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Is superannuation still the Budget winner? · The Money Puzzle

0:10
Speaker 1: Hello and welcome to the Australians Money Puzzle Podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. So look a major question
0:17
Speaker 1: really here we are one month or so after the budget.
0:21
Speaker 1: Did Super as we have said on the show, or
0:26
Speaker 1: we hope at least did Super win Super the big winner?
0:29
Speaker 1: They didn't escape basically the worst of this budget, this
0:33
Speaker 1: increasingly unpopular budget which keeps changing on us as the
0:37
Speaker 1: government backflips and does little nip and tucks more nips
0:41
Speaker 1: than tucks as you know. And they just of course
0:44
Speaker 1: quite controversially terminated SMSs lending, which we've done briefly with
0:49
Speaker 1: on the show. On Tuesday, I want to take a
0:51
Speaker 1: look at these residual issues from the budget today and
0:55
Speaker 1: specifically let's just take a look at that about Super.
0:58
Speaker 1: Where do we stand? Because I know everyone in listening
1:01
Speaker 1: to the show would be an active Super investor and
1:04
Speaker 1: I think you'll find it pretty interesting where this is
1:06
Speaker 1: going to go. I also just want to like on
1:10
Speaker 1: Tuesday coming we will have a special listener Questions episode.
1:16
Speaker 1: We have these every now and again. It would be
1:18
Speaker 1: just on property for you. It's with me and with
1:21
Speaker 1: Stuart Wims, no better man to do this with us,
1:25
Speaker 1: and if you have questions, you've got a couple of
1:27
Speaker 1: days send them in the Money puzzle at the Australian
1:29
Speaker 1: dot com dot au. Okay, now my guest today is
1:34
Speaker 1: James Ridally from First Financial. How are you James?
1:37
Speaker 2: Hi, James, I'm gone, Well, thank you for having me
1:40
Speaker 2: on play. What an interesting time with this budget, that's
1:43
Speaker 2: for sure, it's.
1:44
Speaker 1: A lively time. I don't have to be I don't
1:46
Speaker 1: have to be thinking of issues and questions for you.
1:49
Speaker 1: All I have to do is try and select the
1:51
Speaker 1: most appropriate and relevant questions because there are so many issues. Suddenly.
1:55
Speaker 1: I think about the period where the financial and wealth
1:59
Speaker 1: management work and the investment world spent you know, weeks
2:02
Speaker 1: and weeks obsessing about division two nine six one, you know,
2:07
Speaker 1: quite pointed, targeted twist on Super and now we have
2:12
Speaker 1: like basically the kitchen sink. I should say it was
2:15
Speaker 1: thrown by the treasure at the issue of reform, and
2:18
Speaker 1: he has, if nothing else, he has been ambitious. So
2:22
Speaker 1: look on Super straight up. Is it still the winner?
2:27
Speaker 2: Absolutely without a doubt?
2:28
Speaker 1: Yeah? Okay in relatives, and that would be in relative
2:31
Speaker 1: terms that it loses.
2:32
Speaker 2: Less yes's and so whether by design in the conversations
2:37
Speaker 2: I've been having with clients in the week since. Whether
2:39
Speaker 2: it's by design or by accident, who knows, But it's
2:42
Speaker 2: kind of everything else has taken a step back in
2:44
Speaker 2: its relative attractiveness because Super has broadly been left untouched.
2:49
Speaker 2: Contributional limits stayed the same, albeit they're kind of being
2:52
Speaker 2: indexed up from the first to July. Access tax rates,
2:55
Speaker 2: all of these kind of things, they will stay the same,
2:57
Speaker 2: So there's no significant changes to the super system, but
3:00
Speaker 2: everything else is kind of taken a step backwards. Capital gains,
3:03
Speaker 2: tax increasing, negative gearing, changing, all the rest of it.
3:06
Speaker 2: And so Super then becomes that much more attractive. It
3:08
Speaker 2: was already attractive, but it's even more attractive I think
3:11
Speaker 2: in the new world.
3:12
Speaker 1: So just to interrogate that for a more four listeners,
3:16
Speaker 1: So on the CGT, could you explain why Super escape?
