Speaker 1: Hello, and welcome to today's episode of The Money Puzzle.
Speaker 1: I'm your host James Gerard, standing in for James Kirby
Speaker 1: this week for another special episode. Last week we covered
Speaker 1: the world of private equity and heard some very insightful
Speaker 1: tips from a season private equity investor, Rudy Engelbreck. If
Speaker 1: you haven't listened to that episode, i'd really encourage you
Speaker 1: to do so, it was well worth listening. It's called
Speaker 1: Private Equity Playbook, Tips from an Insider. And today we're
Speaker 1: going to cover tax. You know, the thing is that
Speaker 1: tax probably isn't the most exciting thing in the world,
Speaker 1: but it's important. So what we're going to do is
Speaker 1: we're going to we're going to try and tackle it
Speaker 1: in a structured way. We're going to break it up
Speaker 1: into discussion by different age groups so that regardless of
Speaker 1: how old you are and who you are, hopefully you
Speaker 1: can take something away from today's episode. And we're going
Speaker 1: to finish with the top tax deductions you didn't know
Speaker 1: that you could claim. And to help us with this
Speaker 1: very very special mission, we've got a very special guest.
Speaker 1: He's been on the show before, so his name may
Speaker 1: be familiar to a couple of you. Timothy Ricardo is
Speaker 1: the principal at Central Coast based accounting practice Accounting Advisor Group. Now,
Speaker 1: something you might not know about Tim is that he
Speaker 1: doesn't mind the occasional round of golf. So in his
Speaker 1: day job as an accountant, Tim's very good at writing
Speaker 1: things off. But when it comes to golf, a lot
Speaker 1: of people say that Tim's golf game is a bit
Speaker 1: of a write off. So, without further delay, let's give
Speaker 1: Tim from Accounting Advisor a very big money puzzle. Welcome, Welcome, Tim.
Speaker 2: Thanks James. I think a bit of creative accounting in
Speaker 2: golfing is always helpful though. That's the way.
Speaker 1: We've had many rounds of golf together and we have
Speaker 1: been occasionally creative. But we'll stop talking about that because
Speaker 1: other people were on the same golf day maybe at
Speaker 1: listening to this. So before we get started, I just
Speaker 1: want everyone to know that what Tim and I discuss
Speaker 1: is general advice and it's not seen to be personal advice. So,
Speaker 1: as is always the case on the Money Puzzle, listeners
Speaker 1: should seek professional advice before acting on anything they hear
Speaker 1: on today's episode. So let's get started, Tim, and let's
Speaker 1: have a chat about the younger age group. So what
Speaker 1: we'll do is we'll break it up into three different
Speaker 1: age groups. We'll talk about people who were between eighteen
Speaker 1: years old and forty and some of the tax issues
Speaker 1: that they face and how they can potentially optimize things
Speaker 1: and think about things I may not have thought about before.
Speaker 1: We'll then jump into people between forty and sixty years
Speaker 1: of age, and then we'll jump through to the retirees.
Speaker 1: So starting with the age bracket of eighteen to forty,
Speaker 1: let's have a chat about the private health insurance Medicare,
Speaker 1: levy surcharge. Talk us through why is that important for
Speaker 1: people in that age bracket? Tim?
Speaker 2: Okay, So yeah, the younger generation. I don't think we
Speaker 2: fit into that one anymore, James.
Speaker 1: Unfortunately, we're on the other side of the Big four
Speaker 1: zero now, Tim.
Speaker 2: So yes, what can we what wisdom can we give
Speaker 2: to these young people? Okay? So private health insurance is
Speaker 2: one of those topics that I think the young people
Speaker 2: think that they're all fit and healthy and they don't
Speaker 2: need it. So what the government does is they make
Speaker 2: it more, you know, more of an incentive for you
Speaker 2: to get it when you're younger. So basically, after the
Speaker 2: age of thirty, a loading of two percent adds to
Speaker 2: your premiums every year. So if you're starting to you know,
Speaker 2: if you feel like if you're fit and healthy and
Speaker 2: you don't need private health insurance, the older you get
Speaker 2: you might actually require that insurance. And without giving any
Speaker 2: advice on that, from a tax perspective, you can also
Speaker 2: save a little bit of money. If you're starting to
Speaker 2: earn more income, you also pay more tax if you
Speaker 2: don't have private health insurance. So there's an incentive there
Speaker 2: that you know, to get that insurance when you're younger,
Speaker 2: you know, thirty or below, so that you can think
Speaker 2: about the future. I suppose.
Speaker 1: Yeah, So what's a maximum surcharge that can be charged?
Speaker 1: Assume it goes up the more you earn, the higher
Speaker 1: the search charge that you get charged.
Speaker 2: I think it's a maximum of forty percent, but I'd
Speaker 2: have to double check that one. James, thanks for throwing
Speaker 2: a wild card question at me.
Speaker 1: That's what I mean about what gets added to your tax,
Speaker 1: like that Medicare surch charge levee.
