Speaker 1: Hello, and welcome to the Australians Money Puzzled podcast. I'm
Speaker 1: James Kirby, was editor at the Australian. Welcome aboard everybody,
Speaker 1: and thank you actually for having me on board and
Speaker 1: back on board. Great to talk to you again. You
Speaker 1: may have gathered I was off for a few weeks there.
Speaker 1: Last week's shows were a precord. I will now freely
Speaker 1: admit to you I hope you enjoyed the last few
Speaker 1: weeks that James Gerard and Stuart Wems stood in and
Speaker 1: I have to say I think they both did a
Speaker 1: sterling job on the show and you will hear them.
Speaker 1: Of course, we will have them both back as regular
Speaker 1: guests very soon. I've been trying to catch up with
Speaker 1: a month's worth of financial news and emails and everything else.
Speaker 1: I've also been trying to catch up course with all
Speaker 1: the questions that have come in and just looking at
Speaker 1: this particular batch that I was confronted with on my return,
Speaker 1: it struck me that there are quite a few of
Speaker 1: the questions needed. What they needed was an accountant, you know,
Speaker 1: and we haven't actually had an accountant on the show before.
Speaker 1: And I have the ideal person to solve that particular issue.
Speaker 1: Duncan Perkins of Tax Time Accountants is someone I talked
Speaker 1: to quite regularly, but I haven't held him on the
Speaker 1: show before, and I'm denighted to have him on today.
Speaker 1: How are you, Duncan?
Speaker 2: Hello, everyone, I'm very good. Thank you.
Speaker 1: Great to have you on board. You know, sometimes you
Speaker 1: come back from your holidays and you say, oh gosh,
Speaker 1: you know, there hasn't been much news. And sometimes you
Speaker 1: come back and you say, whoa. You know, I missed
Speaker 1: a few things. And one thing certainly that caught my
Speaker 1: eyes in recent days is this very intriguing for any
Speaker 1: of the listeners that aren't or say with this. The
Speaker 1: hottest issue tax wise in the nation beyond a doubt
Speaker 1: really is the tax concessions granted to older people through
Speaker 1: super or through the general population, with both negative gearing
Speaker 1: and capital gains tax concessions. It is a hot today too. Politically.
Speaker 1: Every politician that ever went near it didn't manage to
Speaker 1: do it, and I include Paul Keating, who believe it,
Speaker 1: our folks in nineteen eighty seven scrapped negative gearing and
Speaker 1: had to bring it back after a year because it
Speaker 1: was such a fiasco in many ways, more recently in
Speaker 1: New Zealand, the Aherne government that's Jacinda Hearn, she tried
Speaker 1: to scrap their version of negative gearing and capitally gains
Speaker 1: tax and reformed of the new government has basically reversed
Speaker 1: those changes and in the interm it's not the only reason,
Speaker 1: but one of the things that happened in the course
Speaker 1: of that attempt to change their tax deductions on property
Speaker 1: is that New Zealand is now the worst by that
Speaker 1: I mean the worst affordability rental market in the world.
Speaker 1: Hard to believe, but if you live in Sidney or Melbourne,
Speaker 1: you will know that there are an enormous amount of
Speaker 1: young Diseasanders here and they are here because they think
Speaker 1: our rents are cheap. So we have a real issue
Speaker 1: there about negative gearing and capital gainst text. Now what's
Speaker 1: happened is that a Treasury is reviewing both those issues.
Speaker 1: The Prime Minister Anthony Albinizi has distanced himself and said,
Speaker 1: you know that he didn't even know that this was
Speaker 1: going on. Whatever Treasury will ultimately report on this and
Speaker 1: if they suggest changes, the government will have to take
Speaker 1: them seriously. Big deal. Duncan I imagine you spend a
Speaker 1: lot of your time every.
Speaker 2: Day every day.
Speaker 1: Between kafiti gains and negative gearing, they're the two big
Speaker 1: tax deductions available to the every person in Australia. Do
Speaker 1: you think and do you think they'll actually do anything?
Speaker 2: Although constantly do things in the negative gearing space and
Speaker 2: the caprial gains tax space they have to New Zealand's
Speaker 2: had a good go at it, and good on them.
Speaker 2: I mean they move their interest rates before us up
Speaker 2: and it's hurting them now. But look the every day
Speaker 2: I would get a question of Doug and I bought
Speaker 2: this property at such and such a time, I'm going
Speaker 2: to be selling it. I think how much capraal gains.
Speaker 1: Tax will I pay?
Speaker 2: And a lot of the time people are well surprised
Speaker 2: about it. I think you would be foolish if you
Speaker 2: if there were any changes coming in this space and
Speaker 2: you had a couple of properties, or even one investment
Speaker 2: property and the matter of sticking your head in the
Speaker 2: sand was your go to, it'ld be a very foolish
Speaker 2: thing to do. You'd really need to speak to your
Speaker 2: account and or financial planner or someone that's actually dealt
Speaker 2: in the capital gains tax space.
Speaker 1: But most people then listening to the show, or who
Speaker 1: have property or aspire to have property, if when they
Speaker 1: do their numbers right, they building an an assumption that
Speaker 1: the two great sort of tax deductions up in the
Speaker 1: area that have been around for generations now will will stay.
Speaker 1: They assume one that any losses and that includes interest
Speaker 1: costs on their investment property can be set against their
Speaker 1: income tax big saying there's nothing else substantially can set
Speaker 1: against your income taxes an every day Australian investor. And
Speaker 1: they also assume the data sell the property, assuming they
Speaker 1: hold it for more than a year, that they will
Speaker 1: have a fifty percent discount on CGT, which basically works
Speaker 1: out at your marginal rate. CGT basically works out to
Speaker 1: your marginal rate of taxes. So are you saying then
Speaker 1: that people should wake up and smell the coffee here
Speaker 1: and say there could be changes to these two tax.