3:20
Speaker 2: Yeah, so super pays a headline tax rate on income
3:23
Speaker 2: earned in the fund fifteen percent, And depending on the
3:26
Speaker 2: type of super fund that you're using, your super fund
3:29
Speaker 2: might be individually taxed. And you actually notice that tax
3:31
Speaker 2: bill being paid not in one of the big super
3:35
Speaker 2: fund providers, or it's more of a unitized product, and
3:37
Speaker 2: that tax is effectively kind of taken from your investment,
3:41
Speaker 2: but nevertheless it's being taken. So super fund in the
3:44
Speaker 2: accumulation phase will pay a fifteen percent rate of tax
3:47
Speaker 2: on earnings, but for capital gains for assets that have
3:50
Speaker 2: been owned for more than a year, there's a one
3:52
Speaker 2: third discount on that, So the effective tax rate on
3:54
Speaker 2: a capital gain for an asset that's been known for
3:56
Speaker 2: more than a year becomes ten percent. Those rates were
3:59
Speaker 2: already fairly low relative to our marginal tax rate system anyway,
4:04
Speaker 2: but when you're now enter a world where capital gains
4:08
Speaker 2: going forward after the indexing comes in in July twenty
4:11
Speaker 2: twenty seven, if your future gains are going to be
4:14
Speaker 2: taxed at a minimum of thirty percent over and above inflation,
4:17
Speaker 2: ninety nine times out of one hundred, that capital gain
4:20
Speaker 2: tax that you're paying the super fund is going to
4:22
Speaker 2: be significantly less than you would be paying in your
4:24
Speaker 2: own name. And it gets even better when you're in
4:26
Speaker 2: the pension phase, when you're starting to draw down on
4:28
Speaker 2: your money subject to that transfer balance cap of what
4:32
Speaker 2: will be two point one million dollars, you end up
4:35
Speaker 2: in tax for a earnings.
4:36
Speaker 1: Yeah, I mean if you're retired already in the zero
4:39
Speaker 1: tax on anyway, unless you're would assume if you're under
4:42
Speaker 1: two million, and if you're on two million, you are
4:44
Speaker 1: a judgments separately. But what's extraordinary. I suppose, as you
4:48
Speaker 1: see GENS is the CGT rate, the company gains tax
4:51
Speaker 1: rate that you pay in SUPER on the CELIBN asset shares.
4:56
Speaker 1: Property doesn't matter. It's prox outic ten percent straight up,
5:00
Speaker 1: and if you don't hold it in Super, it's going
5:03
Speaker 1: to be thirty percent rock bottom minimum or higher. Is
5:07
Speaker 1: that basically it now?
5:09
Speaker 2: Yeah, the difference being the asset that's outside of Super
5:12
Speaker 2: the cost base will be indexed with inflation. So your
5:15
Speaker 2: asset inside of Super is not being indexed with inflation,
5:18
Speaker 2: it's just this flat ten percent, but the asset outside
5:22
Speaker 2: of Super will be indexed with inflation. So the only
5:25
Speaker 2: way that you the only way that you would pay
5:28
Speaker 2: less tax in your own name, is if your investment
5:30
Speaker 2: wasn't terribly good in the first place, that it was
5:32
Speaker 2: only just going up with inflation. So if it's only
5:36
Speaker 2: just going up with inflation, or slightly more than the
5:40
Speaker 2: thirty percent tax rate of something that hasn't really gone
5:42
Speaker 2: up in value is zero, whereas that same asset if
5:45
Speaker 2: it was in your superfund only earning an inflation type return,
5:49
Speaker 2: where you're going to still have your ten percent tax
5:51
Speaker 2: to pay. But assuming it's a half decent investment that's
5:54
Speaker 2: generating a return over and above inflation, you're better in
5:57
Speaker 2: the superworld than outside people.
