1 00:00:13,380 --> 00:00:15,700 Speaker 1: Hello and welcome to today's episode of The Money Puzzle. 2 00:00:15,720 --> 00:00:18,300 Speaker 1: I'm your host, James Gerrard, standing in for James Kirby 3 00:00:18,320 --> 00:00:21,569 Speaker 1: this week for another special episode. Last week, we covered 4 00:00:21,590 --> 00:00:24,230 Speaker 1: the world of private equity and heard some very insightful 5 00:00:24,310 --> 00:00:28,370 Speaker 1: tips from a seasoned private equity investor, Rudy Engelbrecht. If 6 00:00:28,410 --> 00:00:30,389 Speaker 1: you haven't listened to that episode, I'd really encourage you 7 00:00:30,410 --> 00:00:32,900 Speaker 1: to do so. It was well worth listening. It's called 8 00:00:33,220 --> 00:00:37,240 Speaker 1: Private Equity Playbook, Tips from an Insider. And today, we're 9 00:00:37,260 --> 00:00:39,680 Speaker 1: going to cover tax. The thing is that tax probably 10 00:00:39,700 --> 00:00:42,340 Speaker 1: isn't the most exciting thing in the world, but it's important. 11 00:00:42,780 --> 00:00:44,680 Speaker 1: So what we're going to do is we're going to 12 00:00:44,700 --> 00:00:46,180 Speaker 1: try and tackle it in a structured way. We're going 13 00:00:46,200 --> 00:00:48,760 Speaker 1: to break it up into discussion by different age groups 14 00:00:48,860 --> 00:00:51,019 Speaker 1: so that regardless of how old you are and who 15 00:00:51,050 --> 00:00:54,110 Speaker 1: you are, hopefully you can take something away from today's episode. 16 00:00:54,810 --> 00:00:57,110 Speaker 1: And we're going to finish with the top tax deductions 17 00:00:57,150 --> 00:00:59,310 Speaker 1: you didn't know that you could claim. And to help 18 00:00:59,370 --> 00:01:01,770 Speaker 1: us with this very special mission, we've got a very 19 00:01:01,810 --> 00:01:04,280 Speaker 1: special guest. He's been on the show before, so his 20 00:01:04,360 --> 00:01:07,120 Speaker 1: name may be familiar to a couple of you. Timothy 21 00:01:07,180 --> 00:01:11,360 Speaker 1: Ricardo is the principal at Central Coast-based accounting practice, Accounting 22 00:01:11,480 --> 00:01:14,119 Speaker 1: Advisor Group. Now, something you might not know about Tim 23 00:01:14,160 --> 00:01:16,380 Speaker 1: is that he doesn't mind the occasional round of golf. 24 00:01:16,860 --> 00:01:18,800 Speaker 1: So in his day job as an accountant, Tim's very 25 00:01:18,840 --> 00:01:21,340 Speaker 1: good at writing things off. But when it comes to golf, 26 00:01:21,459 --> 00:01:23,270 Speaker 1: a lot of people say that Tim's golf game is 27 00:01:23,310 --> 00:01:25,990 Speaker 1: a bit of a write-off. So without further delay, let's 28 00:01:26,030 --> 00:01:30,690 Speaker 1: give Tim from Accounting Advisor a very big money puzzle welcome. Welcome, Tim. 29 00:01:31,209 --> 00:01:33,970 Speaker 2: Thanks, James. I think a bit of creative accounting in 30 00:01:34,390 --> 00:01:35,990 Speaker 2: golfing is always helpful, though. 31 00:01:36,290 --> 00:01:39,850 Speaker 1: That's the way. We've had many rounds of golf together, 32 00:01:40,190 --> 00:01:43,800 Speaker 1: and we have been... Occasionally creative, but we'll stop talking 33 00:01:43,819 --> 00:01:46,320 Speaker 1: about that because other people on the same golf day 34 00:01:46,500 --> 00:01:48,640 Speaker 1: may be listening to this. So before we get started, 35 00:01:48,660 --> 00:01:50,320 Speaker 1: I just want everyone to know that what Tim and 36 00:01:50,340 --> 00:01:52,700 Speaker 1: I discuss is general advice and it's not seen to 37 00:01:52,740 --> 00:01:55,720 Speaker 1: be personal advice. So as is always the case on 38 00:01:55,740 --> 00:01:58,700 Speaker 1: The Money Puzzle, listeners should seek professional advice before acting 39 00:01:58,760 --> 00:02:02,390 Speaker 1: on anything they hear on today's episode. So let's get started, Tim, 40 00:02:02,410 --> 00:02:05,550 Speaker 1: and let's have a chat about the younger age group. 41 00:02:05,570 --> 00:02:06,770 Speaker 1: So what we'll do is we'll break it up into 42 00:02:06,850 --> 00:02:09,230 Speaker 1: three different age groups. We'll talk about people who are 43 00:02:09,290 --> 00:02:11,760 Speaker 1: between 18 years old and 40. and some of the 44 00:02:11,800 --> 00:02:14,060 Speaker 1: tax issues that they face and how they can potentially 45 00:02:14,160 --> 00:02:16,300 Speaker 1: optimise things and think about things they may not have 46 00:02:16,320 --> 00:02:19,520 Speaker 1: thought about before. We'll then jump into people between 40 47 00:02:19,520 --> 00:02:21,970 Speaker 1: and 60 years of age, and then we'll jump through 48 00:02:22,000 --> 00:02:25,090 Speaker 1: to the retirees. So starting with the age bracket of 49 00:02:25,090 --> 00:02:28,810 Speaker 1: 18 to 40, let's have a chat about the private 50 00:02:29,389 --> 00:02:33,290 Speaker 1: health insurance, Medicare levy surcharge. Talk us through why is 51 00:02:33,310 --> 00:02:35,010 Speaker 1: that important for people in that age bracket, Tim? 52 00:02:35,840 --> 00:02:39,380 Speaker 2: Okay, so yeah, the younger generation, I don't think we 53 00:02:39,400 --> 00:02:41,980 Speaker 2: fit into that one anymore. James, unfortunately. 54 00:02:42,000 --> 00:02:44,839 Speaker 1: We're on the other side of the big four zero now, Tim. 55 00:02:46,560 --> 00:02:50,639 Speaker 2: So yes, what wisdom can we give to these young people? Okay, 56 00:02:50,660 --> 00:02:53,859 Speaker 2: so private health insurance is one of those topics that 57 00:02:54,000 --> 00:02:55,859 Speaker 2: I think the young people think that they're all fit 58 00:02:55,880 --> 00:02:57,920 Speaker 2: and healthy and they don't need it. So what the 59 00:02:57,960 --> 00:03:01,380 Speaker 2: government does is they make it more of an incentive 60 00:03:01,400 --> 00:03:04,399 Speaker 2: for you to get it when you're younger. So basically 61 00:03:04,560 --> 00:03:08,419 Speaker 2: after the age of 30, a loading of 2% adds 62 00:03:08,460 --> 00:03:12,090 Speaker 2: to your premiums every year. So if you're starting to, 63 00:03:12,430 --> 00:03:14,049 Speaker 2: you know, if you feel like you're fit and healthy 64 00:03:14,130 --> 00:03:17,990 Speaker 2: and you don't need private health insurance, the older you get, 65 00:03:18,610 --> 00:03:22,470 Speaker 2: you might actually require that insurance. And without giving any 66 00:03:22,510 --> 00:03:26,370 Speaker 2: advice on that, from a tax perspective, you can also 67 00:03:26,450 --> 00:03:28,550 Speaker 2: save a little bit of money. If you're starting to 68 00:03:28,669 --> 00:03:32,960 Speaker 2: earn more income, you also pay more tax if you 69 00:03:33,000 --> 00:03:36,200 Speaker 2: don't have private health insurance. So there's an incentive there that, 70 00:03:36,460 --> 00:03:38,780 Speaker 2: you know, to get that insurance when you're younger and 71 00:03:39,390 --> 00:03:42,380 Speaker 2: you know, 30 or below so that you can, you know, 72 00:03:42,460 --> 00:03:43,020 Speaker 2: think about. 73 00:03:42,850 --> 00:03:46,460 Speaker 1: The future, I suppose. Yeah. So what's the maximum surcharge 74 00:03:46,760 --> 00:03:49,600 Speaker 1: that can be charged? I assume it goes up the 75 00:03:49,640 --> 00:03:52,260 Speaker 1: more you earn, the higher the surcharge that you get charged. 76 00:03:52,680 --> 00:03:56,529 Speaker 2: I think it's a maximum of 40%, but I'd have 77 00:03:56,550 --> 00:03:58,890 Speaker 2: to double check that one, James. Thanks for throwing a 78 00:03:58,930 --> 00:04:00,090 Speaker 2: wildcard question at me. 79 00:04:02,310 --> 00:04:03,910 Speaker 1: That's all right. What I meant was about what gets 80 00:04:03,950 --> 00:04:07,000 Speaker 1: added to your tax, like that Medicare surcharge levy. 81 00:04:07,590 --> 00:04:10,400 Speaker 2: Okay, on the levy side, yeah. Well, so basically, the 82 00:04:10,420 --> 00:04:12,900 Speaker 2: more you earn, the more tax you pay. But if 83 00:04:12,960 --> 00:04:16,580 Speaker 2: you're over, as an individual, $ 97, 000 in income, or as 84 00:04:16,620 --> 00:04:18,080 Speaker 2: a family, they double it, so $ 194, 000, then you pay 1% 85 00:04:18,080 --> 00:04:19,990 Speaker 2: surcharge on your income. So if you're earning $ 200, 000 between 86 00:04:20,000 --> 00:04:21,270 Speaker 2: the two of you, you pay $ 2, 000 extra in tax. 87 00:04:21,290 --> 00:04:22,870 Speaker 2: And then if you're going up to more than $ 302, 000, 88 00:04:22,750 --> 00:04:37,140 Speaker 2: then you can actually pay 1.5%. as a loading on 89 00:04:37,160 --> 00:04:40,560 Speaker 2: your tax. So yeah, not a great sort of tax 90 00:04:40,600 --> 00:04:43,250 Speaker 2: to be paying. It's a penalty. So good idea to 91 00:04:43,290 --> 00:04:45,190 Speaker 2: have insurance when you start earning more money. 