdraw any excess amounts 0:15:32.320 --> 0:15:36.040 if they needed to. But the key assumption here is 0:15:36.120 --> 0:15:41.360 that the both spouses have equal superbalances, which means they 0:15:41.480 --> 0:15:45.320 own fifty percent of the self managed superfund throughout their 0:15:45.480 --> 0:15:50.600 entire working career. Unfortunately, that assumption is unlikely, very unlikely. 0:15:50.640 --> 0:15:54.240 Normally we see in where we have a couple, Normally 0:15:54.240 --> 0:15:56.040 one of those couples will have a lot more super 0:15:56.080 --> 0:15:58.640 than the other, either because they've got different incomes, of course, 0:15:59.240 --> 0:16:01.600 or because of matern leave, all these sorts of things. 0:16:02.360 --> 0:16:05.760 So for the average person in their thirties, they're thinking, hey, 0:16:05.800 --> 0:16:08.520 I've got a really long runway twenty years, I should 0:16:08.560 --> 0:16:11.520 just go on gear into property. They need to be 0:16:11.600 --> 0:16:14.960 really careful because I think in many situations they'll be 0:16:14.960 --> 0:16:17.920 caught by this three million dollar tax. And one of 0:16:17.960 --> 0:16:22.520 the downsides to gearing into property is illiquidity. You know, 0:16:22.560 --> 0:16:24.240 So if I have a big bill or a big 0:16:24.320 --> 0:16:26.640 tax bill that need to pay, how am I going 0:16:26.720 --> 0:16:29.760 to pay that without selling the asset? So I think 0:16:29.840 --> 0:16:32.200 people need to be very careful with this. And I 0:16:32.240 --> 0:16:34.920 think if you overlay what we spoke about in terms 0:16:35.000 --> 0:16:38.560 of you know, lower negative gearing, higher interest rates, lower 0:16:38.640 --> 0:16:43.200 overall gearing inside super this is just another element to 0:16:43.400 --> 0:16:46.320 I think make it look less attractive for the average 0:16:46.560 --> 0:16:47.440 average Australian. 0:16:47.760 --> 0:16:50.840 Yes, and the couple you mentioned, what they'd have to 0:16:50.840 --> 0:16:56.760 do was contribute bayond equal each year as well to 0:16:56.840 --> 0:17:01.800 try and manage the two portfolios basically individual portfolios, to 0:17:02.000 --> 0:17:04.360 watch the caps which are looming. 0:17:05.800 --> 0:17:08.399 Yep, that's right, because if one's contributing a lot more 0:17:08.400 --> 0:17:10.399 than the other, of course, then they're going to own 0:17:10.640 --> 0:17:12.880 they'll have a greater share in terms of member balance 0:17:12.880 --> 0:17:15.760 of that self managed super fund. So it's difficult. You 0:17:15.800 --> 0:17:19.040 could start off when you buy this asset thirty five 0:17:19.200 --> 0:17:22.000 you do have very equal incomes, but what happens in 0:17:22.080 --> 0:17:24.760 ten years time. When you don't, it's going to be 0:17:24.800 --> 0:17:27.760 too easy to fall foul of this cap, particularly since 0:17:27.800 --> 0:17:29.840 it's not indexed exactly. 0:17:29.920 --> 0:17:32.240 So you could have a couple where they've been together 0:17:32.280 --> 0:17:37.160 for all their lives and one person contributed more so 0:17:37.240 --> 0:17:41.760 that person goes over the individual cap. The other person 0:17:42.080 --> 0:17:46.040 isn't anywhere remotely near that cap, but the couple at 0:17:46.119 --> 0:17:49.040 such their household get hit with the tax. That's, as 0:17:49.040 --> 0:17:50.680 you say, and one of the kind of planks that 0:17:51.280 --> 0:17:54.920 make property less attractive now and super on the basis 0:17:54.920 --> 0:17:57.199 that this tax comes through in the way that it 0:17:57.280 --> 0:18:02.280 is planned. Okay, yeah, difficult got time, difficult time for people. 0:18:02.760 --> 0:18:05.600 It's really a pity that this has been restrained in 0:18:05.680 --> 0:18:08.919 so many ways and is met so complicated and in 0:18:09.000 --> 0:18:12.280 many ways people may think they need to pay big 0:18:12.320 --> 0:18:14.639 fees to even understand what the rules are. But I 0:18:14.680 --> 0:18:17.639 think if you track it, folks, we are covering it 0:18:17.760 --> 0:18:20.880 very carefully, and if you do tune in to this 0:18:21.000 --> 0:18:23.320 podcast and some others we have done both on the 0:18:23.400 --> 0:18:26.119 tax and on property, I think you can make your 0:18:26.160 --> 0:18:27.840 own mind up. Which is a very good time to 0:18:27.880 --> 0:18:29.720 tell you that we are going to do especial on 0:18:29.800 --> 0:18:34.240 the new Supertax on Thursday this coming Thursday with Hugh Robertson. Okay, 0:18:34.480 --> 0:18:37.760 now I have some really good questions, very good questions 0:18:37.760 --> 0:18:40.360 that I want to let you know about some clarification, 0:18:40.520 --> 