Speaker 2: Even if there isn't. They should consdt review their return
Speaker 2: on this return on asset, what they yield these on
Speaker 2: their investment. If they they should look at their opportunity
Speaker 2: costs as well. So many people out there that are
Speaker 2: thinking they're making a fall and doing really good things
Speaker 2: in the investment property market when when they get closer
Speaker 2: to retirement, they could have or should have or should
Speaker 2: be thinking about moving those investment properties into something like superannuation,
Speaker 2: which has a lot less headaches and other things like
Speaker 2: that and beneficial tax implication.
Speaker 1: So yeah, you.
Speaker 2: Should always be reviewing what you're doing with property and
Speaker 2: is that the best investment for you? If it's giving
Speaker 2: you a two percent yield per anno net after your
Speaker 2: tax and other things like that, you sit there and go, well,
Speaker 2: why have I got this million dollar property with a
Speaker 2: four hundred five hundred thousand dollars dead on it. I
Speaker 2: could have six hundred thousand dollars in the bake doing nothing,
Speaker 2: dealing with no tenants, no property managers, no repairs, no maintenance,
Speaker 2: no rais and I'm getting four percent five percent on it?
Speaker 2: Well when I do that.
Speaker 1: So when you see the opportunity cost, do you mean
Speaker 1: the opportunity cost that it could be in something like
Speaker 1: the share market or do you mean it should be
Speaker 1: in a different structure like super It could.
Speaker 2: Be in any of those, And you have to look
Speaker 2: at your opportunit unity cost in that regard. Also, diversification,
Speaker 2: is that so many people that you talk to that
Speaker 2: they have, say I don't know, a million dollar property
Speaker 2: and that's their principal place of residence, and they might
Speaker 2: have a five hundred thousand dollars homeland against that, which
Speaker 2: is non tax do done. But they've also got an
Speaker 2: investment property for let's say a million dollars, and why
Speaker 2: having eight hundred thousand dollars debt on it if you're
Speaker 2: working very long hours and et cetera to pay off
Speaker 2: the five hundred thousand dollars homeland which is non tax deductible,
Speaker 2: which has gone up from two point five percent to
Speaker 2: six point five percent. So your cost of paying off
Speaker 2: that non tax deductible debt is it's not good.
Speaker 1: Okay. So let's say so this is really good for listeners,
Speaker 1: particularly listeners who are saying mid career. So let's see
Speaker 1: the listener has a home and they have a mortgage.
Speaker 1: I'm just going to throw numbers out here, okay, And
Speaker 1: they have that, and they have their home mortgagees five
Speaker 1: hunder grand they also have and the investment property it
Speaker 1: seems to be doing okay. The yield is hopeless, it's
Speaker 1: two percent, but they expected that, and they also have
Speaker 1: a mortgage on that, and that's about the same as
Speaker 1: their whole mortgage, and they're you know, there are forty eight's.
Speaker 1: But are you saying to them, are you saying to
Speaker 1: them that property you've got to shift it into super?
Speaker 1: What do you say sooner rather than later? And why
Speaker 1: why would you say that to them?
Speaker 2: Okay, so that the investment property has done really well
Speaker 2: for you if it's grown in values, so you might
Speaker 2: have bought it, I don't know, six hundred thousand dollars,
Speaker 2: and that's worth a million dollars, so you may four
Speaker 2: hundred thousand dollars on that, and you might have a
Speaker 2: superannuation were one hundred thousand dollars and you're forty eight, Like,
Speaker 2: get it across the super. It would be a smarter
Speaker 2: would be a smarter movie. Then you've got some diversification
Speaker 2: going on. Yeah, this is just general advice, but look
Speaker 2: at your opportunity cost. Come. Well, I'm dealing with I'm
Speaker 2: dealing with landlords. I'm dealing with not landlords, I'm dealing
Speaker 2: with property managers. I'm dealing with tenants and repairs and
Speaker 2: all this other stuff. I'm going to do a tax
Speaker 2: returning a year ago, go and see dunk and I've
Speaker 2: got to do these tax return that if would you
Speaker 2: just shoved it into souper, how hard would that be?
Speaker 2: And then every year now that I don't have an
Speaker 2: investment property yet, all I have is my non tax
Speaker 2: deductible online at I don't know. They sit down and
Speaker 2: juggle the numbers around.
Speaker 1: Yes, okay, very good. What's the downside here? The money's
Speaker 1: in super forever right, So that's the only thing, isn't it.
Speaker 1: You can you have only one thing you can do
Speaker 1: with the money from that investment property. Then once you've
Speaker 1: transferred it into soup, which is financing souper, you can't
Speaker 1: do anything else.
Speaker 2: The thing is that if the money's sitting in superannuation,
Speaker 2: you know, in an industry fund or retail fund, or
Speaker 2: sitting in a self managed super fund.
Speaker 1: Who cares O.
Speaker 2: Look, what does a person do with regards to an investment.
Speaker 2: Probably when they first buy it, they don't sell it
Speaker 2: and then go and spend it on a holiday or
Speaker 2: to bround the world. They reinvest it back into other investments,
Speaker 2: usually add a far lower yield than superannuation anyhow, Like, yeah,
Speaker 2: superannuation did eleven percent last year in most industry funes. Proper, Yes,
Speaker 2: may have done that, but then the taxation rates or
Speaker 2: other things like that. So one of the things that
Speaker 2: I learned at the university is skills, knowledge and attitude,
Speaker 2: and skills is one plus one equals too, and then
Speaker 2: you build your knowledge from the skills that you've acquired.