92 00:04:45,200 --> 00:04:47,650 Speaker 1: All right. Well, there we go. So the more you earn, 93 00:04:47,670 --> 00:04:51,050 Speaker 1: the more you should consider private health insurance, and maybe 94 00:04:51,250 --> 00:04:54,080 Speaker 1: not even so much for the core benefits of it, 95 00:04:54,110 --> 00:04:57,010 Speaker 1: but getting hospital cover. Because I've seen situations where people 96 00:04:57,050 --> 00:05:00,789 Speaker 1: pay less premiums for hospital cover than they would in 97 00:05:00,830 --> 00:05:04,099 Speaker 1: the Medicare levy surcharge. So financially, it could be better 98 00:05:04,140 --> 00:05:05,930 Speaker 1: just to get that private health insurance, plus you get 99 00:05:05,940 --> 00:05:08,190 Speaker 1: the free cover if you need it. Now, moving on 100 00:05:08,210 --> 00:05:10,810 Speaker 1: to another one for our younger age bracket, why do 101 00:05:10,830 --> 00:05:12,730 Speaker 1: you think it might be important to get an accountant 102 00:05:12,950 --> 00:05:14,969 Speaker 1: earlier in life? Okay. 103 00:05:15,010 --> 00:05:17,730 Speaker 2: So look, I think it's for these kind of points, 104 00:05:17,810 --> 00:05:20,450 Speaker 2: because if you get over a certain age, you start 105 00:05:20,500 --> 00:05:23,480 Speaker 2: losing some benefits. And it's more about the things you 106 00:05:24,339 --> 00:05:27,920 Speaker 2: miss out on when you're that young. You might think 107 00:05:28,000 --> 00:05:31,340 Speaker 2: the digital you know, this digital generation, everything's at your 108 00:05:31,380 --> 00:05:34,510 Speaker 2: fingertips and the ATO make it really easy to lodge 109 00:05:34,550 --> 00:05:37,090 Speaker 2: your own return. And I looked up some stats here, 110 00:05:37,130 --> 00:05:41,210 Speaker 2: but at the end of August, 6.5 million individual returns 111 00:05:41,250 --> 00:05:44,750 Speaker 2: were lodged. Three and a half million were by self-preparers 112 00:05:45,310 --> 00:05:50,800 Speaker 2: and only 2.9. So they've sort of eclipsed the agent-prepared returns. 113 00:05:50,860 --> 00:05:54,479 Speaker 2: But there's these new returns called push returns, which basically 114 00:05:54,500 --> 00:05:57,820 Speaker 2: the ATO prepares your return for you and says, do 115 00:05:57,920 --> 00:06:01,360 Speaker 2: you want to go ahead with this return? It's for 116 00:06:01,400 --> 00:06:05,289 Speaker 2: those simple taxpayers. So the DIY trend of returns is 117 00:06:05,330 --> 00:06:11,029 Speaker 2: going to be increasing, I think. But essentially, if you 118 00:06:11,170 --> 00:06:13,910 Speaker 2: are looking for tax advice, it is easy to get 119 00:06:13,970 --> 00:06:16,510 Speaker 2: things wrong on your tax return. And a lot of 120 00:06:16,529 --> 00:06:18,950 Speaker 2: the returns I see that come to me after they've 121 00:06:18,970 --> 00:06:21,340 Speaker 2: prepared it themselves, I can usually pick up quite a 122 00:06:21,360 --> 00:06:23,659 Speaker 2: few things they've gotten wrong. So it's good to get 123 00:06:24,260 --> 00:06:28,570 Speaker 2: an accountant to start providing some of those specialized advice pieces, 124 00:06:28,630 --> 00:06:31,530 Speaker 2: especially when you start getting into some areas that are 125 00:06:31,570 --> 00:06:35,070 Speaker 2: outside those very simple salary and wage returns. 126 00:06:36,670 --> 00:06:39,600 Speaker 1: What about paying HECS? People often ask me, should I 127 00:06:39,620 --> 00:06:43,520 Speaker 1: focus on repaying my HECS debt or should I put 128 00:06:43,560 --> 00:06:47,000 Speaker 1: it onto my mortgage or onto my investment property loan? 129 00:06:47,020 --> 00:06:50,220 Speaker 1: So these people will who've gone through university, they're in 130 00:06:50,300 --> 00:06:52,779 Speaker 1: their 20s, 30s, still have a residual HECS debt. What 131 00:06:52,800 --> 00:06:54,219 Speaker 1: are your thoughts there from a tax perspective? 132 00:06:54,240 --> 00:06:57,750 Speaker 2: Okay. Well, on the HECS debts, this is something in 133 00:06:57,790 --> 00:07:00,950 Speaker 2: this age bracket, they've usually got quite large HECS debts. 134 00:07:01,150 --> 00:07:03,929 Speaker 2: And every year you get a compulsory payment that comes 135 00:07:04,190 --> 00:07:07,870 Speaker 2: on when you complete your tax return. So one of 136 00:07:07,910 --> 00:07:11,860 Speaker 2: the things that is a misconception, I suppose, is that 137 00:07:12,220 --> 00:07:15,630 Speaker 2: I can sort of make a voluntary repayment and then 138 00:07:16,190 --> 00:07:19,510 Speaker 2: that'll save me on my compulsory repayment. But you don't 139 00:07:19,550 --> 00:07:22,600 Speaker 2: actually get any reduction on your compulsory repayment for any 140 00:07:22,640 --> 00:07:26,360 Speaker 2: voluntary repayments. So it sort of becomes a bit of 141 00:07:26,400 --> 00:07:28,780 Speaker 2: a black hole there. And the fact that it's only 142 00:07:29,120 --> 00:07:32,720 Speaker 2: increasing by CPI means that you'd be able to give 143 00:07:32,760 --> 00:07:35,440 Speaker 2: the advice on that as to whether CPI is better 144 00:07:35,680 --> 00:07:40,110 Speaker 2: than getting a loan outside or putting it on your mortgage. 145 00:07:40,200 --> 00:07:42,130 Speaker 2: But yeah, it's something to consider. 146 00:07:42,250 --> 00:07:46,170 Speaker 1: Yeah. So in the past, it was generally advisable to 147 00:07:46,550 --> 00:07:49,910 Speaker 1: not prioritize HEX repayments because the indexation rate was quite 148 00:07:50,010 --> 00:07:53,530 Speaker 1: low and people's mortgages, investment loans, car loans, personal loans 149 00:07:53,550 --> 00:07:55,770 Speaker 1: would be of a higher interest rate. But we had 150 00:07:55,790 --> 00:07:57,670 Speaker 1: a bit of surprise for the last 12 months. It 151 00:07:57,690 --> 00:08:01,120 Speaker 1: was 7.1% indexation. So that's been higher than it has 152 00:08:01,160 --> 00:08:03,840 Speaker 1: been for quite a long time. So every year people 153 00:08:03,960 --> 00:08:06,360 Speaker 1: just need to think about and be conscious that they 154 00:08:06,380 --> 00:08:08,660 Speaker 1: have a HECS debt if they do, and then just 155 00:08:08,860 --> 00:08:11,980 Speaker 1: work out in the order of priority, should they make 156 00:08:12,000 --> 00:08:15,620 Speaker 1: an extra repayment or focus their cashflow in other areas? Tim, 157 00:08:15,640 --> 00:08:19,700 Speaker 1: what about first home super saver scheme? What should we 158 00:08:19,900 --> 00:08:22,430 Speaker 1: understand for people in that 18 to 40 year old 159 00:08:22,750 --> 00:08:24,060 Speaker 1: age bracket with regards to this? 160 00:08:24,500 --> 00:08:27,740 Speaker 2: Yeah, so this was brought in back in the Turnbull 161 00:08:27,800 --> 00:08:31,060 Speaker 2: government days of 2017. And it was a little bit 162 00:08:31,100 --> 00:08:34,100 Speaker 2: more popular than co-investing with the government on your first 163 00:08:34,160 --> 00:08:37,699 Speaker 2: house for some reason. And basically this one is, it 164 00:08:37,720 --> 00:08:41,500 Speaker 2: allows you to pull out of super any sort of 165 00:08:41,580 --> 00:08:45,540 Speaker 2: contributions that you've made, voluntary contributions into super. So it 166 00:08:45,580 --> 00:08:48,620 Speaker 2: can be a real help for these young taxpayers that 167 00:08:48,660 --> 00:08:50,980 Speaker 2: are trying to get into a house. It allows them 168 00:08:51,020 --> 00:08:53,740 Speaker 2: to save and put some money into super. And then 169 00:08:53,940 --> 00:08:58,949 Speaker 2: they can withdraw up to $ 50, 000 of their voluntary contributions 170 00:08:59,429 --> 00:09:02,490 Speaker 2: up to 15,000 a year in their, of their voluntary 171 00:09:02,690 --> 00:09:04,650 Speaker 2: contributions that they make. So they can get a bit 172 00:09:04,670 --> 00:09:07,010 Speaker 2: of a tax deduction on the way in. And then 173 00:09:07,050 --> 00:09:09,709 Speaker 2: when they pull it out, you do get a, a 174 00:09:09,750 --> 00:09:13,860 Speaker 2: tax offset of, I think it's 30% that you can 175 00:09:13,900 --> 00:09:16,280 Speaker 2: get when you pull that out of super. And the 176 00:09:16,300 --> 00:09:19,600 Speaker 2: best thing about this is that it's actually per person. 