Speaker 2: Okay on the levee side here, Well, so basically, the
Speaker 2: more you earn, the more tax you pay. But if
Speaker 2: you're over as an individual ninety seven thousand in income,
Speaker 2: or as a family they double it, so one hundred
Speaker 2: and ninety four thousand. Then you pay one percent surcharge
Speaker 2: on your income. So if you're earning you know, two
Speaker 2: hundred thousand dollars between the two of you, you pay
Speaker 2: two thousand dollars extra in tax. And then if you're
Speaker 2: going up to more than you know, three hundred and
Speaker 2: two thousand, then you can actually pay one and a
Speaker 2: half percent as a loading on your tax. So yeah,
Speaker 2: not a great sort of tax to be paying. It's
Speaker 2: a penalty. So good idea to have insurance when you
Speaker 2: start earning more money.
Speaker 1: All right, well there there we go. So the more
Speaker 1: you earn, the more you could should consider private health
Speaker 1: insurance and maybe not even so much for the core
Speaker 1: benefits of it, but getting hospital cover, because I've seen
Speaker 1: situations where people pay less premiums for hospital cover than
Speaker 1: they would in the Medicare levy surcharge. So financially it
Speaker 1: could be better just to get that private health insurance.
Speaker 1: Plus you get to the free cover if you you
Speaker 1: need it now, even onto another one for our younger
Speaker 1: age bracket, Why do you think it might be important
Speaker 1: to get an accountant earlier in life.
Speaker 2: Okay, So look, I think it's for these kind of points,
Speaker 2: because if you get over a certain age, you start
Speaker 2: losing some benefits, and it's more about the things you know,
Speaker 2: miss out on when you're that that young you might
Speaker 2: think the digital you know, this digital generation, everything's at
Speaker 2: your fingertips, and the ATO make it really easy to
Speaker 2: lodge your own return. And I looked up some stats here,
Speaker 2: but at the end of August six point five million
Speaker 2: individual returns were lodged, three and a half million were
Speaker 2: by self preparers and two point only two point nine
Speaker 2: so they've sort of eclipsed the agent prepared returns. But
Speaker 2: there's these new returns called push returns, which basically the
Speaker 2: ATO prepares your return for you and says, you know,
Speaker 2: do you want to go ahead with this return? It's
Speaker 2: for those simple taxpayers. So it is the dy trend
Speaker 2: of returns is going to be sort of increasing, I think.
Speaker 2: But essentially, if you are looking for tax advice, it
Speaker 2: is easy to get things wrong on your tax return.
Speaker 2: And a lot of the returns I see that come
Speaker 2: to me after they've prepared it themselves. I can usually
Speaker 2: pick up quite a few things they've gotten wrong. So
Speaker 2: it's good to get an accountant to start providing some
Speaker 2: of those specialized advice pieces, especially when you start getting
Speaker 2: into some areas that are outside those very simple salary
Speaker 2: wage returns.
Speaker 1: What about paining HEX? People often ask me, should I
Speaker 1: focus on repaying my HEX debt or should I put
Speaker 1: it onto my mortgage or onto my investment property loans?
Speaker 1: So these people who've gone through university, they're in their
Speaker 1: twenties thirties, still have a residual HEX debt. What are
Speaker 1: your thoughts there from a tax perspective.
Speaker 2: Okay, well, on the hex stets, this is something in
Speaker 2: this age bracket, they've usually got quite large HEX debts.
Speaker 2: And every year you get a compulsory payment that comes
Speaker 2: on when you complete your tax return. So one of
Speaker 2: the things that is a mis conception, I suppose, is
Speaker 2: that I can you know, sort of make a voluntary
Speaker 2: repayment and then you know that'll save me on my
Speaker 2: compulsory repayment. But you don't actually get any reduction on
Speaker 2: your compulsory repayment for any voluntary repayments, So it sort
Speaker 2: of it becomes that a bit of a black hole there,
Speaker 2: and the fact that it's only increasing by CPI means
Speaker 2: that you'd be able to give the advice on that
Speaker 2: as to whether CPI is better than a getting a
Speaker 2: loan outside or putting it on your mortgage. But yeah,
Speaker 2: it's something to consider.
Speaker 1: Yeah. So in the past, it was generally advisable to
Speaker 1: not prioritize hex repayments because the indexation rate was quite
Speaker 1: low and people's mortgages, investment loans, car loans, personal loans
Speaker 1: would be of a higher interest rate. But had a
Speaker 1: bit of surprise for the last twelve months it was
Speaker 1: seven point one percent indexation, so that's been higher than
Speaker 1: it has been for quite a long time. So every
Speaker 1: year people just need to think about and be conscious
Speaker 1: that they have a heck's debts if they do, and
Speaker 1: then just work out in the order of priority should
Speaker 1: they make an extra payment or focus their cash flow
Speaker 1: in other areas tim What about first Home supersaver scheme?
Speaker 1: What should we understand for people in that eighteen to
Speaker 1: forty year old age bracket with regards to this.
Speaker 2: Yeah, So this was brought in back in the Turnbull
Speaker 2: government days of twenty seventeen and it was a little
Speaker 2: bit more popular than co investing. With the government on
Speaker 2: your first house for some reason. And basically this one
Speaker 2: is it allows you to pull out of SUPER any
Speaker 2: sort of contributions that you've made voluntary contributions into SUPER.