6:00
Speaker 1: Most of the time, they're not going to lose. But technically,
6:04
Speaker 1: if they listen to our show. Okay, Now, the other thing, folks,
6:06
Speaker 1: at the risk of repeating myself, the way it worked previously,
6:12
Speaker 1: when you outside super, when you sold an asset and
6:16
Speaker 1: you had medicapital game for most people, what's only about
6:19
Speaker 1: twenty five percent, okay, because your tax rate was effectively
6:22
Speaker 1: fifty and then that was cut in half to twenty
6:24
Speaker 1: five if you think about it, and now we're talking
6:29
Speaker 1: thirty thirty five, forty percent entirely possible on these on
6:34
Speaker 1: CGT outside Super. So that is the essence of it
6:36
Speaker 1: as to why Super has suddenly become and will stay.
6:40
Speaker 1: And there is no talk of change on this, and
6:44
Speaker 1: there's no speculation of change on this, and I would
6:46
Speaker 1: say anything else was speculatid by the way, including the
6:49
Speaker 1: SMSF lending. I mean I hat people on the show
6:51
Speaker 1: telling me to be quiet, stop telling everybody it's a winner,
6:54
Speaker 1: or the government will hear you, and there you go.
6:57
Speaker 1: But on the negative gearing then, James, I'm sure everyone
7:00
Speaker 1: knows by now the new rules is that you can
7:01
Speaker 1: only negatively gear a new property rather than an existing
7:06
Speaker 1: or order of property. And there's some fine details on that,
7:09
Speaker 1: but that's basically it with Super. Did there really win
7:13
Speaker 1: anything because it wasn't great and Super anyway? Could you
7:15
Speaker 1: explain to people why negative gearing wasn't such a great
7:19
Speaker 1: idea in Super anyway? This would alargitly be smsfs of course,
7:24
Speaker 1: the only ones they could actively do it bother than
7:26
Speaker 1: people then, Maik Super.
7:28
Speaker 2: Yeah, So I don't think anyone was borrowing money in
7:31
Speaker 2: Super to buy a residential property or commercial property, regardless
7:35
Speaker 2: of whatever the type of property that they would buy.
7:37
Speaker 2: I don't think anyone was really doing that from it
7:39
Speaker 2: for a negative gearing benefit. And it really comes down
7:42
Speaker 2: to your superfund worth case is only paying fifteen percent
7:46
Speaker 2: tax and so that that negative gearing benefit is only
7:49
Speaker 2: worth fifteen percent in your superfund, whereas to you and
7:52
Speaker 2: your own name, it was potentially worth forty seven percent
7:55
Speaker 2: if you're a top marginal tax road earner.
7:57
Speaker 1: Yeah, so the tax wasn't high enough in Super to
8:02
Speaker 1: justify negative gearing A lot of the time, is it.
8:05
Speaker 2: That's it, And so it wasn't high enough to just
8:07
Speaker 2: to kind of you would never have been buying this
8:09
Speaker 2: property for a negative gearing benefit. You would have been
8:12
Speaker 2: buying it for the leverage benefit. I'm putting a small
8:15
Speaker 2: amount of money down and I'm borrowing and I'm buying
8:17
Speaker 2: this bigger asset and getting that leveraged exposure to hopefully
8:21
Speaker 2: some growth in the property, but it would have never
8:23
Speaker 2: been the negative gearing. Whereas outside of SUPER, again, not
8:28
Speaker 2: that you should be doing things purely for the tax deduction,
8:31
Speaker 2: but there was a lot more people that were buying
8:34
Speaker 2: property just for the negative gearing, and hey, if I
8:37
Speaker 2: made some money along the way, then that was an
8:39
Speaker 2: added bonus.
8:40
Speaker 1: So if SUPER is then the restive winner in this
8:46
Speaker 1: post budget land and folks, it's here, Okay, This legislation
8:50
Speaker 1: is going to go through CGT and negative gearing each other.
8:53
Speaker 1: The big one is still going to go through this
8:55
Speaker 1: week with some, as I said, with some fine details
8:58
Speaker 1: to be ironed out, but for most that's what you
9:01
Speaker 1: need to know. So if it's the case that super
9:04
Speaker 1: is now relatively better than ever, are self managed super
9:08
Speaker 1: fund is relatively better than ever? And should more people
9:11
Speaker 1: think about them?