177 00:09:19,700 --> 00:09:19,880 Speaker 1: So. 178 00:09:20,720 --> 00:09:23,600 Speaker 2: If there's two of you, you can pull out $ 100, 000 179 00:09:22,679 --> 00:09:25,820 Speaker 2: out of your super if you've been putting it in 180 00:09:26,100 --> 00:09:30,120 Speaker 2: as voluntary contributions. So it's something that you can get 181 00:09:30,160 --> 00:09:32,280 Speaker 2: a bit of a tax benefit to help you save. 182 00:09:32,540 --> 00:09:36,740 Speaker 2: And then if you're wanting to get into that first home, 183 00:09:36,880 --> 00:09:39,760 Speaker 2: you can go in with someone else and obviously pull 184 00:09:39,820 --> 00:09:41,840 Speaker 2: out and get a bit of a deposit together. 185 00:09:42,559 --> 00:09:44,680 Speaker 1: Perfect. So on the way in, 15% tax. On the 186 00:09:44,700 --> 00:09:48,470 Speaker 1: way out... Some people may not realise that it's not 187 00:09:48,530 --> 00:09:51,500 Speaker 1: fully tax-free, that depending on your level of taxable income, 188 00:09:51,510 --> 00:09:53,420 Speaker 1: there is a 30% tax offset there. But if you're 189 00:09:53,440 --> 00:09:55,400 Speaker 1: on the highest marginal tax rate, there still might be 190 00:09:55,440 --> 00:09:59,250 Speaker 1: a bit of top-up tax payable on that super money 191 00:09:59,330 --> 00:10:02,050 Speaker 1: coming out. to fund your deposit. All right, well, I 192 00:10:02,070 --> 00:10:03,819 Speaker 1: think we're done with the younger age bracket. Unless there's 193 00:10:03,840 --> 00:10:05,460 Speaker 1: anything else you wanted to run through with them that 194 00:10:05,480 --> 00:10:05,910 Speaker 1: comes to mind? 195 00:10:06,620 --> 00:10:08,199 Speaker 2: No, not off the top of my head. I think 196 00:10:08,220 --> 00:10:11,060 Speaker 2: that's a good snapshot of a few issues to consider. 197 00:10:11,080 --> 00:10:15,199 Speaker 1: All right, good. Let's move on to the middle-aged taxpayer 198 00:10:15,660 --> 00:10:17,300 Speaker 1: and maybe a little bit older than that as well. 199 00:10:17,320 --> 00:10:21,220 Speaker 1: So between 40 and... 60. So let's kick it off 200 00:10:21,240 --> 00:10:24,699 Speaker 1: with negative gearing. Now, the thing is that negative gearing 201 00:10:24,740 --> 00:10:27,860 Speaker 1: is pretty rare globally. Tim, do you know much about 202 00:10:28,220 --> 00:10:31,370 Speaker 1: negative gearing with regards to how we do it versus 203 00:10:31,410 --> 00:10:32,030 Speaker 1: other countries? 204 00:10:32,830 --> 00:10:35,429 Speaker 2: Look, I don't know a whole lot because we mostly 205 00:10:35,490 --> 00:10:38,310 Speaker 2: focus on the Australian tax, seem to be bogged down 206 00:10:38,350 --> 00:10:40,970 Speaker 2: in that. But interestingly, just to look at a couple 207 00:10:40,990 --> 00:10:44,429 Speaker 2: of other countries, New Zealand has sort of phased out 208 00:10:44,510 --> 00:10:48,500 Speaker 2: their negative gearing for a few years now. So they're 209 00:10:48,540 --> 00:10:53,330 Speaker 2: moving away from it. And then Canada, they have more 210 00:10:53,390 --> 00:10:58,000 Speaker 2: like a future offset where you can't offset the negative 211 00:10:58,010 --> 00:11:01,120 Speaker 2: gearing against your other income, but you can against future 212 00:11:01,140 --> 00:11:06,189 Speaker 2: rental earnings. So they isolate that as a deduction, which yeah, 213 00:11:06,590 --> 00:11:09,550 Speaker 2: I'm sure the government's been considering all of these different 214 00:11:09,610 --> 00:11:11,870 Speaker 2: options and it's a bit of a hot topic with them. 215 00:11:11,950 --> 00:11:15,870 Speaker 2: But yeah, so more focusing on the Australian side of things, though, 216 00:11:15,890 --> 00:11:18,290 Speaker 2: I think it is here. Is it here to stay? 217 00:11:18,370 --> 00:11:21,550 Speaker 2: I don't know the answer to that question, but it 218 00:11:21,590 --> 00:11:24,650 Speaker 2: is certainly something that is pretty common. It's about one 219 00:11:24,700 --> 00:11:27,800 Speaker 2: in 10 were the stats that I saw of Australians 220 00:11:27,860 --> 00:11:31,179 Speaker 2: that use negative gearing, which, yeah, I don't know where 221 00:11:31,220 --> 00:11:33,060 Speaker 2: that comes from, but that's pretty high. 222 00:11:33,080 --> 00:11:36,850 Speaker 1: All right, well, Negative gearing, maybe jumping back a step 223 00:11:36,890 --> 00:11:39,929 Speaker 1: to the basics of it. Explain to our listeners why 224 00:11:40,070 --> 00:11:43,770 Speaker 1: someone would want to buy an investment asset that costs 225 00:11:43,790 --> 00:11:46,890 Speaker 1: them more money to maintain each year than the income 226 00:11:46,929 --> 00:11:50,319 Speaker 1: they're getting from it. Why would that make financial sense 227 00:11:50,420 --> 00:11:54,059 Speaker 1: or taxation sense to have a loss-making investment? 228 00:11:54,740 --> 00:11:58,939 Speaker 2: Yeah, so when you're talking about negative gearing, it's basically... 229 00:11:58,830 --> 00:12:01,110 Speaker 2: an asset that's got a loan on it and it's 230 00:12:01,170 --> 00:12:04,620 Speaker 2: creating a loss that is then tax deductible in our 231 00:12:04,650 --> 00:12:07,540 Speaker 2: tax system. So from that point of view, it can 232 00:12:07,600 --> 00:12:11,240 Speaker 2: look at the whole idea here, James, is that you're 233 00:12:11,260 --> 00:12:14,260 Speaker 2: doing it for investment, obviously, and that's your area. You're 234 00:12:14,280 --> 00:12:16,960 Speaker 2: picking an investment that you're hoping is going to go 235 00:12:17,020 --> 00:12:18,949 Speaker 2: up in price, but you can save a bit of 236 00:12:19,010 --> 00:12:23,349 Speaker 2: tax in the meantime on the costs associated with holding 237 00:12:23,410 --> 00:12:26,439 Speaker 2: onto that property. But as far as things to consider, 238 00:12:26,500 --> 00:12:30,740 Speaker 2: I think depreciation and sort of those non-cash deductions are 239 00:12:30,780 --> 00:12:34,240 Speaker 2: things that do help in this regard. So there are 240 00:12:34,280 --> 00:12:38,459 Speaker 2: a few different types of non-cash deductions that you can 241 00:12:38,540 --> 00:12:40,990 Speaker 2: get when you've got a rental property. So they're not 242 00:12:41,020 --> 00:12:43,530 Speaker 2: actually things that you're having to pay for, but you 243 00:12:43,570 --> 00:12:45,470 Speaker 2: can claim them in your return. 244 00:12:47,030 --> 00:12:50,790 Speaker 1: And what about the decision as to who owns the property, 245 00:12:51,270 --> 00:12:55,530 Speaker 1: the negatively geared property? Should it be in joint names 246 00:12:55,570 --> 00:12:58,070 Speaker 1: if it's to partners who are married? Should it be 247 00:12:58,530 --> 00:13:00,990 Speaker 1: in the higher income, the lower income? Does it depend 248 00:13:01,050 --> 00:13:03,699 Speaker 1: on whether the property is making a loss or cash 249 00:13:03,720 --> 00:13:06,500 Speaker 1: flow positive? How do people start to, and again, not advice, 250 00:13:06,540 --> 00:13:09,720 Speaker 1: but generally how should people be thinking about, is there 251 00:13:09,760 --> 00:13:11,640 Speaker 1: any rule of thumbs there when it comes to ownership 252 00:13:11,860 --> 00:13:15,880 Speaker 1: of geared, leveraged investment property or geared share portfolios? 