Speaker 2: So it can be a real help for these young
Speaker 2: taxpayers that are trying to get into a house that
Speaker 2: allows them to save and put some money into SUPER,
Speaker 2: and then they can withdraw up to fifty thousand dollars
Speaker 2: of their voluntary contributions up to fifteen thousand a year
Speaker 2: of their voluntary contributions that they make, so they can
Speaker 2: get a bit of a tax deduction on the way in,
Speaker 2: and then when they pull it out, you do get
Speaker 2: a tax offset of I think it's thirty percent that
Speaker 2: you can get when you pull that out of SUPER.
Speaker 2: And the best thing about this is that it's actually
Speaker 2: per person, So if there's two of you, you can
Speaker 2: pull out one hundred thousand out of your SUPER if
Speaker 2: you've been putting it in as voluntary contributions. So it's
Speaker 2: something that you can get a bit of a tax
Speaker 2: benefit to help you save. And then when you're pull
Speaker 2: if you're wanting to get into that first home, you
Speaker 2: can go in with someone else and obviously pull out
Speaker 2: and get a bit of a deposit together.
Speaker 1: Perfect, so on the way in, fifteen percent tax on
Speaker 1: the way out. Some people may not realize that it's
Speaker 1: not fully tax free. That depending on your level of
Speaker 1: tax build income, there is a thirty percent tax offset there.
Speaker 1: But if you're on the highest marginal tax rate, there
Speaker 1: still might be a bit of top up tax payable
Speaker 1: on that super money coming out and you deposit. All right, Well,
Speaker 1: I think we're done with the younger age back unless
Speaker 1: theres anything else you wanted to run through with them
Speaker 1: that comes to mind.
Speaker 2: No, not off the top of my head. I think
Speaker 2: that's a good snapshot of a few issues to consider.
Speaker 1: All right, good, let's move on to the middle aged
Speaker 1: tax payer, and maybe a little bit older than that
Speaker 1: as well, so between forty and sixty. So let's kick
Speaker 1: it off with negative gear in now. The thing is
Speaker 1: that negative gearing is pretty rare globally, Tim, Do you
Speaker 1: know much about negative gear in regards to how we
Speaker 1: do it versus other countries?
Speaker 2: Look, I don't know a whole lot because we mostly
Speaker 2: focus on the Australian tax seem to be bogged down
Speaker 2: in that. But interestingly, just to look at a couple
Speaker 2: of other countries. You know, New Zealand has sort of
Speaker 2: phased out their negative gearing for a few years now,
Speaker 2: so they're moving away from it, and then Canada they
Speaker 2: have you know, more like an offset, a future offset
Speaker 2: where you can't offset the negative gearing against your other income,
Speaker 2: but you can against future sort of rental earning, so
Speaker 2: they sort of isolate that as a deduction, which yeah,
Speaker 2: is I'm sure the government's been considering all of these
Speaker 2: different options and it's a bit of a hot topic
Speaker 2: with them, but yeah, So more focusing on the Australian
Speaker 2: side of things, though, I think it is here. Is
Speaker 2: it here to stay? I don't know the answer to
Speaker 2: that question, but it is certainly something that is pretty common.
Speaker 2: At about one in ten were the stats that I
Speaker 2: saw of Australians that use negative gearing, which yeah, I
Speaker 2: don't know where that comes from, but that's pretty high.
Speaker 1: All right, Well, negative gearing, maybe jumping back a step
Speaker 1: to the basics of it, Explain to our listeners why
Speaker 1: someone would want to buy an investment asset that costs
Speaker 1: them more money to maintain each year than the income
Speaker 1: they're getting from it. Why would that make financial sense
Speaker 1: or taxation sense to have a loss making investment.
Speaker 2: Yeah, so when you're talking about negative gearing, it's basically
Speaker 2: an asset that's got a loan on it and it's
Speaker 2: creating a loss that is then tax deductible in our
Speaker 2: tax system. So from that point of view, it can
Speaker 2: look at the whole idea he James, is that you're
Speaker 2: doing it for investment obviously, and that's your area. You're
Speaker 2: picking an investment, you're hoping it's going to go up
Speaker 2: in price, but you can save a bit of tax
Speaker 2: in the meantime on the costs associated with holding on
Speaker 2: to that property. But as far as things to consider,
Speaker 2: I think appreciation and sort of those non cash deductions
Speaker 2: are things that do help in this regard. So there
Speaker 2: are a few different types of non cash deductions that
Speaker 2: you can get when you've got a rental property, so
Speaker 2: they're not actually things that you're having to pay for,
Speaker 2: but you can claim them in your return.
Speaker 1: Ye. And what about the decision as to who owns
Speaker 1: the property the negatively geared property, Should it be in
Speaker 1: joint names, if it's to partners who are married, should
Speaker 1: it be in the higher income the lower income? Doesn't
Speaker 1: depend on whether the property is making a loss or
Speaker 1: cash flow positive? How do people start to and again
Speaker 1: not advice, but generally how should people be thinking about.
Speaker 1: Is there any rule of thumbs when it comes to
Speaker 1: ownership of geared leveraged investment property or geared share portfolios.