9:14
Speaker 2: I don't know they're relatively better than ever. I think
9:16
Speaker 2: over the last five to ten years, certainly the last five,
9:20
Speaker 2: there has been a lot of advancement in the alternatives.
9:23
Speaker 2: So you've really got to look at why are you
9:25
Speaker 2: setting up a self manusuper fund. Borrowing money to buy
9:29
Speaker 2: a residential investment property was a reason why some people
9:32
Speaker 2: were setting them up. It's not probably not the main rest.
9:36
Speaker 1: Not a good reason to set them up.
9:37
Speaker 2: It definitely wasn't from a financial advice perspective, we would
9:41
Speaker 2: be suggesting, you know, we would be saying to more people, no,
9:44
Speaker 2: don't do it than we were doing it, that's for sure.
9:47
Speaker 2: But there's a whole lot of reasons why you would
9:49
Speaker 2: potentially want a self manusuper fund. Pulling money with your family,
9:53
Speaker 2: for example, buying some bigger assets together, maybe going into
9:56
Speaker 2: partnership with something else, some complex estates, planning rules, just
10:01
Speaker 2: the flexibility. So there's a whole lot of reasons why
10:04
Speaker 2: you'd want to sell what a self managed superannuation fund
10:07
Speaker 2: for the right person. But I don't think these tax
10:10
Speaker 2: changes and are relative SUPER being that relatively more attractive
10:15
Speaker 2: other than it maybe waking a few people up to
10:18
Speaker 2: the attractiveness of SUPER. Like it's well and truly dominating
10:21
Speaker 2: the conversation that I'm seeing online now, and so that
10:25
Speaker 2: that can only be a good thing. You know, there's
10:26
Speaker 2: a whole lot of people now that are really starting
10:28
Speaker 2: to take SUPER more seriously. It might mean that more
10:31
Speaker 2: people end up setting up a self managed superannuation fund, possibly,
10:35
Speaker 2: but I don't think that the changes of themselves are
10:38
Speaker 2: going to be a big driver.
10:39
Speaker 1: Of that, right, Okay, I would contest that, And I
10:43
Speaker 1: would think that if SUPER is better than it was written,
10:46
Speaker 1: relative terms and a semsafs are too, so I think
10:49
Speaker 1: you would get I think you will get a lot
10:51
Speaker 1: of people who were borderline if you like, swinging voters,
10:54
Speaker 1: if you like, we'll move to them. But and I'm
10:56
Speaker 1: not saying that. I would hope that this attracts the
10:59
Speaker 1: right people, and I hope it doesn't attract the wrong people.
11:02
Speaker 1: When I say the wrong people, I mean people who
11:04
Speaker 1: will end up losing money or will not do as
11:06
Speaker 1: well as if they had stated with Big Super we
11:08
Speaker 1: never want that to happen. Make that very clear on
11:11
Speaker 1: the show always, I hope. Okay. The other thing I
11:14
Speaker 1: want to ask you then, is on that issue, well,
11:17
Speaker 1: what's the minimum amount do you think someone should have
11:21
Speaker 1: to start a superfund?
11:23
Speaker 2: Minimum amount? So Vito puts out some information around this,
11:28
Speaker 2: but there are a lot of providers out there now
11:31
Speaker 2: that will do the setup and the administration provided you
11:35
Speaker 2: kind of play within their rules and I'll dictate what
11:38
Speaker 2: the rules look like, that will do it incredibly cheaply
11:41
Speaker 2: for you. So you know it kind of you've got
11:44
Speaker 2: to look at it from a cost perspective. It can
11:46
Speaker 2: stack up from a cost perspective for really only a
11:49
Speaker 2: couple of hundred thousand dollars at that kind of lower end.