253 00:13:16,700 --> 00:13:20,970 Speaker 2: Yeah, so as far as gearing is concerned, if you 254 00:13:20,990 --> 00:13:22,470 Speaker 2: need to look at it on a property buy perspective, 255 00:13:22,710 --> 00:13:27,949 Speaker 2: property or case-by-case basis. Obviously, some assets grow a lot 256 00:13:28,010 --> 00:13:31,880 Speaker 2: more from a capital point of view, but are in 257 00:13:31,900 --> 00:13:36,300 Speaker 2: a cash negative position on a year-to-year basis. Obviously, in 258 00:13:36,340 --> 00:13:39,880 Speaker 2: the short term, having that in the name of the 259 00:13:40,100 --> 00:13:46,050 Speaker 2: higher taxpayer would be a good idea, just generally speaking. 260 00:13:46,690 --> 00:13:48,890 Speaker 2: But then you need to consider that CGT at the 261 00:13:48,970 --> 00:13:52,679 Speaker 2: end because if you have a capital gain that's all 262 00:13:52,720 --> 00:13:55,780 Speaker 2: in one person's name, you could be paying a lot 263 00:13:55,860 --> 00:13:58,079 Speaker 2: more than if it's divided by the two of you 264 00:13:58,160 --> 00:14:01,060 Speaker 2: at lower marginal rates, say, when you retire. You're going 265 00:14:01,080 --> 00:14:05,270 Speaker 2: to sell that later on. So it's really a case-by-case 266 00:14:05,450 --> 00:14:08,630 Speaker 2: situation there, James, but certainly something that you get advice 267 00:14:08,770 --> 00:14:12,350 Speaker 2: on for each asset that you're purchasing and just to 268 00:14:12,370 --> 00:14:14,459 Speaker 2: look at the mix of what sort of a loss 269 00:14:14,500 --> 00:14:17,910 Speaker 2: position that would be in. and what you're planning on 270 00:14:17,960 --> 00:14:20,220 Speaker 2: doing with that asset and how long you're going to 271 00:14:20,280 --> 00:14:20,979 Speaker 2: hold on to it. 272 00:14:21,500 --> 00:14:25,880 Speaker 1: People between 40 and 60 often ask me about family trust. 273 00:14:26,100 --> 00:14:28,060 Speaker 1: They say, look, should I have a family trust to 274 00:14:28,120 --> 00:14:32,260 Speaker 1: buy this investment? And I usually recommend they seek professional 275 00:14:32,320 --> 00:14:36,060 Speaker 1: accounting advice. I suspect that you probably get the same question. 276 00:14:36,080 --> 00:14:38,220 Speaker 1: How do you approach that with regards to what are 277 00:14:38,240 --> 00:14:42,180 Speaker 1: the considerations for people to walk through as they decide 278 00:14:42,220 --> 00:14:44,830 Speaker 1: whether they should have a family trust or whether they 279 00:14:44,850 --> 00:14:46,270 Speaker 1: should just invest in their personal names. 280 00:14:47,290 --> 00:14:52,880 Speaker 2: Yeah, so family trusts are pretty common among the higher 281 00:14:52,940 --> 00:14:57,460 Speaker 2: wealth sort of individuals, ones that are trying to separate 282 00:14:57,540 --> 00:15:02,610 Speaker 2: assets for asset protection purposes, or just flexibility if they're 283 00:15:02,640 --> 00:15:05,750 Speaker 2: discretionary trusts to be able to split the income on 284 00:15:05,810 --> 00:15:10,720 Speaker 2: assets between, you know, more favourable, you know, tax rates 285 00:15:11,000 --> 00:15:13,620 Speaker 2: in the future, giving it to either the mum or 286 00:15:13,640 --> 00:15:17,230 Speaker 2: the dad or whoever the higher tax earner is, they 287 00:15:17,260 --> 00:15:21,330 Speaker 2: don't have to have that income coming into their tax 288 00:15:21,370 --> 00:15:27,410 Speaker 2: return when those gains come through. So we consider that. Also, 289 00:15:27,430 --> 00:15:29,590 Speaker 2: it depends on the asset and what you're wanting to 290 00:15:29,650 --> 00:15:32,470 Speaker 2: buy because ultimately a family trust, you're getting that so 291 00:15:32,510 --> 00:15:36,610 Speaker 2: that you can invest in assets. And if it's property, 292 00:15:37,390 --> 00:15:40,940 Speaker 2: we need to consider all sorts of other taxes like 293 00:15:41,020 --> 00:15:46,990 Speaker 2: state taxes and looking at the capital gains positions on 294 00:15:47,020 --> 00:15:51,070 Speaker 2: those assets in the future. So it's more for your 295 00:15:51,150 --> 00:15:54,990 Speaker 2: higher wealth individuals and something that's a very specialised area 296 00:15:55,030 --> 00:15:57,070 Speaker 2: that we do a lot of advice in. 297 00:15:58,630 --> 00:16:00,170 Speaker 1: Good. All right. Well, there's a few other things I 298 00:16:00,190 --> 00:16:02,990 Speaker 1: want to chat through for this 40 to 60-year-old age group. 299 00:16:03,010 --> 00:16:05,190 Speaker 1: But before we do that, let's take a quick break. 300 00:16:13,040 --> 00:16:15,680 Speaker 1: Hello and welcome back to The Money Puzzle. I'm James Gerrard, writer, 301 00:16:15,740 --> 00:16:18,060 Speaker 1: contributor to the wealth section of The Australian and also 302 00:16:18,140 --> 00:16:22,660 Speaker 1: financial advisor with financialadvisor.com.au. And this week on the show, 303 00:16:22,710 --> 00:16:26,570 Speaker 1: we have Timothy Ricardo from Accounting Advisor Group. So Tim, 304 00:16:27,150 --> 00:16:32,030 Speaker 1: salary sacrifice and carry forward super contributions. This one's quite 305 00:16:32,090 --> 00:16:35,050 Speaker 1: a popular thing for people in that 40 to 60 306 00:16:35,050 --> 00:16:38,190 Speaker 1: age bracket. So I'll tee up what the salary sacrifice 307 00:16:38,230 --> 00:16:42,000 Speaker 1: side is. The contribution caps have increased from $ 27, 500 to 308 00:16:42,000 --> 00:16:46,700 Speaker 1: $ 30, 000 per year, so people can salary sacrifice into super, 309 00:16:46,740 --> 00:16:51,060 Speaker 1: but it must take into account both employer contributions, which 310 00:16:51,100 --> 00:16:55,700 Speaker 1: are mandated at 11.5% of income, plus any voluntary contributions. 311 00:16:55,740 --> 00:16:58,900 Speaker 1: You can't just put in $ 30, 000 in salary sacrifice because 312 00:16:58,940 --> 00:17:01,380 Speaker 1: your employer contributions will push you over the cap, which 313 00:17:01,460 --> 00:17:04,640 Speaker 1: won't be great because you'll pay extra tax. So that's 314 00:17:04,700 --> 00:17:09,060 Speaker 1: what can happen from a pre-tax salary sacrifice standpoint. perspective, 315 00:17:09,080 --> 00:17:12,700 Speaker 1: but there's also these other rules around carry forward contributions 316 00:17:12,760 --> 00:17:15,340 Speaker 1: where you can make more than the $ 30, 000 in a 317 00:17:15,380 --> 00:17:18,909 Speaker 1: pre-tax super contribution in a given financial year. So Tim, 318 00:17:18,920 --> 00:17:20,649 Speaker 1: do you want to run us through that, but also 319 00:17:21,130 --> 00:17:24,629 Speaker 1: what is this div 293 tax as well and who 320 00:17:24,650 --> 00:17:27,210 Speaker 1: does that impact? Okay. 321 00:17:27,230 --> 00:17:31,970 Speaker 2: So basically just to cover the carry forward contributions, if 322 00:17:32,010 --> 00:17:36,260 Speaker 2: you've got a super balance of less than 500K, the 323 00:17:36,300 --> 00:17:41,490 Speaker 2: government allows you to catch up on that cap that 324 00:17:41,510 --> 00:17:44,890 Speaker 2: it's been unused for the last five years. So it's 325 00:17:44,950 --> 00:17:47,110 Speaker 2: now 30. It used to be 27 and a half, 326 00:17:47,170 --> 00:17:51,340 Speaker 2: as you mentioned. So if you'd only contributed, say, 17 327 00:17:51,340 --> 00:17:55,640 Speaker 2: and a half last financial year, you've got $ 10, 000 there 328 00:17:55,700 --> 00:18:00,380 Speaker 2: that you haven't made use of. You're allowed to utilize 329 00:18:00,420 --> 00:18:02,860 Speaker 2: that in the current financial year. And this has become 330 00:18:03,340 --> 00:18:07,919 Speaker 2: quite a good strategy for People that, say, have a 331 00:18:08,119 --> 00:18:10,680 Speaker 2: higher income year and they want to try to smooth 332 00:18:10,780 --> 00:18:14,880 Speaker 2: out their income in that financial year, they can utilize 333 00:18:14,940 --> 00:18:18,030 Speaker 2: the super threshold in the current year. So it's up 334 00:18:18,070 --> 00:18:21,570 Speaker 2: to $ 30, 000 this year. And then they can cash in on, 335 00:18:21,730 --> 00:18:25,710 Speaker 2: I suppose you'd say, the lost threshold of deductions in 336 00:18:25,730 --> 00:18:28,930 Speaker 2: the previous year that haven't been used. So we use 337 00:18:29,230 --> 00:18:33,790 Speaker 2: sort of this for capital gains tax management and for 338 00:18:33,810 --> 00:18:38,250 Speaker 2: other things sort of income smoothing to help people invest 339 00:18:38,290 --> 00:18:41,649 Speaker 2: and prepare for the future and manage their tax in 340 00:18:41,690 --> 00:18:42,169 Speaker 2: that regard. 