Speaker 2: Yeah, so as far as gearing is concerned, if you
Speaker 2: need to look at it on a property by property
Speaker 2: or case by case basis. Obviously some assets grow a
Speaker 2: lot more from a capital point of view, but have
Speaker 2: a sort of are in a cash sort of negative
Speaker 2: position on a gear to gear basis. You know, obviously
Speaker 2: in the short term having that in the name of
Speaker 2: the higher tax payer would be there would be a
Speaker 2: good idea just generally speaking, But then you need to
Speaker 2: consider that CGT at the end because if you have
Speaker 2: if you have a capital gain that's all in one
Speaker 2: person's name, you could be paying a lot more than
Speaker 2: if it's divided by the two of you at lower
Speaker 2: marginal rates, say when you retire, you're going to sell
Speaker 2: that later on. So it's really a case by case
Speaker 2: situation there, James, But certainly something that you get advice
Speaker 2: on for each asset that you're purchasing, and just to
Speaker 2: look at the mix of what sort of a lost
Speaker 2: position that would begin, and you know what you're planning
Speaker 2: on doing with that I set, and how long you're
Speaker 2: going to hold on to it.
Speaker 1: People between forty and sixty often ask me about family
Speaker 1: trust They say, look, should I have a family trust
Speaker 1: to buy this investment? And I usually recommend they seek
Speaker 1: professional accounting advice. I suspect that you probably get the
Speaker 1: same question. How do you approach that with regards to
Speaker 1: what are the considerations for people to walk through as
Speaker 1: they decide whether they should have a family trust or
Speaker 1: whether they should just invest in their personal names.
Speaker 2: Yeah, so family trusts are pretty common among the higher
Speaker 2: wealth sort of individuals, ones that are trying to separate
Speaker 2: assets for asset protection purposes or just flexibility if their
Speaker 2: discretionary trusts to be able to split the income on
Speaker 2: assets between you know, more favorable you know tax rates
Speaker 2: in the future, you know, giving it to either the
Speaker 2: mum or the data or whoever the higher tax earner is.
Speaker 2: They don't have to you know, have that income coming
Speaker 2: into their tax return when those gains come through. So
Speaker 2: we consider that also, it depends on the asset and
Speaker 2: what you're wanting to buy, because ultimately a family trust.
Speaker 2: You're getting that so that you can invest in assets
Speaker 2: and if it's property, you know, we need to consider
Speaker 2: all sorts of other taxes like state taxes and yeah,
Speaker 2: and looking at at their capital gains positions on those
Speaker 2: assets in the future. So it's yeah, it's more for
Speaker 2: your higher wealth individuals and something that's a very specialized
Speaker 2: area that we do a lot of advice in.
Speaker 1: Good All right, Well, there's a few other things I
Speaker 1: want to chat through for this forty to sixty year
Speaker 1: old age group, but before we do that, let's take
Speaker 1: a quick break. Hello and welcome back to the Money Puzzle.
Speaker 1: I'm James Gerard, writer, a contributor to the Wealth section
Speaker 1: of The Australian and also financial advisor with Financial Advisor
Speaker 1: dot com dot Au. And this week on the show
Speaker 1: we have Timothy Ricardo from Accounting Advisor Group. So Tim,
Speaker 1: salary sacrifice and carry forward super contributions. This one's quite
Speaker 1: a popular thing for people in that forty to sixty
Speaker 1: age bracket, So I'll tee up what the salary sacrifice
Speaker 1: side is. The contribution caps have increased from twenty seven thousand,
Speaker 1: five hundred to thirty thousand dollars per year, So people
Speaker 1: can salary sacrifice into super, but it must take into
Speaker 1: account both employer contributions which are mandated at eleven point
Speaker 1: five percent of income, plus any voluntary contributions. You can't
Speaker 1: just put in thirty thousand in salary sacrifice because your
Speaker 1: employer contributions will push you over the cap, which won't
Speaker 1: be great because you'll pay extra tax. So that's what
Speaker 1: can happen from a pre tax salary sacrifice perspective. But
Speaker 1: there's also these other rules around carry forward contributions where
Speaker 1: you can make more than the thirty thousand dollars in
Speaker 1: a pre tax super contribution in a given financial year.
Speaker 1: So tim, do you want to run us through that?
Speaker 1: But also what is this two nine three tax as well?
Speaker 1: And who does that impact?
Speaker 2: Okay, So basically just to cover the carry forward contributions,
Speaker 2: if you've got a superbalance of less than five hundred k,
Speaker 2: the government allows you to catch up on that cap
Speaker 2: that it's been unused for the last five years, so
Speaker 2: it's now thirty It used to be twenty seven and
Speaker 2: a half, as you mentioned, So if you'd only contributed
Speaker 2: say seventeen and a half last financial year, you've got
Speaker 2: ten thousand dollars there that you haven't made use of,
Speaker 2: you're allowed to utilize that in the current financial gear.
Speaker 2: And this has become quite a good strategy for people
Speaker 2: that say, have a higher income gear and they want
Speaker 2: to try to smooth out their income in that financial gear.
Speaker 2: They can utilize the super threshold in the current year,
Speaker 2: so it's up to thirty thousand this year, and then
Speaker 2: they can cash in on I suppose you'd say that
Speaker 2: the lost threshold of deductions in the previous year that
Speaker 2: haven't been used. So we use sort of this for
Speaker 2: capital gains, tax management and for other sort of income
Speaker 2: smoothing to help people invest and prepare for the future
Speaker 2: and manage their tax in that regard.