Speaker 2: But the problem is from a financial planning or an
Speaker 2: accounting perspective, is that as soon as we talk to
Speaker 2: someone and we build their knowledge around that, And that's
Speaker 2: with the listeners as well. As they start building their
Speaker 2: knowledge around alternative investments, superinnoation or egs or whatever the
Speaker 2: case they be, it doesn't matter because their attitude may
Speaker 2: be property, so therefore it doesn't matter what you took.
Speaker 2: It all sounds great, but I like property because my
Speaker 2: dad did well in property, or my next door Yaby
Speaker 2: did well in property, so I'm going to do well
Speaker 2: in property.
Speaker 1: Yeah, And there's a sense that it's easy. There's a
Speaker 1: sense that, as you said, there's a sentence you here,
Speaker 1: but it's not. It's another a lot more at work
Speaker 1: than any other acetas I certainly would agree with you there.
Speaker 1: But here's the thing about the sensible option. For many
Speaker 1: people are holding an investment property. If you ever have
Speaker 1: one or more than one, or aspire to have one
Speaker 1: to have it in super. So is it which is
Speaker 1: better than duncan? Is it better to have the investment
Speaker 1: property for a few years and transfer it into your
Speaker 1: superfund or is it better to start at the very
Speaker 1: start and say, I know I'm only thirty or forty,
Speaker 1: but I got to put I got to start with
Speaker 1: the investment property in super always it's going to be
Speaker 1: inside super from the beginning, and I have to have
Speaker 1: an SMSF to do that.
Speaker 2: Of course, that's another crazy idea because if you purchased
Speaker 2: a property in superannuation, you're most likely going to need
Speaker 2: to borrow for that, and the superannuation is a trust
Speaker 2: type structure. So therefore you're talking negative gearing in a
Speaker 2: superannuation vote which only has a text rate of fifteen
Speaker 2: percent and a kapagainst sex rate of ten percent. Why
Speaker 2: would you do in that investment, especially if you're earning
Speaker 2: one hundred or two hundred thousand dollars you and salary,
Speaker 2: you would use the negative gearing in the capital gains
Speaker 2: tax advantages through your own personal name. So instead of
Speaker 2: holding the asset in the superheus the only time that
Speaker 2: you would buy super is with cash.
Speaker 1: Okay, so you're saying that the optimum, the optimum way
Speaker 1: to do it is to build up the investment property
Speaker 1: capital access the negative gearing because you're paying loads of
Speaker 1: tax in your mid career years, and then switch it
Speaker 1: into super. We won't spend much longer on this, but
Speaker 1: just tell the listeners, Just tell the listeners if you
Speaker 1: could in succinctly about what you would have to do.
Speaker 1: You know, basically you have to sell it to your
Speaker 1: own super funded at market cost. Isn't that right? So
Speaker 1: how does it work?
Speaker 2: You can sell residential property to your own superinnoation phone,
Speaker 2: so I would forget that. Look, you've already got a property.
Speaker 2: You might have a probably with a ME in your owner.
Speaker 2: So diversification is the key. So like, once you've paid
Speaker 2: off your homeland, which is a non taxductible there to
Speaker 2: pay off one hundred thousand dollars non tax duct but
Speaker 2: you can basically earn two hundred thousand dollars pay tax
Speaker 2: on that to pay off one hundred. So it's a
Speaker 2: hard yard. And there's so many people out there getting
Speaker 2: to retirement and they're say selling their investment property paying
Speaker 2: capric gastics, et cetera. They've still got debt on their
Speaker 2: own home. They don't move that money into their super
Speaker 2: they actually pay off their own homeline. And then they
Speaker 2: sit there with a property that they have worth a
Speaker 2: million dollars, no debt, full pension, and no little to
Speaker 2: no super And it's a horrible, a horrible way to
Speaker 2: look at these It's hard work because the income is
Speaker 2: so poor.
Speaker 1: Just to expland to the listeners once more about the
Speaker 1: nature of the property. If I own a shop, I
Speaker 1: can transfer it into my super fu yes, commercial property, yes, Okay.
Speaker 1: If I own a house down the street and it's
Speaker 1: an investment property, I'd like to have it in my
Speaker 1: super funds. No, well you say no, do you mean
Speaker 1: it doesn't make sense or it's legally it's actually legal.
Speaker 2: You can't do it. No, you can't do it, Okay,
Speaker 2: just expland to people before.
Speaker 1: You can't do it.
Speaker 2: Well, it comes under the taxation, so what you're doing
Speaker 2: is yours. It's almost tax avoidance. So you've got to
Speaker 2: you've got a property that is a residential property and
Speaker 2: you're moving it across to a superannuation fund. Then it
Speaker 2: turns into pension phase. There's no taxes on that income
Speaker 2: when it's in pension pose. So but even if it's
Speaker 2: in superannuation accumulation shoe, it's still only tax fifteen cents
Speaker 2: the dollar, and the capri gat tax is only ten
Speaker 2: cents of the dollar.
Speaker 1: Yeah yeah, yeah yeah so yeah so yeah, so you're so.
Speaker 1: The point you're making is that tax wise, it's so
Speaker 1: much better outside because of negative gearing.
Speaker 2: That's right, yes, yes.
Speaker 1: Okay, And I suppose, just to finish off on this,
Speaker 1: negative gearing is as reds are relatively high at the moment,
Speaker 1: negative gearing is relatively better I a film because it
Speaker 1: is so higher.
Speaker 2: Yeah yeah, but again it comes down to your net yield.
Speaker 1: Yes, yes, yes, unless us it must be improving a
Speaker 1: bit with rent scoring up so much.