341 00:18:42,190 --> 00:18:43,990 Speaker 1: All right. So what you're saying is that if someone 342 00:18:44,030 --> 00:18:46,550 Speaker 1: sells an investment property, for example, and there's a big 343 00:18:46,570 --> 00:18:48,980 Speaker 1: capital gain attached to it, it might push them up 344 00:18:49,020 --> 00:18:51,860 Speaker 1: into the 47% tax bracket. But if they've got this 345 00:18:52,440 --> 00:18:55,540 Speaker 1: unused super contribution that they can carry forward from the 346 00:18:55,580 --> 00:18:58,280 Speaker 1: last five years, let's just say they've got $ 50, 000 in 347 00:18:58,380 --> 00:19:02,040 Speaker 1: extra super contributions, they can make that super contribution, pay 348 00:19:02,440 --> 00:19:05,990 Speaker 1: in most cases 15% tax, on that super contribution, but 349 00:19:06,090 --> 00:19:10,320 Speaker 1: save 47% tax, which would be from the capital gains tax. 350 00:19:10,340 --> 00:19:12,100 Speaker 1: Is that more or less what we're saying with this 351 00:19:12,560 --> 00:19:14,720 Speaker 1: CGT management with the carry forward contributions? 352 00:19:15,160 --> 00:19:15,680 Speaker 2: That's right. 353 00:19:15,880 --> 00:19:16,080 Speaker 1: Yeah. 354 00:19:16,140 --> 00:19:20,840 Speaker 2: So it's quite significant. However, as you mentioned before, there 355 00:19:20,940 --> 00:19:26,480 Speaker 2: is something called a div 293 tax. The government has 356 00:19:26,830 --> 00:19:31,590 Speaker 2: introduced for the people that earn over $ 250, 000, including super contributions, 357 00:19:34,700 --> 00:19:38,300 Speaker 2: they do your contributions into super go up from 15 358 00:19:38,300 --> 00:19:41,900 Speaker 2: to 30%. So there's still a benefit there, but it's 359 00:19:41,960 --> 00:19:46,790 Speaker 2: just not quite as good as the 15% tax in super. 360 00:19:47,390 --> 00:19:51,180 Speaker 2: So whilst there's benefits for the higher income, earner, the 361 00:19:51,380 --> 00:19:55,240 Speaker 2: government has sort of reduced the benefit there when you're 362 00:19:55,320 --> 00:19:59,150 Speaker 2: earning over $ 250, 000, including super contributions. 363 00:20:00,430 --> 00:20:01,970 Speaker 1: The last thing I want to chat about with this 364 00:20:02,570 --> 00:20:06,430 Speaker 1: middle-aged bracket is motor vehicle deductions. It's also a common 365 00:20:06,510 --> 00:20:09,959 Speaker 1: area that I discuss with people. They ask, How do 366 00:20:10,000 --> 00:20:13,510 Speaker 1: I fund my next motor vehicle? Should I use cash, 367 00:20:13,690 --> 00:20:18,450 Speaker 1: redraw from my mortgage, borrow against my mortgage, evaded lease, 368 00:20:18,510 --> 00:20:22,710 Speaker 1: car loan, personal loan? What are your thoughts there, Tim, 369 00:20:22,730 --> 00:20:23,770 Speaker 1: from a tax perspective? 370 00:20:24,380 --> 00:20:28,180 Speaker 2: Yeah, so look, I think that the family car upgrade 371 00:20:28,220 --> 00:20:32,859 Speaker 2: happens between 40 and 60 or maybe the midlife crisis car, James. 372 00:20:33,280 --> 00:20:34,480 Speaker 2: I think you've had a few of those. 373 00:20:35,300 --> 00:20:38,320 Speaker 1: Speak for yourself, Mr. Mitsubishi Evo. 374 00:20:39,000 --> 00:20:41,980 Speaker 2: That's the 18 to 40-year-old's car. 375 00:20:42,980 --> 00:20:45,350 Speaker 1: You were under 40. And to be fair, I did 376 00:20:45,369 --> 00:20:48,590 Speaker 1: have an equivalent sort of Subaru bright orange car in 377 00:20:48,609 --> 00:20:50,850 Speaker 1: that age bracket too, so I can't talk. 378 00:20:51,630 --> 00:20:57,530 Speaker 2: Yeah, so essentially salary sacrificing. Look, really when it comes 379 00:20:57,590 --> 00:21:01,310 Speaker 2: to that, there's the traditional looking at how you claim 380 00:21:01,330 --> 00:21:04,770 Speaker 2: that car with using a logbook and what use is 381 00:21:04,830 --> 00:21:07,649 Speaker 2: it for work and how much tax you're going to 382 00:21:07,690 --> 00:21:11,730 Speaker 2: be paying if you're salary sacrificing versus buying it privately. 383 00:21:11,750 --> 00:21:14,409 Speaker 2: And there is a little bit of a benefit sometimes 384 00:21:14,710 --> 00:21:17,560 Speaker 2: if it is just a private car and you can 385 00:21:17,660 --> 00:21:22,780 Speaker 2: salary sacrifice it, especially when you're on those higher tax brackets. However, 386 00:21:23,000 --> 00:21:25,620 Speaker 2: the main benefit that's come out in the last couple 387 00:21:25,640 --> 00:21:30,960 Speaker 2: of years has been the EV car exemption for FBT. 388 00:21:31,020 --> 00:21:34,520 Speaker 2: So That's one that if you're looking at upgrading a 389 00:21:34,580 --> 00:21:39,340 Speaker 2: car and utilising salary sacrifice, like a novated lease, an 390 00:21:39,400 --> 00:21:43,530 Speaker 2: EV is a tax-effective way to go. Nice one. 391 00:21:43,550 --> 00:21:46,570 Speaker 1: All right, well, let's move on to the retirees. So 392 00:21:46,590 --> 00:21:50,850 Speaker 1: we're talking 60-plus. Now, first thing we'll have a chat 393 00:21:50,970 --> 00:21:57,280 Speaker 1: about is super, putting money into super tax-free thresholds. Do 394 00:21:57,300 --> 00:21:58,920 Speaker 1: you want to run us through that, Tim? 395 00:22:00,780 --> 00:22:05,220 Speaker 2: Yeah. So essentially, when we're looking at how much money 396 00:22:05,240 --> 00:22:08,860 Speaker 2: you've got into super, so you're talking about total super balance, James, there? 397 00:22:09,540 --> 00:22:11,960 Speaker 1: Yeah, we should probably, well, I'll tee it up. So 398 00:22:12,240 --> 00:22:16,010 Speaker 1: you can have up to $ 1. 9 million in, push it 399 00:22:16,050 --> 00:22:19,550 Speaker 1: to the pension phase and conditions of release of 60 400 00:22:19,550 --> 00:22:23,919 Speaker 1: and retired or 65 and still working. So if you 401 00:22:24,260 --> 00:22:27,310 Speaker 1: stop working at 60, for example, you can move up 402 00:22:27,330 --> 00:22:30,330 Speaker 1: to $ 1. 9 million of your super into a tax-free pension. 403 00:22:30,350 --> 00:22:32,810 Speaker 1: And when I say tax-free, I mean that the income, 404 00:22:32,910 --> 00:22:35,970 Speaker 1: the gains inside of the account are tax-free. The drawing 405 00:22:36,109 --> 00:22:38,940 Speaker 1: from the super fund to your personal bank account is non-assessable, 406 00:22:39,060 --> 00:22:42,879 Speaker 1: tax-free income as well. It's the most tax-effective structure for 407 00:22:42,920 --> 00:22:46,390 Speaker 1: people in retirement age. But is there any little tips 408 00:22:46,450 --> 00:22:49,250 Speaker 1: and tricks and things relating to super that people should 409 00:22:49,290 --> 00:22:51,950 Speaker 1: be aware of or think about in this 60 plus 410 00:22:52,190 --> 00:22:54,920 Speaker 1: age bracket? So what about people who are 65, for example, 411 00:22:54,960 --> 00:22:59,100 Speaker 1: that they're still working? That triggers a condition of release. 412 00:22:59,119 --> 00:23:01,359 Speaker 1: So what's the potential play there for those people? 413 00:23:02,040 --> 00:23:06,340 Speaker 2: Yeah, that's right. So over 65, you can still be 414 00:23:06,400 --> 00:23:10,020 Speaker 2: working and you've got full access to your super. And 415 00:23:10,359 --> 00:23:12,880 Speaker 2: there's a lot of strategies that can come out of that, 416 00:23:12,960 --> 00:23:18,229 Speaker 2: which allow you to you know, redraw money from your 417 00:23:18,250 --> 00:23:24,970 Speaker 2: super tax-free, and then you can potentially recontribute to max 418 00:23:25,090 --> 00:23:29,120 Speaker 2: out the contributions, the contribution caps from year to year. 419 00:23:29,380 --> 00:23:32,520 Speaker 2: So you can try to, you sort of get the 420 00:23:32,560 --> 00:23:35,280 Speaker 2: best of both worlds. You get to pull it out tax-free, 421 00:23:35,420 --> 00:23:38,399 Speaker 2: earnings in the super fund are tax-free as well, and 422 00:23:38,420 --> 00:23:42,050 Speaker 2: then you can recontribute and only pay 15% on what 423 00:23:42,119 --> 00:23:47,139 Speaker 2: you are recontributing. Obviously, the government doesn't want this to 424 00:23:47,160 --> 00:23:50,669 Speaker 2: be abused, and so they put in a bit of 425 00:23:50,710 --> 00:23:54,250 Speaker 2: a cap here of $ 1. 