Speaker 1: All right, So what you're saying is that if someone
Speaker 1: sells an investment property, for example, and there's a big
Speaker 1: capital gain attached to it, it might push them up
Speaker 1: into the forty seven percent tax bracket. But if they've
Speaker 1: got this unused super contribution that they can carry forward
Speaker 1: from the last five years, let's just say they've got
Speaker 1: fifty thousand dollars in extra super contributions, they can make
Speaker 1: that super contribution pay. In most cases, fifteen percent tax
Speaker 1: on that super contribution, but save forty seven percent tax
Speaker 1: which would be from the capital gains tax. Is that
Speaker 1: more or less what we're saying with this CGT management
Speaker 1: with the carry forward contributions.
Speaker 2: That's right, Yeah, so it's quite significant. However, the as
Speaker 2: you mentioned before, there is something called they give two
Speaker 2: nine three tax the government has introduced for the people
Speaker 2: that earn over two hundred and fifty thousand including super contributions.
Speaker 2: They do your contributions into super go up from fifteen
Speaker 2: to thirty percent. So there's still a benefit there, but
Speaker 2: it's just not quite as good as the fifteen percent
Speaker 2: tax in super. So so whilst there's benefits for the
Speaker 2: higher income earner, the government has sort of reduced the
Speaker 2: benefit there when you're earning over two hundred and fifty
Speaker 2: thousand including super contributions.
Speaker 1: The last thing I want to chat about with this
Speaker 1: middle age bracket is motor vehicle deductions. There's also a
Speaker 1: common area that I discuss with people that they ask,
Speaker 1: how do I fund my next motor vehicle? Should I
Speaker 1: use cash redraw from my mortgage borrow against my mortgage
Speaker 1: ovated least car loan personal loan? What are your thoughts there,
Speaker 1: team from a tax perspective.
Speaker 2: Yeah, so, look, I think that the family car upgrade
Speaker 2: happens between forty and sixty, or maybe the midlife crisis car. James,
Speaker 2: I think you've had a few of those. Speak for yourself,
Speaker 2: Mitsubishima EVO, that's the aid en to forty year old car.
Speaker 1: You were under forty and to be fair, I did
Speaker 1: have an equivalent sort of super rue bright orange car
Speaker 1: in that age bracket too, so I can't talk.
Speaker 2: Yeah, So essentially salary sacrificing. Look, really, when it comes
Speaker 2: to that, there's the traditional you know, looking at how
Speaker 2: you claim that car with using a log book, and
Speaker 2: what use is it for work, and how much tax
Speaker 2: you're going to be paying if you're salary sacrificing versus
Speaker 2: buying it privately. And there is a little bit of
Speaker 2: a benefit sometimes if you can if it is just
Speaker 2: a private car and you can salary sacrifice it, especially
Speaker 2: when you're on those higher tax brackets. However, the main
Speaker 2: benefit that's come out in the last couple of years
Speaker 2: has been the ev car exemption for FBT, So that's
Speaker 2: one that if you're looking at upgrading a car and
Speaker 2: utilizing salary sacrifice the like a novate, a lease, an
Speaker 2: EV's tax effective way to go.
Speaker 1: Nice one. All right, well let's move on to the retirees.
Speaker 1: So we're talking in sixty plus. Now, first thing we'll
Speaker 1: have a chat about is super putting money into super
Speaker 1: tax free thresholds. Do you want to run it through that, Tim?
Speaker 2: Yeah, So essentially when we're looking at how much money
Speaker 2: you've got into Super, so you're talking about total superbalance,
Speaker 2: James there.
Speaker 1: Yeah, we should probably Well I'll tee it up so
Speaker 1: you can have up to one point nine million dollars
Speaker 1: in push it to the pension phase and conditions of
Speaker 1: releases sixty and retired or sixty five and still working.
Speaker 1: So if you stop working at sixty, for example, you
Speaker 1: can move up to one point nine million dollars if
Speaker 1: your super into a tax free pension. And when I
Speaker 1: say tax free, I mean that the income the gains
Speaker 1: inside of the account of tax free. The drawing from
Speaker 1: the super fund to your personal bank account is non
Speaker 1: accessible tax free income as well. It's the most tax
Speaker 1: effective structure for people in retirement. But is there any
Speaker 1: little tips and tricks and things relating to a super
Speaker 1: that people should be aware of or think about in
Speaker 1: this sixty plus age bracket. So what about people who
Speaker 1: are sixty five, for example, that they're still working that
Speaker 1: triggers a condition of a release. So what's the you'll
Speaker 1: play there for those people.
Speaker 2: Yeah, that's right. So over sixty five, you can still
Speaker 2: be working and you've got full access to your super
Speaker 2: and there's a lot of strategies that can come out
Speaker 2: of that which allow you to redraw money from your
Speaker 2: super tax free, and then you can potentially recontribute to
Speaker 2: max out the contributions the contribution caps from year to year,
Speaker 2: so you can try to you sort of get the
Speaker 2: best of both worlds. You get to pull it out
Speaker 2: tax free. Earnings in the superfund are tax free as well,
Speaker 2: and then you can recontribute and only pay fifteen percent
Speaker 2: on what you are recontributing. Obviously, the government doesn't want
Speaker 2: this to be abused, and so they put in a
Speaker 2: bit of a cap here of one point nine million dollars.