0:18:47.160 useful news about the solar and batteries program which everyone 0:18:47.280 --> 0:18:49.119 was so interested in a couple of weeks ago, with 0:18:49.200 --> 0:18:59.359 James Gerard's an update on that. Okay, back in a moment, Hello, 0:18:59.440 --> 0:19:02.720 Welcome back to The Australian's Money Puzzle podcast. James Kirby 0:19:02.760 --> 0:19:06.800 here with Stuart Whims of the pro Solution Private Clients 0:19:06.800 --> 0:19:10.800 Group and the Investoppaly podcast. You weren't involved in this, 0:19:10.880 --> 0:19:14.080 Stuart Williams, but James Gerard was, who's regularly on the show, 0:19:14.160 --> 0:19:17.840 and he's something of he's very interested. He's a financial 0:19:17.880 --> 0:19:20.720 advisor like you are. But I don't know if you're 0:19:20.720 --> 0:19:24.240 as interested in cars and batteries and all that sort 0:19:24.240 --> 0:19:27.240 of thing as James is. And we did a special 0:19:27.320 --> 0:19:32.240 on what's available to anybody basically under the new government 0:19:32.400 --> 0:19:36.679 scheme there's for renewables and encouraging incentives in this area. 0:19:37.000 --> 0:19:40.200 The incentives were on the home battery and on the 0:19:40.240 --> 0:19:42.760 electric cars. The electric cars is ovated lya see one 0:19:42.800 --> 0:19:47.760 hundred percent deductible the batteries. Basically, many people one in 0:19:47.840 --> 0:19:53.560 three households have a solar panel in Australia, thanks mostly 0:19:53.600 --> 0:19:57.119 to incentives in the past, but only three percent of 0:19:57.160 --> 0:20:00.760 them have battery. So the new scheme for the government 0:20:00.840 --> 0:20:03.639 is basically cuts the cost of a battery in half. 0:20:03.920 --> 0:20:08.359 It's a federal scheme and James basically round the numbers 0:20:08.400 --> 0:20:10.399 and in whatever state you're in, if you couple what 0:20:10.480 --> 0:20:13.520 the government is offering along with your local state offering, 0:20:13.800 --> 0:20:16.959 you'll get your battery cost cut in half. But we 0:20:16.960 --> 0:20:20.439 weren't really clear still when it started, so for what 0:20:20.440 --> 0:20:23.680 it's worth, the federal government solar battery scheme goes live 0:20:23.760 --> 0:20:26.760 on July one. I just thought i'd let you know 0:20:26.840 --> 0:20:29.240 about that that actually comes. I just come into me 0:20:29.280 --> 0:20:32.159 this morning from one of the industry players there. Okay, 0:20:32.320 --> 0:20:35.800 now question Liam. You want to read Liam's question? Yeah? 0:20:35.880 --> 0:20:38.720 Sure, Liam writes, I love the show, wondering if you 0:20:38.840 --> 0:20:40.760 or your guests have any views on the approach for 0:20:40.840 --> 0:20:43.600 people who just bought a house. I'm in a position 0:20:43.640 --> 0:20:45.840 of being able to pay an extra eight hundred dollars 0:20:45.840 --> 0:20:49.480 per month into my mortgage offset, which is doable until 0:20:49.520 --> 0:20:53.040 I have kids. Given the high interest rates, I would 0:20:53.040 --> 0:20:55.320 have thought that's best to do. It doesn't make sense 0:20:55.359 --> 0:20:56.520 to split the extra. 0:20:56.320 --> 0:20:59.320 Dollars, Okay, I never advice here Liam, of course, on 0:20:59.440 --> 0:21:04.080 the information. Does it make sense to less paying into 0:21:04.240 --> 0:21:06.000 the mortgage off set? What do you think? 0:21:06.280 --> 0:21:09.320 I think what Liam say is maybe split it towards 0:21:09.359 --> 0:21:11.960 something else. I'm not really sure, but really the mortgage 0:21:12.000 --> 0:21:15.560 offset is really the best place to park any spare 0:21:15.600 --> 0:21:18.960 cash because if you think about it, for two reasons. Firstly, 0:21:18.960 --> 0:21:21.959 it's a risk free return. Like if you invest in 0:21:21.960 --> 0:21:24.800 the share market or put it somewhere else, you know 0:21:25.000 --> 0:21:27.080 you're going to take some risk you're not really certain 0:21:27.160 --> 0:21:30.320 what the return will be. But in a mortgage offset account, 0:21:30.320 --> 0:21:32.440 you're definitely going to save six percent to whatever your 0:21:32.480 --> 0:21:36.840 interest rate is. Secondly, it's not taxable, so you know, 0:21:36.880 --> 0:21:39.679 if you're paying an average tax rate of thirty percent, 0:21:39.720 --> 0:21:43.119 for example, to earn a six percent return after tax, 0:21:43.200 --> 0:21:46.000 you need to earn eight and a half percent, and 0:21:46.040 --> 0:21:47.760 you need to earn eight and a half percent on 0:21:47.800 --> 0:21:50.240 a risk free basis, it's just not going to happen. 0:21:50.560 --> 0:21:54.200 Why so, for anyone that has any spare cash and savings, 0:21:54.800 --> 0:21:57.400