11:52
Speaker 2: But then cost is only one part of it. If
11:54
Speaker 2: there's something particular that you want to do with your
11:57
Speaker 2: super that you want to invest into, that you want
11:59
Speaker 2: to combined with other people, you know, there's certain superannuation
12:04
Speaker 2: strategies and investment options that are only available in self
12:07
Speaker 2: manus super fund land, and you might be more than
12:10
Speaker 2: comfortable to say, Okay, I know it's going to cost
12:13
Speaker 2: me more to operate this self manus super funder than
12:15
Speaker 2: my big super was before. But I'm accepting that cost
12:20
Speaker 2: because of X, Y and Z benefits that are really
12:22
Speaker 2: important to me. Then it can be a good option.
12:26
Speaker 2: So now we're really careful in the financial advice that
12:29
Speaker 2: we do that there really needs to be a real
12:32
Speaker 2: reason that you want to set up a self manus
12:35
Speaker 2: super fund, because there's like it's if you get it wrong,
12:39
Speaker 2: it's a big problem, and it's a bigger problem more
12:41
Speaker 2: than just you. You earn less of a return than
12:44
Speaker 2: where your money was before. Like you're taking on a
12:46
Speaker 2: real responsibility to be the trustee, and there's certain obligations
12:50
Speaker 2: and reporting obligations that need to go on. If you
12:53
Speaker 2: mess that up, there's huge fines, Like you could know,
12:56
Speaker 2: you could end up in jail. Like as extreme as
12:59
Speaker 2: this goes, you could end up being taxed and lose
13:01
Speaker 2: half of your They no, I don't know that they have,
13:05
Speaker 2: but but but that's kind of where it goes. So
13:08
Speaker 2: the penalties can be quite severe.
13:09
Speaker 1: They can and they tend to be for outrageous abuse
13:15
Speaker 1: in my personal looking recollection. But James, here's an important
13:19
Speaker 1: question I think on the basis about what you were
13:22
Speaker 1: saying about property in this self managed super fund? Would
13:27
Speaker 1: it be the case that the minimum amount you should
13:30
Speaker 1: have to start super and everyone's got a different number.
13:32
Speaker 1: My number is half a million. Some people have much
13:35
Speaker 1: lower numbers to two hundred thousand, other people have a million.
13:39
Speaker 1: But what I want to say is this, would it
13:42
Speaker 1: be the case that if you want to put property
13:45
Speaker 1: in your super fund, then the minimum you should have
13:48
Speaker 1: should be much higher than these don't say a couple
13:52
Speaker 1: of hundred, because that property is needs not to dominate
13:59
Speaker 1: your portfolio. You need to be diversified.
14:02
Speaker 2: Definitely. So the lending environment and it's only really going
14:07
Speaker 2: to be commercial now that people will be able to
14:09
Speaker 2: borrow money. For the lending environment in superannuation something who
14:13
Speaker 2: super fund land is very different to an individual. So
14:17
Speaker 2: just at an LVR level, how much do you how
14:20
Speaker 2: much deposit you have to put down versus how much
14:22
Speaker 2: will will the bank lend you is very different in
14:25
Speaker 2: super fund land, then you have to be able to
14:27
Speaker 2: service that loan that you're taking on from a combination
14:31
Speaker 2: of rent and super contributions.
14:33
Speaker 1: So James and you won't be able to get it
14:35
Speaker 1: on anymore, will you?
14:37
Speaker 2: You can? For commercial not for residential for commercial, yeah,
14:41
Speaker 2: so not not for residential. Yeah, so on the commercial
14:44
Speaker 2: side of things. So you always needed more money anyway,
14:47
Speaker 2: because you had to put a bigger deposit than if
14:49
Speaker 2: you're trying to buy a property in your own name.
14:52
Speaker 2: But then you want to make sure that there's some
14:53
Speaker 2: buffers in place, quite aside from a diversified portfolio. What
14:57
Speaker 2: if you don't have a tenant for a period of time,
14:58
Speaker 2: what if something breaks, You've got a tax ability you
15:00
Speaker 2: need to pay. So that always, we would always when
15:04
Speaker 2: we were doing these strategies, we would be suggesting to
15:07
Speaker 2: most people that you'd want close to half of the
15:10
Speaker 2: purchase price actually in cash when you were going through
15:14
Speaker 2: these property transactions. You wouldn't be putting half of it up.