Speaker 2: Well at the time it was lower than that. It's
Speaker 2: now at one point nine from first July, so so
Speaker 2: one point nine mill is if you've got money over that,
Speaker 2: it doesn't go into you can't put it into tax
Speaker 2: free into an account based pension, but you still have
Speaker 2: access to that over sixty five, so you can still
Speaker 2: access that money. But there's a lot of strategies there
Speaker 2: that we can look at, and you know, your financial
Speaker 2: advisor can look at and like, for example, if you're
Speaker 2: still working between the ages of sixty seven and seventy five,
Speaker 2: there is still the ability to claim on personal contributions
Speaker 2: if you're meeting that work test and things like that.
Speaker 1: And what about people throughout their working lives they accumulating assets,
Speaker 1: the buying investment property that have personal share portfolios. As
Speaker 1: I've mentioned, superinnuation is the most tax effective environment in retirement,
Speaker 1: so we probably want to try and transition some of
Speaker 1: this wealth out of personal names into super. Is there
Speaker 1: an ideal time to do that? Is it before people
Speaker 1: stop working after they retire? What are your thoughts they're
Speaker 1: thinking about.
Speaker 2: Tax Well, I think the biggest thing that that people
Speaker 2: have with SUPER is you know when can I access it?
Speaker 2: So over sixty you can access your SUPER. If you
Speaker 2: stop working. Once you get to sixty five, you know
Speaker 2: there's no holes, but you can get access to that.
Speaker 2: So essentially there's no restriction to if there's no restriction
Speaker 2: on access and it's the most tax effective place to
Speaker 2: have your money, then you should be utilizing those, you know,
Speaker 2: sort of contribution thresholds to get to get money into super,
Speaker 2: and currently they're sitting at one hundred and twenty thousand
Speaker 2: dollars per year. Probably something that we could mention there, James,
Speaker 2: is the you know bring forward contribution where you can
Speaker 2: put in up to three times you know, the non
Speaker 2: concessional contribution threshold, so you can put in you know,
Speaker 2: what is it, three hundred and sixty thousand in one year,
Speaker 2: which I'm sure you do a lot for your clients
Speaker 2: with their estate planning and all that sort of thing.
Speaker 1: We do, and sometimes if we're near the end of
Speaker 1: a financial year, we might put in one hundred and
Speaker 1: nineteen thousand dollars in June and not trigger that bring
Speaker 1: forward rule, and then in July we've still got the
Speaker 1: full three hundred and sixty thousand dollars to put it in,
Speaker 1: so we've snuck in a little bit more in there.
Speaker 1: And then also we have a chat about when to
Speaker 1: sell the assets. So if somebody's working, say they're only
Speaker 1: eighty thousand dollars a year, if it doesn't make a
Speaker 1: difference with regards to the sell price of the shares
Speaker 1: or the property, all things being equal, all other things
Speaker 1: being equal, it can make better sense to sell it
Speaker 1: when they're retired because they don't have their employment income anymore.
Speaker 1: So their base marginal tax rate starts from zero and
Speaker 1: the only thing that we'll build on that will be
Speaker 1: the accessible gains that they have on the assets of
Speaker 1: their disposing.
Speaker 2: So is that a fair coll Yeah. Absolutely. Managing when
Speaker 2: you sell your assets outside of SUPER is a massive
Speaker 2: part of tax planning. If you've got that investment property
Speaker 2: that you've been negative gearing for many years, you need
Speaker 2: to plan to use that use those lower thresholds once
Speaker 2: you've stopped working to minimize that CGT when you do
Speaker 2: eventually sell that asset to fund your retirement. So yeah, absolutely.
Speaker 1: We don't have def taxes in Australia, but non financial
Speaker 1: dependents who receive our SUPER part of it that they
Speaker 1: have to pay seventeen percent on the SUPER payout for
Speaker 1: that taxable component. Is there any strategy there to reduce
Speaker 1: the potential tax payable from SUPER to our non financial dependence.
Speaker 2: Yeah, So that's that estate planning we were talking about
Speaker 2: a minute ago. The ability to pull out money after
Speaker 2: your sixty five and not working, or sixty sixty when
Speaker 2: you're not working, or sixty five whether you're working or
Speaker 2: not sorry, does allow you to look at that balance
Speaker 2: you've got in Super. And there's two sides to that
Speaker 2: balance is a two major ones as the taxable component,
Speaker 2: which is made up of contributions that have been made
Speaker 2: by your employer or earnings in the fund, and those
Speaker 2: that side of your superbalance. If you pass away and
Speaker 2: that goes to a non dependent which might be a
Speaker 2: grown up child, you know, one of your one of
Speaker 2: your children, then they pay that extra seventeen percent tax.
Speaker 2: So in thinking about that balance early, in getting your
Speaker 2: financial planner involved in looking at your SUPER balance, you know,
Speaker 2: before you lose the ability to recontribute means that you can,
Speaker 2: I suppose come up with a strategy that will allow
Speaker 2: you to pull money out of the Super, recontribute it
Speaker 2: as what they call tax free contributions, and manage that
Speaker 2: potential tax in the future for your children.