9 million. Well, at the time, 426 00:23:54,290 --> 00:23:56,869 Speaker 2: it was lower than that. It's now at $ 1. 9 million 427 00:23:56,930 --> 00:24:01,820 Speaker 2: from 1st July. So $ 1. 9 million, if you've got money 428 00:24:02,060 --> 00:24:07,159 Speaker 2: over that, you can't put it into tax-free, into an 429 00:24:07,260 --> 00:24:12,170 Speaker 2: account-based pension. But you still have access to that over 65. 430 00:24:12,170 --> 00:24:15,030 Speaker 2: So you can still access that money. But there's a 431 00:24:15,070 --> 00:24:17,189 Speaker 2: lot of strategies there that we can look at and 432 00:24:17,470 --> 00:24:21,510 Speaker 2: your financial advisor can look at. And like, for example, 433 00:24:21,790 --> 00:24:26,230 Speaker 2: if you're still working between the ages of 67 and 75, 434 00:24:26,230 --> 00:24:30,900 Speaker 2: there is still the ability to claim on personal contributions 435 00:24:31,320 --> 00:24:33,960 Speaker 2: if you're meeting that work test and things like that. 436 00:24:35,560 --> 00:24:39,429 Speaker 1: And What about people throughout their working lives? They're accumulating assets, 437 00:24:39,609 --> 00:24:43,969 Speaker 1: they're buying investment properties, they have personal share portfolios. As 438 00:24:44,250 --> 00:24:48,830 Speaker 1: I've mentioned, superannuation is the most tax effective environment in retirement. 439 00:24:49,250 --> 00:24:51,310 Speaker 1: So we probably want to try and transition some of 440 00:24:51,330 --> 00:24:55,030 Speaker 1: this wealth out of personal names into super. Is there 441 00:24:55,050 --> 00:24:57,510 Speaker 1: an ideal time to do that? Is it before people 442 00:24:57,550 --> 00:25:01,169 Speaker 1: stop working, after they retire? What are your thoughts there 443 00:25:01,630 --> 00:25:02,260 Speaker 1: thinking about tax? 444 00:25:03,730 --> 00:25:06,780 Speaker 2: Well, I think the biggest thing that people have with 445 00:25:07,150 --> 00:25:09,900 Speaker 2: super is, you know, when can I access it? So 446 00:25:10,460 --> 00:25:13,800 Speaker 2: over 60, you can access your super if you stop working. 447 00:25:14,240 --> 00:25:18,159 Speaker 2: Once you get to 65, you know, there's no holds barred. 448 00:25:18,340 --> 00:25:22,860 Speaker 2: You can get access to that. So essentially there's no 449 00:25:23,119 --> 00:25:27,470 Speaker 2: restriction to– if there's no restriction on access and it's 450 00:25:27,510 --> 00:25:31,340 Speaker 2: the most tax effective place to have your money, then– 451 00:25:32,140 --> 00:25:36,510 Speaker 2: you should be utilizing those sort of contribution thresholds to 452 00:25:36,810 --> 00:25:41,110 Speaker 2: get money into super. And currently they're sitting at $ 120, 000 453 00:25:39,990 --> 00:25:45,609 Speaker 2: per year. Probably something that we could mention there, James, 454 00:25:45,710 --> 00:25:49,389 Speaker 2: is a bring forward contribution where you can put in 455 00:25:49,530 --> 00:25:56,080 Speaker 2: up to three times the non-concessional contribution threshold. So you 456 00:25:56,119 --> 00:25:57,480 Speaker 2: can put in, what is it, 360,000 in one year. 457 00:26:00,310 --> 00:26:02,750 Speaker 2: which I'm sure you do a lot for your clients 458 00:26:02,810 --> 00:26:05,580 Speaker 2: with their estate planning and all that sort of thing. 459 00:26:06,460 --> 00:26:08,980 Speaker 1: We do. And sometimes if we're near the end of 460 00:26:09,040 --> 00:26:10,680 Speaker 1: a financial year, we might put in $ 119, 000 in June 461 00:26:11,760 --> 00:26:16,159 Speaker 1: and not trigger that bring forward rule. And then in July, 462 00:26:16,200 --> 00:26:19,530 Speaker 1: we've still got the full $ 360, 000 to put in. So 463 00:26:19,550 --> 00:26:22,390 Speaker 1: we've snuck in a little bit more in there. And 464 00:26:22,410 --> 00:26:24,570 Speaker 1: then also we have a chat about when to sell 465 00:26:24,810 --> 00:26:27,290 Speaker 1: the assets. So if somebody's working, say they're earning $ 80, 000 466 00:26:27,190 --> 00:26:31,590 Speaker 1: a year, if it does it make a difference with 467 00:26:31,650 --> 00:26:35,110 Speaker 1: regards to the sale price of the shares or the property, 468 00:26:35,690 --> 00:26:37,750 Speaker 1: all things being equal, all other things being equal, it 469 00:26:37,970 --> 00:26:40,990 Speaker 1: can make better sense to sell it when they're retired 470 00:26:41,050 --> 00:26:43,340 Speaker 1: because they don't have their employment income anymore. So their 471 00:26:43,359 --> 00:26:46,379 Speaker 1: base marginal tax rate starts from zero and the only 472 00:26:46,400 --> 00:26:48,940 Speaker 1: thing that will build on that will be the accessible 473 00:26:49,400 --> 00:26:52,340 Speaker 1: gains that they have on the assets that they're disposing. 474 00:26:52,359 --> 00:26:54,659 Speaker 1: So is that a fair call? Yeah, absolutely. 475 00:26:55,020 --> 00:26:58,830 Speaker 2: Managing when you sell your Assets outside of super is 476 00:26:59,270 --> 00:27:01,970 Speaker 2: a massive part of tax planning. If you've got that 477 00:27:02,020 --> 00:27:05,020 Speaker 2: investment property that you've been negative gearing for many years, 478 00:27:05,240 --> 00:27:10,340 Speaker 2: you need to plan to use those lower thresholds once 479 00:27:10,359 --> 00:27:14,159 Speaker 2: you've stopped working to minimise that CGT when you do 480 00:27:14,200 --> 00:27:18,040 Speaker 2: eventually sell that asset to fund your retirement. So yeah, absolutely. 481 00:27:19,640 --> 00:27:24,119 Speaker 1: We don't have DEF taxes in Australia, but non-financial dependents 482 00:27:24,160 --> 00:27:26,580 Speaker 1: who receive our super are Part of it, they'll have 483 00:27:26,600 --> 00:27:30,879 Speaker 1: to pay 17% on the super payout for that taxable component. 484 00:27:30,920 --> 00:27:33,920 Speaker 1: Is there any strategy there to reduce the potential tax 485 00:27:34,060 --> 00:27:37,700 Speaker 1: payable from super to our non-financial dependents? 486 00:27:38,609 --> 00:27:41,810 Speaker 2: Yeah, so that's that estate planning we were talking about 487 00:27:42,030 --> 00:27:45,770 Speaker 2: a minute ago. The ability to pull out money after 488 00:27:45,810 --> 00:27:49,949 Speaker 2: you're 65 and not working or 60 when you're not 489 00:27:49,970 --> 00:27:53,310 Speaker 2: working or 65 whether you're working or not, sorry. does 490 00:27:53,609 --> 00:27:56,810 Speaker 2: allow you to look at that balance you've got in super. 491 00:27:56,830 --> 00:28:00,650 Speaker 2: And there's two sides to that balance. One is a 492 00:28:00,869 --> 00:28:03,590 Speaker 2: two major ones is the taxable component, which is made 493 00:28:03,650 --> 00:28:08,100 Speaker 2: up of contributions that have been made by your employer 494 00:28:08,430 --> 00:28:12,640 Speaker 2: or earnings in the fund. And that side of your 495 00:28:12,680 --> 00:28:16,140 Speaker 2: super balance, if you pass away and that goes to 496 00:28:16,180 --> 00:28:19,500 Speaker 2: a non-dependent, which might be a grown up child, one 497 00:28:19,820 --> 00:28:25,369 Speaker 2: of your children, then they pay that extra 17% tax. 498 00:28:25,609 --> 00:28:29,770 Speaker 2: So in thinking about that balance early and getting your 499 00:28:29,810 --> 00:28:33,790 Speaker 2: financial planner involved in looking at your super balance before 500 00:28:33,850 --> 00:28:37,310 Speaker 2: you lose the ability to re-contribute means that you can, 501 00:28:37,330 --> 00:28:40,290 Speaker 2: I suppose, come up with a strategy that will allow 502 00:28:40,330 --> 00:28:43,580 Speaker 2: you to pull money out of the super, re-contribute it 503 00:28:43,760 --> 00:28:48,460 Speaker 2: as what they call tax-free contributions and manage that potential 504 00:28:48,840 --> 00:28:50,540 Speaker 2: tax in the future for your children. 505 00:28:51,140 --> 00:28:53,380 Speaker 1: Sounds good. Otherwise, if you know you're going to die, 506 00:28:53,420 --> 00:28:55,400 Speaker 1: just pull all your money out of super tax-free and 507 00:28:55,440 --> 00:28:56,740 Speaker 1: distribute it that way. 508 00:28:57,240 --> 00:28:57,700 Speaker 2: That's right. 