Speaker 2: Yeah, but there's always a peak to that. I think
Speaker 2: property will always give you a gross five percent. So
Speaker 2: in other words, if you've got one hundred thousand dollar
Speaker 2: property and it's giving you ten thousand dollars a year rent,
Speaker 2: you say, well, it's giving you ten percent, Ill you're
Speaker 2: speaking rubbish, duncrent. I say, no, your property is actually
Speaker 2: probably worth closer to five hundred thousand dollars. So therefore
Speaker 2: your yield comes back to more than five percent. So
Speaker 2: if you've got if, you've got, if you've got costs
Speaker 2: and other things on top of that and repairs the mate.
Speaker 2: It's just hard. It's a hard it's a hard thing
Speaker 2: when you've got a massive home liun So, what the
Speaker 2: easiest thing to do is buy a property, live in it,
Speaker 2: do it up. When it's too big or too small
Speaker 2: for you, sell it, take your tax free wing roll
Speaker 2: it into the next venture. There's a lot of people
Speaker 2: that have made a lot of money just in their
Speaker 2: principal place of residence. You get bigger discounts and everything
Speaker 2: like that, and then build your wealth over there in
Speaker 2: your superinuation or building in your etf or or other
Speaker 2: little side hustles, and you've got nice diversification.
Speaker 1: Very good, but very good. Dude. You're we haven't heard
Speaker 1: you on the show before, but we can hear clearly
Speaker 1: you're a hard numbers man. I should have accountants on
Speaker 1: the show more often. Okay, folks, but take a short break.
Speaker 1: We'll be back with Duncan in a moment. Hello. Well,
Speaker 1: welcome back to the Australians Money Puzzle Podcast. I'm James
Speaker 1: Kirby and I'm talking to Duncan, but Can of the
Speaker 1: Tax Time Accountants group. Now, Duncan wants to tell you
Speaker 1: a little bit about home equity and the home equity
Speaker 1: access schemes. Just to introduce this to again to listeners.
Speaker 1: I'm sure most of them are familiar with it. But
Speaker 1: there is a growing appetise and a growing supply of
Speaker 1: products whereby you can access the equity in your home
Speaker 1: to do other things. Mostly this is older people. So
Speaker 1: for instance, let's say someone is whatever, seventy seven and
Speaker 1: they have you know, a small pension income, but they're
Speaker 1: sitting on a house and it's worth you know, a
Speaker 1: million dollars or two million dollars. This is completely common
Speaker 1: in our bigger cities now. So there are products. One
Speaker 1: of them is a government product that allows you to
Speaker 1: do an arrangement basically where you get some cash as
Speaker 1: income and then you pay the price for that cash
Speaker 1: at the far end when you sell your home. This
Speaker 1: is home equity. There's also there's also product. They don't
Speaker 1: have to be older. And I've heard some stories which
Speaker 1: make me shudder, Duncan about quite young people who in
Speaker 1: one case, I've heard stories of people who inherited homes
Speaker 1: and two seconds later we're tapping the home equity to
Speaker 1: do who knows what, you know, just have fun. Tell
Speaker 1: us about that and what opportunities might be out there
Speaker 1: for the listeners.
Speaker 2: Yeah, okay, so I'll talk about that how I make
Speaker 2: with the actress game first, and your example, they're a
Speaker 2: million dollars with no debt, little old seventy seven years
Speaker 2: of age, maybe has been passed away ten years earlier.
Speaker 2: Your listeners are probably a young listener, and so this
Speaker 2: applies to your parents. Maybe I don't know, but anyway,
Speaker 2: so mum's sitting in there. The gutters are falling down,
Speaker 2: the house needs repair. She's been in there since the seventies.
Speaker 2: She raised ther kids there and she loves the home.
Speaker 2: But she's got no money.
Speaker 1: In the main.
Speaker 2: She gets the full pension, which is about twenty three
Speaker 2: thousand dollars a year. She could get access to the
Speaker 2: home equity access gain, which is twenty percent of the
Speaker 2: value of the asset, and she can get one hundred
Speaker 2: and fifty percent of the value of the pension. So
Speaker 2: in other words, that would give her roughly about ten
Speaker 2: thousand dollars extra a year in cash flow, which would
Speaker 2: help her with living just that day to day living.
Speaker 2: So it's a great product and it's only at three
Speaker 2: point nine to five.
Speaker 1: There's a government product.
Speaker 2: Yeah, it's a cracker, and it's a cracker.
Speaker 1: It's a cracker because it's three for for SAI because
Speaker 1: it's way cheaper. Therace is way.
Speaker 2: Lower than commercial prostructs, which is yeah, and it capitalizes
Speaker 2: on itself, so there's no repayments forer my bet, so
Speaker 2: we just capitalize us. So in this first year she
Speaker 2: would have a ten thousand dollar alone, roughly a little
Speaker 2: bit more than that because of the three point nine
Speaker 2: to five percent interest capitalizing herself. But then that a
Speaker 2: year after that it's twenty one thousand dollars. In a
Speaker 2: year after that it's about thirty. Well, she's she's got
Speaker 2: a two hundred thousand dollars limit their jokes, so she's
Speaker 2: never going to use all of that money up. But
Speaker 2: it just gives her some quality of life, gets her
Speaker 2: to go down and see a green. It's on the
Speaker 2: side of the it's really good.
Speaker 1: You get you stay in the house, and certainly your
Speaker 1: income goes from twenty three thousands to whatever thirty three
Speaker 1: pout thirty three way better.
Speaker 2: Well, children have concerns over that because they feel that
Speaker 2: mum's home is being eaten away from the reverse mortgage
Speaker 2: aspect of it. But again, as I said, it's only
Speaker 2: three point nine to five percent, and the value of
Speaker 2: that home is probably increasing per annum by five or
Speaker 2: six percent, so you'll probably fine it. Really, it's I
Speaker 2: believe that if it was my mother in that position,
Speaker 2: I would be more than happy for her to load
Speaker 2: up on a facility like that. But also in regards
Speaker 2: of that facility, what if you've got a couple that
Speaker 2: have got two million dollars in a two million dollar
Speaker 2: home and no debt, and they've got a million dollars
Speaker 2: in their bay. They're self undered retirees there, and that
Speaker 2: investment's earning them seven or eight or nine percent in income.