Speaker 1: Sounds good, well, Otherwise, if you know you're going to die,
Speaker 1: just pull all your money out of Super tax free
Speaker 1: and distribute it that way. That's right A bit morbid
Speaker 1: that that's the reality of it. Now, the final thing
Speaker 1: for our retirees I want to have a chat about
Speaker 1: or ask you, is do they still need a self
Speaker 1: managed superfund in retirement or should they close it down
Speaker 1: and move to a simpler quote unquote arrangement.
Speaker 2: So self managed super is one of those things that
Speaker 2: it's one of those vehicles that you can use throughout
Speaker 2: your retirement. And I think that it really depends on
Speaker 2: whether you're utilizing the capabilities of the self managed superfund.
Speaker 2: And what I mean by that is, I guess whether
Speaker 2: you've got a proactive advisor, you know that likes to
Speaker 2: look at various investments that maybe are outside the normal
Speaker 2: you know, retail super offerings like shares or cash investments.
Speaker 2: But also you know, we do a lot of small
Speaker 2: business tax and small business owners often they've got a
Speaker 2: specific exemption there that allows them to purchase business real
Speaker 2: property in their super funds, which can be a large
Speaker 2: benefit to them. And so it's just whether or not
Speaker 2: you're using those capabilities in the self managed super but
Speaker 2: also it can become quite cost effective the more and
Speaker 2: more appropriate the more you have in super for that
Speaker 2: retirement management. But what are your thoughts on it, James, Yes,
Speaker 2: it's really corse.
Speaker 1: It's for courses if you're using the flexibility given to
Speaker 1: you for a self managed super fund in retirement. So
Speaker 1: if you're buying a kilo of gold, if you're holding
Speaker 1: spoke bond investments that you can't get inside of a
Speaker 1: retail or industry super fund, then yes, absolutely, property assets
Speaker 1: physical property assets have an SMSF. But if you have
Speaker 1: an SMSF and you're just invested in managed funds and ETFs,
Speaker 1: it doesn't really need an SMSF. You could do that
Speaker 1: in most industry funds and retail funds these days. So
Speaker 1: it really just comes down to are you using the
Speaker 1: benefits of the self managed super fund and that probably
Speaker 1: applies across all age spectrum as well, not just for
Speaker 1: people in retirement. Now, Tim, I'm excited. The next thing
Speaker 1: we're gonna have a chat about is tax deductions you
Speaker 1: didn't realize you could claim. But before we do that,
Speaker 1: let's just take a short break. Hello and welcome back
Speaker 1: to the Money Puzzle. I'm James Gerard, writer contributor to
Speaker 1: the Wealth section of The Australian and also financial advisor
Speaker 1: with Financial advisor dot com, Dot au and on this
Speaker 1: week's show, I have Timothy Ricardo from Accounting Advisor. Now,
Speaker 1: before we get into this last section, I just want
Speaker 1: to remind everybody that this is general advice, not personal advice,
Speaker 1: so please seek out a qualified advisor before making any decision. Timothy,
Speaker 1: Top five. Maybe we'll make it six tax deductions. You
Speaker 1: didn't realize that you could claim, so number one. Tell
Speaker 1: me about income protection.
Speaker 2: Okay, So income protection is one of those things where
Speaker 2: we put it in at label D fifteen on your
Speaker 2: tax return. So it's something that you know. It's looking
Speaker 2: after your you know in those situations when you unexpected
Speaker 2: things crop up and you might hurt yourself or you
Speaker 2: might not be able to work for some reason. And
Speaker 2: income protection because the the earnings from that policy are
Speaker 2: assessable income when they come in, the deduction is available
Speaker 2: for the premiums you pay. Now, this is something that
Speaker 2: probably applies. It's a good thing to think about in
Speaker 2: that eighty to thirty year old range because if you
Speaker 2: have had a financial advisor like me back in that age,
Speaker 2: which James Gerard, my friendly neighborhood financial advisor, got me
Speaker 2: into a policy back then, you know I am able
Speaker 2: to just claim that every year. And yeah, you gave
Speaker 2: me some good advice back then, James.
Speaker 1: Thank you, Timothy. And I didn't even invoice you for it.
Speaker 1: Oh wow, your friendship to me. Is that the payment
Speaker 1: for that advice I gave you? Now? The next one
Speaker 1: is handbags and luggage for work purposes. So can I
Speaker 1: go off and buy a two thousand dollars luxury bag
Speaker 1: that I will carry my laptop in, am I working
Speaker 1: papers for work purposes?
Speaker 2: Okay? So you can claim a work bag a bag
Speaker 2: that you're using for work purposes, And that's the key thing.
Speaker 2: The main thing here is removing any private use. You
Speaker 2: can't just take your flashy three thousand dollars bag out
Speaker 2: and utilize it on the weekend. If you're claiming it
Speaker 2: for work, You've got to allow for the private use.
Speaker 2: So allow for your private use. And if it's over
Speaker 2: a certain level, then it might need to be depreciated
Speaker 2: at certain cost. So they're the two main considerations. But yes,
Speaker 2: it is deductible, all right.
Speaker 1: What about claiming meals? What are the parameters there around
Speaker 1: How can we claim a meal as a tax deduction?
Speaker 2: Okay, so under a lot of awards and employee benefits.
Speaker 2: You often get a meal allowance. Now that meal allowance
Speaker 2: is deductible to the extent of what you're paying out
Speaker 2: for the meal. The ATO publishes a raid every year,
Speaker 2: which this is about thirty five thirty five sixty five.