15:17
Speaker 2: You would be putting less of that. But to give
15:19
Speaker 2: yourself some buffers, some diversification, try and have some shares
15:23
Speaker 2: on the side if you can. It was getting close
15:26
Speaker 2: to almost needing half of the purchase price in cash
15:29
Speaker 2: is where we would be comfortable when we were recommending
15:32
Speaker 2: the strategies.
15:33
Speaker 1: All right, and folks, when I say half a million
15:35
Speaker 1: on minimum for starting an SMSF, I'm assuming you're getting
15:39
Speaker 1: advice to see and you're paying for advice, and that
15:41
Speaker 1: has to work. It has to work out if you're not.
15:44
Speaker 1: So if you do something extraordinary simple and you're very
15:46
Speaker 1: across investing and you're working on ETFs and that sort
15:49
Speaker 1: of thing, of course it can be lowered. Okay, We've
15:52
Speaker 1: got to talk about something very interesting in the moment,
15:54
Speaker 1: which is something you might really find very interesting about
15:59
Speaker 1: realities of lending in SMSFS and borrowing and what you
16:04
Speaker 1: can and cannot do. It's prompted by a question from Freedom.
16:10
Speaker 1: I deal with that in the moment. Hello, Welcome back
16:24
Speaker 1: to The Australian's Money Puzzle podcast. James Kirby here talking
16:28
Speaker 1: today with James Wrigley, financial advisor from First Financial. He's
16:32
Speaker 1: not the show before and always very clear thinker on
16:37
Speaker 1: the big issues facing you as an investor. Now, folks,
16:41
Speaker 1: the headline news, the latter's headline news, and boy oh boy,
16:44
Speaker 1: there's a twist, a backflip or an unexpected measure on
16:49
Speaker 1: a weekly basis here post budget last week, I think
16:52
Speaker 1: it was only last week the government did did properly
16:56
Speaker 1: and correctly announced that they would not include testament discretionary
17:00
Speaker 1: trusts in the new Family Trust tax laws and that
17:05
Speaker 1: is a damn good thing. This week, to some surprise,
17:10
Speaker 1: though perhaps not to everyone surprise, having kept all really
17:13
Speaker 1: quiet about it and kept it up their sleeve as
17:16
Speaker 1: a bargaining chip for the Senate negotiations with the Greens,
17:19
Speaker 1: the government announced out of the blue that SMSF borrowing.
17:24
Speaker 1: That is, if you have an SMSF and you wish
17:27
Speaker 1: to borrow by residential property, that is going to be banned. Okay,
17:32
Speaker 1: that's the headline. It's a surprise because that sector had
17:35
Speaker 1: been reviving, New products had been coming in, investors had
17:39
Speaker 1: been coming back in. So it's gone. There is something
17:43
Speaker 1: that I'm quite familiar with. I've written about it readily.
17:46
Speaker 1: In fact, I did it and it worked quite well.
17:48
Speaker 1: So I wanted just to ask James about it. And
17:50
Speaker 1: because for simplariason that it would have heightened interest, I
17:53
Speaker 1: think now you cannot use your super fund to borrow
17:58
Speaker 1: to buy a property anymore. However, there is something you
18:01
Speaker 1: can do. I don't know what you advisors called it,
18:03
Speaker 1: if you've got a name for it, but let's just
18:05
Speaker 1: call it the joint venture. So what you can do
18:09
Speaker 1: is you can take any amount of money from your
18:13
Speaker 1: super RSUMSF and it can be at the positive you
18:17
Speaker 1: like or the equity in event in the property venture.
18:20
Speaker 1: So you Jane X can joint venture which are super fun.
18:26
Speaker 1: Let's just say you're super fund. Your SMSF owns fifty
18:29
Speaker 1: percent of the property on geared. It's just a fifty
18:33
Speaker 1: percent equity stake, and then you, Jane X, you own
18:36
Speaker 1: the other fifty percent and you do everything else right.
18:39
Speaker 1: You pay all the interests on the loan, you negatively gear.