Speaker 2: They have to keep drawing down on that investment, don't they.
Speaker 2: But if they're entitled to the home Equity Access scheme
Speaker 2: as well, which is one hundred and fifty percent of
Speaker 2: their joint income, so they'd give about sixty five thousand
Speaker 2: dollars a year income at three point nine five percent,
Speaker 2: it's not means tested, no, no, no, no, it's sixty seven.
Speaker 2: What you're saying is once you are sixty seven years
Speaker 2: of each, that's the only entry code here. That's right,
Speaker 2: it's one hundred and fifty percent of your age pension
Speaker 2: less you're existing age pension. So that couple are not
Speaker 2: getting an age pension because they've got money in the bay,
Speaker 2: so they can get sixty five thousand.
Speaker 1: That's that's really terrific. And you know, I had doctor
Speaker 1: Sam Binley on the show and he called that it's
Speaker 1: the best cap secret in Australian finance. Two cents.
Speaker 2: I love it. So can pay that to reverse mortgages
Speaker 2: or equity release mortgages where you're giving the example where
Speaker 2: the young couple have just ripped everything out and water portion,
Speaker 2: holiday overseas and other things like that, and then all
Speaker 2: of a sudden they go, oh, we've got a lot
Speaker 2: of debt. It's three hundred thousand dollars. This is really
Speaker 2: hard for us to pay off. We do know what
Speaker 2: we're doing here. We inherited this mell and one point
Speaker 2: five million dollar home from mum and now we we've
Speaker 2: got to earn all this money to pay off. Is
Speaker 2: yet not going to happen? Yeah? Maybe, so you home
Speaker 2: take the win. You'll probably make another eight hundred three
Speaker 2: hundred thousand dollars on the sale of the one point
Speaker 2: five million dollar home that you inherited, but get rid
Speaker 2: of that debt real fast because otherwise that debt is
Speaker 2: going to accumulate. And there you'll be joking if you'd
Speaker 2: be choking as close to ten percent on those types
Speaker 2: of planes.
Speaker 1: It's sounds that you're deeply intolerant to non tax the
Speaker 1: doctor ble desks. Would that be a fair things to say?
Speaker 2: Well, absolutely, because you've got to earn nearly twice the
Speaker 2: amount of to pay back the debt. So if you
Speaker 2: borrow ten thousand dollars from me, you've got to go
Speaker 2: and earn twenty thousand dollars depending on your tax rate,
Speaker 2: pay the then just to pay me back the ten
Speaker 2: thousand dollars. But again then there's if there's interest on that,
Speaker 2: you're going to pay the interest at the same time
Speaker 2: as well. So yeah, I'm deadly against it. So yeah, yeah,
Speaker 2: you're dead against it.
Speaker 1: And I can see why. Okay, very interesting, just to
Speaker 1: cover back on that, folks. So this is the whole MAC.
Speaker 1: It used to be called a pension loan scheme. It
Speaker 1: was upgraded and improved by the previous government actually changing.
Speaker 1: I'm pretty certain did all this and it opened it up.
Speaker 1: It used to have all sorts of limits, right, but
Speaker 1: now it doesn't. You just have to be fixed sixty
Speaker 1: seven or over. It's government funders, it's government run. It
Speaker 1: has some limitations compared to the commercial ones, but not many.
Speaker 1: And it has a rate which is I'm not kidding
Speaker 1: it don't can it's it's coming up on for half
Speaker 1: the commercial rates. Yeah, so so don't check it out.
Speaker 2: And it capitalizes on itself as well.
Speaker 1: Yeah, if you have a parent in that situation, or
Speaker 1: if you are in that situation, just have a look
Speaker 1: at it. It's sitting there on the web. It's quite
Speaker 1: well explained. They're not as they're not as fast as
Speaker 1: private operators. But hey, if they're giving it to you
Speaker 1: for half the price, I imagine that's a worth.
Speaker 2: Just one really quick note on that too. If you've
Speaker 2: already if you're already seventy seven years of age and
Speaker 2: you already have one hundred thousand loan against that property
Speaker 2: as a child, he may want to pay that out
Speaker 2: for your parents, and they're only paying three point nine
Speaker 2: quart perxtent, but you're paying six point five percent against
Speaker 2: your mortgage. The income that they're receding from there will
Speaker 2: actually well and truly cover it until they do get
Speaker 2: the home equity access gain. So yeah, So if there's
Speaker 2: a way that you feel, oh we're not going to
Speaker 2: get it because of X y Z, look at it differently,
Speaker 2: you look at right outside the box.
Speaker 1: Yeah, look at it creatively. Very good. Okay, thank you Doucin.
Speaker 1: All right, hey you would take a short break and
Speaker 1: we will come back and do with of the questions
Speaker 1: that have been accumulating. Okay, back in the second folks, Hello,
Speaker 1: welcome back to The Australian's Money Puzzle podcast. James Kirby
Speaker 1: talking to Duncan Parkins of Tax Time Accountants, a debut
Speaker 1: guest on the show. Duncan, you're okay with the questions?
Speaker 1: Have you had a look at them all? Are you
Speaker 1: able to have a go with them? We're try and
Speaker 1: get through them all. Howard, my friend's parents bought an
Speaker 1: investment property for one hundred thousand in the nineteen nineties.
Speaker 1: Oh those were the days. Let's say it's worth a
Speaker 1: million today. They move in to it and live out
Speaker 1: their days in this property when they die and the
Speaker 1: property passes down to my friend, would it be exempt
Speaker 1: from CGT if it were sold?