509 00:28:58,000 --> 00:29:00,959 Speaker 1: A bit morbid, but that's the reality of it. Now, 510 00:29:00,980 --> 00:29:03,590 Speaker 1: the final thing for our retirees I want to have 511 00:29:03,620 --> 00:29:06,270 Speaker 1: a chat about or ask you is, do they still 512 00:29:06,310 --> 00:29:09,930 Speaker 1: need a self-managed super fund in retirement, or should they 513 00:29:09,970 --> 00:29:12,850 Speaker 1: close it down and move to a simpler quote-unquote arrangement? 514 00:29:13,890 --> 00:29:17,390 Speaker 2: Self-managed super is one of those vehicles that you can 515 00:29:17,410 --> 00:29:23,880 Speaker 2: use throughout your And I think that it really depends 516 00:29:24,140 --> 00:29:28,620 Speaker 2: on whether you're utilizing the capabilities of the self-managed super fund. 517 00:29:28,680 --> 00:29:31,330 Speaker 2: And what I mean by that is, I guess, whether 518 00:29:31,370 --> 00:29:34,450 Speaker 2: you've got a proactive advisor, you know, that likes to 519 00:29:34,490 --> 00:29:38,950 Speaker 2: look at various investments that maybe are outside the normal, 520 00:29:39,730 --> 00:29:44,100 Speaker 2: you know, retail super offerings like shares or cash investments. 521 00:29:44,760 --> 00:29:48,370 Speaker 2: But also, we do a lot of small business tax 522 00:29:48,850 --> 00:29:54,630 Speaker 2: and small business owners often, they've got a specific exemption 523 00:29:54,670 --> 00:29:57,930 Speaker 2: there that allows them to purchase business real property in 524 00:29:58,150 --> 00:30:01,630 Speaker 2: their super funds, which can be a large benefit to them. 525 00:30:01,790 --> 00:30:04,510 Speaker 2: And so it's just whether or not you're using those 526 00:30:04,750 --> 00:30:09,010 Speaker 2: capabilities in the self-managed super, but also it can become 527 00:30:09,070 --> 00:30:12,910 Speaker 2: quite cost-effective the more and more appropriate the more you 528 00:30:12,970 --> 00:30:16,310 Speaker 2: have in super for that retirement management. But what are 529 00:30:16,330 --> 00:30:17,190 Speaker 2: your thoughts on it, James? 530 00:30:18,050 --> 00:30:21,320 Speaker 1: Yes, it's really horses for courses. If you're using the 531 00:30:21,390 --> 00:30:24,920 Speaker 1: flexibility given to you for a self-managed super fund in retirement, 532 00:30:24,940 --> 00:30:29,100 Speaker 1: so if you're buying a kilo of gold, if you're holding... 533 00:30:29,010 --> 00:30:31,910 Speaker 1: bespoke bond investments that you can't get inside of a 534 00:30:31,970 --> 00:30:35,840 Speaker 1: retail or industry super fund, then yes, absolutely. Property assets, 535 00:30:35,860 --> 00:30:39,160 Speaker 1: physical property assets have an SMSF. But if you have 536 00:30:39,180 --> 00:30:42,620 Speaker 1: an SMSF and you're just invested in managed funds and ETFs, 537 00:30:43,120 --> 00:30:45,460 Speaker 1: it doesn't really need an SMSF. You could do that 538 00:30:45,780 --> 00:30:49,600 Speaker 1: in most industry funds and retail funds these days. So 539 00:30:49,620 --> 00:30:51,560 Speaker 1: it really just comes down to are you using the 540 00:30:51,600 --> 00:30:53,930 Speaker 1: benefits of the self-managed super fund? And that probably applies 541 00:30:53,970 --> 00:30:56,490 Speaker 1: across all age spectrum as well, not just for people 542 00:30:56,530 --> 00:30:59,959 Speaker 1: in retirement. Now, Tim, I'm excited. The next thing we're 543 00:30:59,980 --> 00:31:02,610 Speaker 1: going to have a chat about is tax deductions you 544 00:31:02,620 --> 00:31:04,650 Speaker 1: didn't realize you could claim. But before we do that, 545 00:31:04,690 --> 00:31:22,760 Speaker 1: let's just take a short break. Hello, and welcome back 546 00:31:22,780 --> 00:31:25,260 Speaker 1: to The Money Puzzle. I'm James Gerrard, writer, contributor to 547 00:31:25,300 --> 00:31:28,000 Speaker 1: the Wealth section of The Australian, and also financial advisor 548 00:31:28,040 --> 00:31:32,420 Speaker 1: with financialadvisor.com.au. And on this week's show, I have Timothy 549 00:31:32,460 --> 00:31:35,610 Speaker 1: Ricardo from Accounting Advisor. Now, before we get into this 550 00:31:35,670 --> 00:31:38,270 Speaker 1: last section, I just want to remind everybody that this 551 00:31:38,310 --> 00:31:40,890 Speaker 1: is general advice, not personal advice, so please seek out 552 00:31:40,930 --> 00:31:46,490 Speaker 1: a qualified advisor before making any decision. Timothy, top five, 553 00:31:46,930 --> 00:31:49,990 Speaker 1: maybe we'll make it six, tax deductions you didn't realize 554 00:31:50,030 --> 00:31:55,470 Speaker 1: that you could claim. Number one, tell me about income protection. 555 00:31:55,490 --> 00:32:00,270 Speaker 2: Okay. So income protection is one of those things where 556 00:32:00,630 --> 00:32:03,850 Speaker 2: we put it in at label D15 on your tax return. 557 00:32:03,950 --> 00:32:07,270 Speaker 2: So it's something that, you know, it's looking after your, 558 00:32:07,830 --> 00:32:12,250 Speaker 2: you know, in those situations when you unexpected things crop 559 00:32:12,350 --> 00:32:15,170 Speaker 2: up and you might hurt yourself or you might not 560 00:32:15,280 --> 00:32:18,740 Speaker 2: be able to work for some reason and income protection 561 00:32:19,260 --> 00:32:24,220 Speaker 2: because the The earnings from that policy are assessable income 562 00:32:24,480 --> 00:32:28,490 Speaker 2: when they come in. The deduction is available for the 563 00:32:28,530 --> 00:32:33,590 Speaker 2: premiums you pay. Now, this is something that probably applies. 564 00:32:34,110 --> 00:32:36,070 Speaker 2: It's a good thing to think about in that 80 565 00:32:36,070 --> 00:32:40,350 Speaker 2: to 30-year-old range because if you had a financial advisor 566 00:32:40,390 --> 00:32:44,070 Speaker 2: like me back in that age, which James Durard, my 567 00:32:44,130 --> 00:32:49,280 Speaker 2: friendly neighborhood financial advisor got me into a policy back then. 568 00:32:49,300 --> 00:32:53,180 Speaker 2: I'm able to just claim that every year. And yeah, 569 00:32:53,280 --> 00:32:55,480 Speaker 2: you gave me some good advice back then, James. 570 00:32:56,620 --> 00:33:00,680 Speaker 1: Thank you, Timothy. And I didn't even invoice you for it. 571 00:33:01,500 --> 00:33:04,040 Speaker 1: Your friendship to me is the payment for that advice 572 00:33:04,240 --> 00:33:08,140 Speaker 1: I gave you. Now, the next one is handbags and 573 00:33:08,340 --> 00:33:12,260 Speaker 1: luggage for work purposes. So can I go off and 574 00:33:12,320 --> 00:33:17,130 Speaker 1: buy a $ 2, 000 luxury bag that I will carry my 575 00:33:17,230 --> 00:33:20,780 Speaker 1: laptop in and my working papers for work purposes. 576 00:33:21,340 --> 00:33:24,900 Speaker 2: Okay. So you can claim a work bag, a bag 577 00:33:24,920 --> 00:33:28,160 Speaker 2: that you're using for work purposes. And that's the key thing. 578 00:33:28,560 --> 00:33:31,530 Speaker 2: The main thing here is removing any private use. You 579 00:33:31,570 --> 00:33:36,170 Speaker 2: can't just take your flashy $ 3, 000 bag out and utilize 580 00:33:36,230 --> 00:33:38,730 Speaker 2: it on the weekend. If you're claiming it for work, 581 00:33:38,750 --> 00:33:41,090 Speaker 2: you've got to allow for the private use. So allow 582 00:33:41,130 --> 00:33:44,760 Speaker 2: for your private use. And if it's over a certain level, 583 00:33:44,800 --> 00:33:48,220 Speaker 2: then it might need to be depreciated a certain cost. 584 00:33:48,300 --> 00:33:51,360 Speaker 2: So they're the two main considerations, but yes, it is deductible. 585 00:33:52,120 --> 00:33:52,360 Speaker 2: All right. 