Speaker 2: So if you have meals up to that price, you
Speaker 2: don't actually need to keep the receipts for those meals,
Speaker 2: but you are able to claim for your meals when
Speaker 2: you have overtime meal allowances.
Speaker 1: What about claiming interest on things? So what are the
Speaker 1: things that I can claim interest on? So, for example,
Speaker 1: if I have a tax debt, can I borrow money
Speaker 1: to pay the tax office and claim an interest on
Speaker 1: that loan that I use to pay my tax bill.
Speaker 2: Yes, and there's lots of strategies that people like to
Speaker 2: come up with on this one. But yeah, interest on
Speaker 2: any income earning asset is tax deductible. So if you
Speaker 2: draw down on your mortgage to buy a share portfolio,
Speaker 2: for example, you can claim the interest on that against
Speaker 2: the dividend income. But yeah, like you said, on tax
Speaker 2: expenses and tax management costs associated, the interest is deductible
Speaker 2: on that. So that's something that a lot of people
Speaker 2: might not have known.
Speaker 1: All right, well, traveling to workplaces. I know that usually
Speaker 1: from home to your normal place of work, if you drive,
Speaker 1: catch a bars L train, you can't usually claim that
Speaker 1: as a tax deduction. But is there some scope or
Speaker 1: avenue to be able to claim travel to a workplace?
Speaker 2: Yeah? Okay, so the common one that everyone knows about
Speaker 2: is driving between workplaces. Or if you go to work
Speaker 2: and then you have to go out to a client's place,
Speaker 2: you can claim that trip. But what they might not
Speaker 2: know is that to an alternative workplace, even from your home,
Speaker 2: you can claim a deduction to go there. So it
Speaker 2: has to be somewhere that's not your regular workplace, or
Speaker 2: there's no regular pattern of attending that alternative location. But
Speaker 2: if you're going to somewhere you know that isn't your
Speaker 2: normal location, then yes, you can claim that between your
Speaker 2: home and the workplace.
Speaker 1: All right, And final one, let's just say you're an accountant,
Speaker 1: and we won't name names, but let's just call them Tim,
Speaker 1: this random accountant, and say Tim's terrible at golf, and
Speaker 1: golf's an important part of his work because he meets
Speaker 1: clients on the golf course, new clients, existing clients. But
Speaker 1: he's just absolutely terrible at golf. Can we claim the
Speaker 1: cost of golf lessons as a tax deduction?
Speaker 2: Okay? Why would I be claiming these?
Speaker 1: Not you? It was just an anonymous accountant called Timothy.
Speaker 2: Okay, okay, So golf lessons, it's got to be attached to.
Speaker 2: It falls into possibly like self education, James, or sort
Speaker 2: of that kind of a category. I love your curveball questions,
Speaker 2: and I will add here no preparation was given for
Speaker 2: this one. Yeah, so if you have, you'd have to
Speaker 2: have an income association to be claiming that you know
Speaker 2: that lesson, James. So no, Unfortunately, I won't be claiming
Speaker 2: any lessons anytime soon, so and neither will you, unfortunately,
Speaker 2: because I think last time we played, we're still waiting
Speaker 2: on that one hundred dollar bet. But you've never I
Speaker 2: don't think you've ever beaten me whenever that BET's come up.
Speaker 1: On that inside joke, tim and I have this run
Speaker 1: in bet for about ten years that we're going to
Speaker 1: play each other in golf and whoever wins will have
Speaker 1: one hundred dollars as the prize and we play together.
Speaker 1: But we've never called in that particular bet. So maybe
Speaker 1: the next.
Speaker 2: Time, well, I've added there that it's only not been
Speaker 2: called in because you lose every time. James, Well, that's true.
Speaker 1: Yeah, so I did say, all right, let's do it
Speaker 1: this round, but then I go, oh, it's a bit
Speaker 1: windy today, let's defer it to the next time. But
Speaker 1: getting back to business. Thank you so much for joining
Speaker 1: us today, Tim, I've covered a lot. I'm sure our
Speaker 1: listeners now have some good ideas I can go explore
Speaker 1: regarding taxes, regardless of how old they are.
Speaker 2: Thanks for having me, James.
Speaker 1: And to our listens, thanking you for turn tuning into
Speaker 1: today's episode of The Money Puzzle. Send us a question.
Speaker 1: James Kirby will answer it when he's back in two
Speaker 1: weeks now. Coming up on our next episode, you'll get
Speaker 1: me again, and we're going to interview a lawyer, which
Speaker 1: I'm very excited to do. We've got lots of interesting
Speaker 1: questions to go through because there's a very big intersection
Speaker 1: between finances and legal so we're going to explore some
Speaker 1: of the most interesting areas, such as not losing your
Speaker 1: property deposit to scammers, what happens there, how does that happen,
Speaker 1: handling finances for blended families, and lots of other issues
Speaker 1: to cover, but for now you can tweetis your thoughts.
Speaker 1: Just use the hashtag the Money Puzzle or one word
Speaker 1: or email us on the Money Puzzle at the Australian
Speaker 1: dot Com Today you Until next time, I'm James Gerard.
Speaker 1: Talk to you soon.