Speaker 2: No?
Speaker 1: No, okay. Alternatively, my friend could live in it as
Speaker 1: principal praise of residence, which I assume would reset the
Speaker 1: cost space of the property. Both thoughts okay, So I'll
Speaker 1: just break it down of it.
Speaker 2: So QUARTD for one hundred thousand and the nineties worth
Speaker 2: a million today as of today, with no changes to
Speaker 2: negative viewing or capital gains tax in the future. You've
Speaker 2: got to assume that. So let's just look at the
Speaker 2: situation today, nine hundred thousand dollars gain fifty percent discount,
Speaker 2: four hundred and fifty thousand dollars, you're going to be
Speaker 2: probably paying around about two hundred thousand dollars worth of
Speaker 2: tax there. That's the So that's if the parents own
Speaker 2: at fifty to fifty. So therefore each each person would
Speaker 2: be assessed on roughly one hundred thousand dollars income each. Now,
Speaker 2: if they're retired and they've got no income, really, you'd
Speaker 2: probably be about maybe twenty thousand dollars tax each. So
Speaker 2: so my thoughts are is, take your wing, take you
Speaker 2: nine hundred thousand dollars in a year, that you're not
Speaker 2: working anyway, I would not play around with the future
Speaker 2: of what's going to happen in ten years time because
Speaker 2: it will hurt and had heard big coock. So we've
Speaker 2: actually had one very similar to this recently where the
Speaker 2: grandmother died and passed the asset down to the daughter
Speaker 2: and anyway, it's a bit of a mess, but capital
Speaker 2: gains tax on that is around about four hundred thousand
Speaker 2: dollars and they're not happy about that. So what they
Speaker 2: should have done is sell the asset years ago. But anyway,
Speaker 2: it's a wonderful thing. So when they die probably passes
Speaker 2: down would have be no we said that, so even
Speaker 2: if the parents pass away, the capital gains tax is
Speaker 2: still calculated from the nineties to say today when they
Speaker 2: moved into it, and then there's a percentage rule that
Speaker 2: you use and convoluted and calculated it. But the estate,
Speaker 2: the estate would pay the capital gains tax, and then
Speaker 2: the person receiving it, like the person the sun, the beneficiary,
Speaker 2: they would receive that with no tax, and if it
Speaker 2: was their principal place of residence, they could sell that
Speaker 2: within twelve months, six six weeks whatever, and then there'd
Speaker 2: be no tax on that pull them either.
Speaker 1: All right, I hope that makes sense. And by the way,
Speaker 1: Howard and all the Howards out there, this is never advice.
Speaker 1: This is information only, as you all know. Okay, Graham says,
Speaker 1: this is this question was specially curated for you, Doug Goods.
Speaker 1: Is it worth purchasing accounting software to help with bookkeeping
Speaker 1: prior to sending to an accountant you around your returns?
Speaker 1: Or is it reasonable to just use an Excel document?
Speaker 1: Or someone might say is it reasonable to bring in
Speaker 1: an envelope full of receipts and spread them out on
Speaker 1: the tables.
Speaker 2: Yeah, those days are going, especially with single touch, single
Speaker 2: touch pyrole requirements and other things like that. There's so many.
Speaker 2: I mean, if you can staff, you have to have
Speaker 2: single touch pyrole. What I would holly recommend they The
Speaker 2: best one to have is the one that your bookkeeper
Speaker 2: or your accountant uses. So don't run off and boring
Speaker 2: off the shelf, block out a zero or moil or
Speaker 2: whatever and then you find it your bookkeeper heights moil
Speaker 2: or hight zero. Sorry, lot that The best one to
Speaker 2: have is the one the bookkeeper of the account uses.
Speaker 2: And they're all pretty good. They're all most of them
Speaker 2: are all CLAOUD based, so you can sit at home
Speaker 2: and look at your bookkeeping in your accounting and your
Speaker 2: account can look at it exactly at the same time.
Speaker 1: So okay, and there's that. What about for people, say
Speaker 1: doing an SMSA for something or the only thing that
Speaker 1: you like?
Speaker 2: So our self managed sheep I fun. They're very specialized programs.
Speaker 2: BGL is one that we use is a couple of
Speaker 2: others out there. But for a self many sleep, you
Speaker 2: probably better off linking up with your accountant and again
Speaker 2: using the program and the system that they use. As
Speaker 2: I said, ours is big also, that would be the
Speaker 2: best one for us.
Speaker 1: Yeah, okay, now thank you for that one. Andrews says,
Speaker 1: from the recent podcast with Bruce Brammel, there were some
Speaker 1: details about the six year rule, which I've always been
Speaker 1: fascinated with. I'd also like to pulp Bruce, I think
Speaker 1: consciously said six or six point five years, which I've
Speaker 1: also heard from others. Perhaps it's not even a six
Speaker 1: year rule. After all these six year rules, could you
Speaker 1: explain what it is and why our audience should know
Speaker 1: about us?
Speaker 2: So the six year old was originally brought in I
Speaker 2: believe back in the day when a lot of us
Speaker 2: worked in banks, police officers, teachers, nurses and you were
Speaker 2: transferred to be promoted within the job. Those days have
Speaker 2: literally gone. Also, fringe benefits taxes wiped out a lot
Speaker 2: of the benefit from that. So to give you an example,
Speaker 2: if a police officer was living in Brisbane and they
Speaker 2: were transferred to Cannes as the sergeant, there was usually
Speaker 2: a police officer's home provided for them, and so they
Speaker 2: were going, oh, I've just been transferred from Brisbane, I've
Speaker 2: just bought a house with my wife and two kids,
Speaker 2: and now I've got to go and work up in
Speaker 2: cans So the government had a relaxation around capital gay
Speaker 2: sex on that they said, okay, if you're forced to
Speaker 2: sell your home because of work, you got up to
Speaker 2: six years to sell their home. So the that police
Speaker 2: officer could have bought that home a week before he
Speaker 2: found out about his transfer. There's no real timeline in regards.