586 00:33:52,400 --> 00:33:55,380 Speaker 1: What about claiming meals? What are the parameters there around 587 00:33:55,520 --> 00:33:58,570 Speaker 1: how can we claim a meal as a tax deduction? Okay. 588 00:33:58,630 --> 00:34:03,250 Speaker 2: So under a lot of awards and employee benefits, you 589 00:34:03,550 --> 00:34:07,330 Speaker 2: often get a meal allowance. Now that meal allowance is 590 00:34:07,390 --> 00:34:10,910 Speaker 2: deductible to the extent of what you're paying out for 591 00:34:10,930 --> 00:34:13,509 Speaker 2: the meal. The ATO publishes a rate every year, which 592 00:34:13,570 --> 00:34:18,350 Speaker 2: this year is about 35, 35.65. So if you have 593 00:34:18,590 --> 00:34:21,489 Speaker 2: meals up to that price, you don't actually need to 594 00:34:21,550 --> 00:34:25,220 Speaker 2: keep the receipts for those meals, but you are able 595 00:34:25,260 --> 00:34:29,960 Speaker 2: to claim for your meals when you have overtime meal allowances. 596 00:34:31,640 --> 00:34:35,660 Speaker 1: What about claiming interest on things? So what are the 597 00:34:35,680 --> 00:34:37,580 Speaker 1: things that I can claim interest on? So for example, 598 00:34:37,780 --> 00:34:41,110 Speaker 1: if I have a tax debt, Can I borrow money 599 00:34:41,180 --> 00:34:43,549 Speaker 1: to pay the tax office and claim an interest on 600 00:34:43,590 --> 00:34:45,230 Speaker 1: that loan that I used to pay my tax bill? 601 00:34:46,090 --> 00:34:49,710 Speaker 2: Yes, and there's lots of strategies that people like to 602 00:34:49,770 --> 00:34:51,870 Speaker 2: come up with on this one. But yeah, interest on 603 00:34:52,150 --> 00:34:53,290 Speaker 2: any income earning. 604 00:34:53,150 --> 00:34:54,890 Speaker 1: Asset is tax deductible. 605 00:34:54,969 --> 00:34:57,890 Speaker 2: So if you draw down on your mortgage to buy 606 00:34:58,010 --> 00:35:01,190 Speaker 2: a share portfolio, for example, you can claim the interest 607 00:35:01,410 --> 00:35:04,850 Speaker 2: on that against the dividend income. But yeah, like you said, 608 00:35:05,030 --> 00:35:11,040 Speaker 2: on tax expenses and tax management costs associated, the interest 609 00:35:11,120 --> 00:35:15,319 Speaker 2: is deductible on that. So that's something that a lot 610 00:35:15,360 --> 00:35:16,779 Speaker 2: of people might not have known. 611 00:35:16,800 --> 00:35:21,070 Speaker 1: All right. Well, traveling to workplaces, I know that usually 612 00:35:21,170 --> 00:35:24,770 Speaker 1: from home to your normal place of work, if you drive, 613 00:35:24,950 --> 00:35:27,129 Speaker 1: catch a bus or train, you can't usually claim that 614 00:35:27,170 --> 00:35:30,820 Speaker 1: as a tax deduction, but Is there some scope or 615 00:35:31,080 --> 00:35:33,720 Speaker 1: avenue to be able to claim travel to a workplace? 616 00:35:34,540 --> 00:35:37,510 Speaker 2: Yeah, okay. So the common one that everyone knows about 617 00:35:37,570 --> 00:35:40,610 Speaker 2: is driving between workplaces. Or if you go to work 618 00:35:40,640 --> 00:35:42,910 Speaker 2: and then you have to go out to a client's place, 619 00:35:42,930 --> 00:35:45,029 Speaker 2: you can claim that trip. But what they might not 620 00:35:45,190 --> 00:35:49,590 Speaker 2: know is that to an alternative workplace, even from your home, 621 00:35:49,750 --> 00:35:53,150 Speaker 2: you can claim a deduction to go there. So it 622 00:35:53,190 --> 00:35:57,160 Speaker 2: has to be somewhere that's not your regular workplace. workplace 623 00:35:57,260 --> 00:36:01,830 Speaker 2: or there's no regular pattern of attending that alternative location. 624 00:36:01,850 --> 00:36:07,430 Speaker 2: But if you're going to somewhere that isn't your normal location, 625 00:36:07,469 --> 00:36:10,930 Speaker 2: then yes, you can claim that between your home and 626 00:36:11,030 --> 00:36:11,610 Speaker 2: the workplace. 627 00:36:12,590 --> 00:36:15,390 Speaker 1: All right. And final one, let's just say you're an 628 00:36:15,410 --> 00:36:19,810 Speaker 1: accountant and we won't name names, but let's just call 629 00:36:19,830 --> 00:36:23,469 Speaker 1: them Tim, this random accountant and say Tim's terrible at 630 00:36:23,530 --> 00:36:27,120 Speaker 1: golf and golf's an important part of his because he 631 00:36:27,160 --> 00:36:30,380 Speaker 1: meets clients on the golf course, new clients, existing clients, 632 00:36:30,680 --> 00:36:32,620 Speaker 1: but he's just absolutely terrible at golf. Can we claim 633 00:36:32,640 --> 00:36:36,470 Speaker 1: the cost of golf lessons as a tax deduction? Okay. 634 00:36:37,050 --> 00:36:38,330 Speaker 2: Why would I be claiming these? 635 00:36:38,730 --> 00:36:43,030 Speaker 1: Not you. It was just an anonymous accountant called Timothy. Okay. Okay. 636 00:36:43,050 --> 00:36:45,450 Speaker 2: So golf lessons, it's got to be attached to, it 637 00:36:46,230 --> 00:36:51,410 Speaker 2: falls into possibly like self-education, James, or sort of that 638 00:36:51,510 --> 00:36:54,840 Speaker 2: kind of a category category. I love your curveball questions, 639 00:36:55,160 --> 00:36:58,480 Speaker 2: and I will add here no preparation was given for 640 00:36:58,500 --> 00:37:03,640 Speaker 2: this one. Yeah, so you'd have to have an income 641 00:37:04,400 --> 00:37:09,320 Speaker 2: association to be claiming that lesson, James. So no, unfortunately, 642 00:37:09,739 --> 00:37:13,560 Speaker 2: I won't be claiming any lessons anytime soon, and neither 643 00:37:13,580 --> 00:37:16,520 Speaker 2: will you, unfortunately, because I think last time we played, 644 00:37:16,840 --> 00:37:19,779 Speaker 2: we're still waiting on that $ 100 bet, but I don't 645 00:37:19,820 --> 00:37:22,420 Speaker 2: think you've ever beaten me whenever that bet's come up. 646 00:37:23,100 --> 00:37:25,380 Speaker 1: On that inside joke, Tim and I have this run-in 647 00:37:25,760 --> 00:37:27,500 Speaker 1: bet for about 10 years that we're going to play 648 00:37:27,520 --> 00:37:31,279 Speaker 1: each other in golf, and whoever wins will have $ 100 649 00:37:31,200 --> 00:37:33,689 Speaker 1: as the prize. And we play together, but we've never 650 00:37:33,910 --> 00:37:37,350 Speaker 1: called in that particular bet, so maybe the next time. 651 00:37:37,650 --> 00:37:40,690 Speaker 2: Well, I've added there that it's only not being called 652 00:37:40,730 --> 00:37:42,290 Speaker 2: in because you lose every time, James. 653 00:37:42,890 --> 00:37:44,890 Speaker 1: Well, that's true, yes. I do say, all right, let's 654 00:37:44,910 --> 00:37:46,049 Speaker 1: do it this round, but then I go, oh, it's 655 00:37:46,070 --> 00:37:49,339 Speaker 1: a bit windy today, let's defer it to next time. But... 656 00:37:50,030 --> 00:37:51,790 Speaker 1: Getting back to business, thank you so much for joining 657 00:37:51,830 --> 00:37:53,630 Speaker 1: us today, Tim. We've covered a lot. I'm sure our 658 00:37:53,670 --> 00:37:56,450 Speaker 1: listeners now have some good ideas they can go explore 659 00:37:56,510 --> 00:37:59,370 Speaker 1: regarding taxes, regardless of how old they are. 660 00:37:59,700 --> 00:38:00,660 Speaker 2: Thanks for having me, James. 661 00:38:01,590 --> 00:38:03,719 Speaker 1: And to our listeners, thank you for tuning in to 662 00:38:03,739 --> 00:38:06,120 Speaker 1: today's episode of The Money Puzzle. Send us a question 663 00:38:06,160 --> 00:38:08,000 Speaker 1: and James Kirby will answer it when he's back in 664 00:38:08,540 --> 00:38:11,299 Speaker 1: two weeks. Now, coming up on our next episode, you'll 665 00:38:11,320 --> 00:38:13,800 Speaker 1: get me again, and we're going to interview a lawyer, 666 00:38:14,000 --> 00:38:16,270 Speaker 1: which I'm very excited to do We've got lots of 667 00:38:16,410 --> 00:38:19,210 Speaker 1: interesting questions to go through because there's a very big 668 00:38:19,250 --> 00:38:22,900 Speaker 1: intersection between finances and legal. So we're going to explore 669 00:38:22,940 --> 00:38:26,560 Speaker 1: some of the most interesting areas such as not losing 670 00:38:26,600 --> 00:38:29,799 Speaker 1: your property deposit to scammers. What happens there? How does 671 00:38:29,840 --> 00:38:33,680 Speaker 1: that happen? Handling finances for blended families and lots of 672 00:38:33,739 --> 00:38:36,359 Speaker 1: other issues to cover. But for now, you can tweet 673 00:38:36,380 --> 00:38:39,360 Speaker 1: us your thoughts. Just use the hashtag TheMoneyPuzzle, all one word, 674 00:38:39,469 --> 00:38:45,070 Speaker 1: or email us on themoneypuzzleattheaustralian.com.au. Until next time, I'm James Gerrard. 675 00:38:45,150 --> 00:38:50,860 Speaker 1: Talk to you soon. Thank you.