Speaker 2: It's not a twelve month waiting period or anything like that.
Speaker 1: Do you have six years to enjoy the benefits of
Speaker 1: the tax of the capital against tax exemption?
Speaker 2: That's right, so you can claim all of the expenses,
Speaker 2: the rates and mortgage rates, maintenance, insurance interest, except that
Speaker 2: you can claim all of that and then if you
Speaker 2: move back into the property, it starts again. And that's
Speaker 2: what happened a lot of the time. You'd be promoted
Speaker 2: and moved up north, or you'd be moved out west
Speaker 2: or something, and then you So I think that may
Speaker 2: actually be an area that government and ATO may focus
Speaker 2: on changing. Because so in the if a bank officer
Speaker 2: was transferred, they actually stayed in a bank officer home
Speaker 2: and they lived in that home and it was provided
Speaker 2: for by the banker, that was part of their package.
Speaker 2: Well they actuala looked at that and they went, hay,
Speaker 2: in a second, that's a fringe benefit, so therefore we
Speaker 2: need to tax you on that. So the banks all
Speaker 2: set said, well, we can't provide housing for staff anymore.
Speaker 2: So the and again the whole banking system and the
Speaker 2: transferring has changed pot of work. But again fride benefits
Speaker 2: is not government. It's not a government tax. So therefore
Speaker 2: state government so police officers and nurses and that they
Speaker 2: still have housing. But it's a very interesting space. There
Speaker 2: will be some major changes in there. But a lot
Speaker 2: of people now what they're doing through what they call
Speaker 2: rent festing is that they buy a home, a unit
Speaker 2: or something like that, they rent it out and then
Speaker 2: they call it their principal place of residence and then
Speaker 2: they move back into mum and dad's flights and so
Speaker 2: that's called rentfesting. So people are abusing that rule.
Speaker 1: Some mom who does toost for six years or up
Speaker 1: to six years.
Speaker 2: Yeah, that's true. Yeah, I understand. So that rule is
Speaker 2: being abused. And once you start abusing it, the ATO
Speaker 2: and the government will actually start.
Speaker 1: So it sounds to me like you accountants are of
Speaker 1: the opinion they can't last forever. But do you know
Speaker 1: anything more than that is just supposition?
Speaker 2: Are Now that's just the Duncan theory. It's just wait, definitely,
Speaker 2: But watch this spice. I watched this space. There's a
Speaker 2: lot of people doing it.
Speaker 1: There's a lot of people do Yeah. Yeah, there's a
Speaker 1: lot of people doing it, and we've just told them
Speaker 1: all about it. Okay, very good. Now there are three
Speaker 1: more questions and they are all about ETFs. So I'm
Speaker 1: going to try and put them together if I could. James,
Speaker 1: Josh and Joe's soapd and exchange funds are terribly increasingly
Speaker 1: forpular everyone I'm sure on the show knows the basics.
Speaker 1: They know the basics that you buy these funds. Let's
Speaker 1: say you buy the Australian market where you buy the
Speaker 1: NASDAC and you get whatever return that market did in
Speaker 1: the year up or down. You can't do better than
Speaker 1: the market, you can't do worse. That's good enough for
Speaker 1: lots of people, and that's the traditional ETF. So the
Speaker 1: variety of questions around that, especially the main theme from
Speaker 1: these three questions is actually about children and kids. And
Speaker 1: I used to get to sophab two on radios when
Speaker 1: I did these radio shows for people would call in
Speaker 1: and they say, you know, I want to buy something
Speaker 1: for my kids. How do I start? Once upon a
Speaker 1: time you'd say, oh, look, you know, buy one of
Speaker 1: the banks and one of the miners and start to
Speaker 1: build out from there. I mean, there was nobody tfs
Speaker 1: or index funds, so now they're there. But the teams
Speaker 1: of these three questions is I want to do it
Speaker 1: for my kids. How did they do it?
Speaker 2: Well, that'll be in the parents name either it could
Speaker 2: be you could either a trust structure or something like that,
Speaker 2: but you can't be in the kids names because they're miners.
Speaker 2: One of them is under one year of age, so
Speaker 2: it must be in your name. So therefore you're going
Speaker 2: to be paying any tax on any income that rolls
Speaker 2: in from that investment. So if you're on two hundred
Speaker 2: thousand dollars a year, every dollar that comes in the
Speaker 2: young JOWI two year old child, it's going to hurt you.
Speaker 2: So that you you should probably lean towards looking at
Speaker 2: your growth type investments. So CSL was one share that
Speaker 2: I made told me to buy when my daughter was
Speaker 2: born back in two thousand and two.
Speaker 1: What I got suggestion that was idiot.
Speaker 2: Didn't buy it. He bought ten thousand dollars with a
Speaker 2: BHP because because I watched the share price go from
Speaker 2: twenty eight dollars down to twelve dollars because of our
Speaker 2: hepatitis C scare. So I said, oh, well, I'm smarter
Speaker 2: than umrate, I'll buyo BHP And it was the stupidest
Speaker 2: thing I ever did. But yeah, So, so you want
Speaker 2: to look at your super high growth type ets.
Speaker 1: My suggestion anyhow, Duncan you're suggesting that because they have
Speaker 1: little dividends and you don't want to be pintact.
Speaker 2: That's right, Yes, that's right. Really no income, only growth.
Speaker 2: So therefore they don't pay they don't pay a lot
Speaker 2: in dividends or you know, investment income. And then just
Speaker 2: just put it in the bottom drawer and look at
Speaker 2: it once a year and let it grow. And then
Speaker 2: so I was actually only talking to a mate on
Speaker 2: the weekend, and he did, he did one hundred dollars
Speaker 2: a month at each one of his kids. And they've
Speaker 2: they've just all been handed over one hundred and twenty
Speaker 2: thousand dollars.
Speaker 1: Each, and so it was just he just said it
Speaker 1: was simple. I just shoved it away.
Speaker 2: I didn't look at it. It was growth. Fun. And
Speaker 2: then he go, kids, he's one hundred and twenty thousand dollars.
Speaker 2: So it's a it's a great way to go. And
Speaker 2: you know, I really like the concept. If you want
Speaker 2: to add a little bit of spice to it, probably
Speaker 2: more so in your own personal ETF diversification portfolio. Never
Speaker 2: buy ETFs with cash or try and always borrow to
Speaker 2: buy the ETFs because it's tax deductible. And so you
Speaker 2: would never buy an investment property with cash. You'd always
Speaker 2: buy it with borrowings, wouldn't you. So why wouldn't you
Speaker 2: do the same with ETFs.
Speaker 1: Yeah, well, well why wouldn't you do the same with ETFs?
Speaker 1: Good question, look, very good point. Why do you think
Speaker 1: that is? Why do you think people are so confident
Speaker 1: of borrowing to by property and not confident to buy shares,
Speaker 1: especially eat when we know that the track record of these.
Speaker 2: Well GFC is two thousand and eight. That put an
Speaker 2: end to all of that margin lending ideas. But I
Speaker 2: think margin lending is fine. If you've got a million
Speaker 2: dollar property in a one hundred and fifty thousand dollars
Speaker 2: home loan, you've got eight hundred and fifty thousand dollars
Speaker 2: with equity in your home. If you take a small
Speaker 2: split facility and borrow against that facility and drop it
Speaker 2: into an ATF through dollar cost averaging, you won't go right.
Speaker 2: You're not gonna you're not gonna have you higher celled
Speaker 2: up on you and you get a getty interest taxedession.
Speaker 1: Call just one not thing. Explain that again to the
Speaker 1: audience that it is a person thought that they were
Speaker 1: going to help their kids and when and they look
Speaker 1: at them, that the city out in the garden, and
Speaker 1: they raised at nine and they say, I really should
Speaker 1: do something so so so, so we both agree that's
Speaker 1: by an ETF. But you were saying, just explain the
Speaker 1: notion of how they might take What's what is the
Speaker 1: nature or the form of the loan or the gearing
Speaker 1: that they would do on it.
Speaker 2: Oh well, I'll give you an examp. So a million
Speaker 2: dollar home and you've got one hundred and fifty thousand
Speaker 2: dollars mortgage against it, which is just a normal standard homeland.
Speaker 2: I would go to your boat broker or bank. I
Speaker 2: would top that up to say, you know, I don't
Speaker 2: know three hundred thousand dollars, So now you've got a
Speaker 2: one hundred and fifty thousand dollar limit with a zero
Speaker 2: debt on it. That's your investment, so would he. And
Speaker 2: then you've got one hundred and fifty thousand dollars home
Speaker 2: loan with a limit of one hundred and fifty years,
Speaker 2: zero debt. And it's called debt recycling. You can do
Speaker 2: a YouTube onto people and then you just all you
Speaker 2: do is your dolar cost average out of the new facility,
Speaker 2: which has a zero ballance of zero and a limited
Speaker 2: one fifty. You're pour instead of taking money out of
Speaker 2: your savings to the detriment of your homelan. So your
Speaker 2: homeland is going to reduce very fast, that your investment
Speaker 2: borrowings is going to increase. Before you hit one hundred
Speaker 2: and fifty thousand dollars worth of borrowings in investment borrowings,
Speaker 2: which is fully tax deductible, your home loan will be smashed.
Speaker 2: It'll be wide out. And so all the only borrowings
Speaker 2: that you have within a couple of years or five
Speaker 2: year sent the only borrowings that you have is tax
Speaker 2: deductible borrowings.
Speaker 1: It's not only that, but the borrowings that you both
Speaker 1: the ETF song are on mortgage rates which are lower
Speaker 1: than all other commercial rates.
Speaker 2: Yeah, and any interest that you're paying over this text, well,
Speaker 2: but it's in an invest it's in an ATF. It's
Speaker 2: probably giving and a growth EGF. It's probably giving you
Speaker 2: eleven percent or eight percent. You know me, so.
Speaker 1: Very good, Yes, I like it. I like it terrific.
Speaker 1: Thank you very much, Duncan. Great to have you on
Speaker 1: the show today. Quite wein and some really interesting issues
Speaker 1: we picked up there, folks, I thought you I'm sure
Speaker 1: you found that very interesting. Interesting about the property in
Speaker 1: SMSFS or at least the you know, the outstanding advantage
Speaker 1: of property outside super because of negative gearing. Also about
Speaker 1: the ETFs, It's funny we talk about ETFs all the time,
Speaker 1: but we haven't talked about financing them or gearing them.
Speaker 1: And and why don't people do it? Since their track
Speaker 1: report is would be comparable long term with the residential
Speaker 1: average residential home returns over across the country years.
Speaker 2: The ATF can be sold to yourself.
Speaker 1: Yes, that's fine. And they have no gutfers and they
Speaker 1: have no maintenance. Yeah, okay, very good. Oh just to
Speaker 1: let you know, we have no Whittaker, the legendary. No
Speaker 1: Whittaker on the show on Thursday, everybody, so look out
Speaker 1: for that. Keep the emails running to the money posit
Speaker 1: at the Australian dot com dot au and we'll talk
Speaker 1: to you soon