18:44
Speaker 1: If you wish on new property, you cover the expenses,
18:47
Speaker 1: and this joint venture operates for as long as you like.
18:51
Speaker 1: It's entirely legitimate. It's going for years. I've checked this
18:54
Speaker 1: out through the week. Have I got that right? James?
18:57
Speaker 2: First of all, yeah, for the most part, Yes, you're
19:00
Speaker 2: super fund can own an asset jointly with you as
19:02
Speaker 2: an individual, provided it's all done at arm's length and
19:06
Speaker 2: market rates and all the rest of it. And then
19:09
Speaker 2: you jointly share in the ongoing costs and responsibilities of
19:12
Speaker 2: maintaining that property, so you as the individual can't pay
19:17
Speaker 2: all of the bills and yourself. When your super fund
19:19
Speaker 2: gets a free ride, you have to split it in
19:21
Speaker 2: accordance to whatever. The ownership percentages are between you and
19:24
Speaker 2: your SMSF. But yes, absolutely, that strategy has been a
19:28
Speaker 2: valid strategy and around for many years.
19:30
Speaker 1: Yeah. But the interesting part is that the SMSF money
19:35
Speaker 1: is ring fenced, it's on geared and it's only you,
19:41
Speaker 1: the personal private investor. Your part is geared, and it's allowed,
19:46
Speaker 1: which allows a person to use borrowed money to buy
19:53
Speaker 1: a property involving their SMSF. I'm trying to get the
19:56
Speaker 1: words bayon here, so I don't have Treasury ringing me,
19:59
Speaker 1: and they love ring me on Saturday morning. You know
20:02
Speaker 1: that it's a long week, but they like to call
20:04
Speaker 1: me on Saturday morning to complain about me or whatever
20:06
Speaker 1: they have to see. So I thought it worked fine.
20:10
Speaker 1: I was delighted to be able to use the gyms
20:12
Speaker 1: because I didn't have a deposit for an investment property
20:14
Speaker 1: at the time. I certainly didn't think I had one. Looks,
20:17
Speaker 1: but I thought my super Fun had it and it
20:20
Speaker 1: all worked out fine. The issues the regulatoriations weren't hard.
20:23
Speaker 1: You have to create a unit trust, as I remembers
20:27
Speaker 1: as a holding vehicle if you like. Is that right?
20:30
Speaker 2: Most of the time it's done through a unit trust.
20:33
Speaker 1: I don't think.
20:34
Speaker 2: Depending on the setup if you may not necessarily, but
20:37
Speaker 2: most of the time it's done through a unit trust,
20:40
Speaker 2: and you'll have the unit trust. You'll then have individual
20:43
Speaker 2: ownership percentages.
20:44
Speaker 1: You might own.
20:44
Speaker 2: There might be ten units in the unit trust. In
20:47
Speaker 2: your SMSF owns twenty of the units, and you and
20:50
Speaker 2: eight of the units personally kind of kind of worked
20:53
Speaker 2: through the lending arrangements, Like you know, you can't use
20:57
Speaker 2: that property. You're not going to be able to use
20:59
Speaker 2: that property as security for the lending. It's likely to
21:02
Speaker 2: be difficult. You might have to have other assets, you know,
21:04
Speaker 2: your own home for example.
21:06
Speaker 1: That probably was my home I'm just sinking, yeah years ago. Yeah,
21:09
Speaker 1: that's it.
21:10
Speaker 2: You might have borrowed money secured against your home to
21:13
Speaker 2: then go and buy this investment, which under today's rules
21:16
Speaker 2: allows you to negatively gear. Under the new rules, you
21:18
Speaker 2: can't negatively gear that yourself. Personally, You'll be back to
21:21
Speaker 2: this kind of losses, potentially quarantined depending on how that
21:25
Speaker 2: all plays out, because you're purchasing any existing assuming it's
21:29
Speaker 2: an existing property that you're purchasing, so.
21:31
Speaker 1: Oh yeah, yeah, I'm assuming obviously anyone from here on
21:34
Speaker 1: who does this will buy a new property, so they'll
21:36
Speaker 1: be able to negatively gear.
21:38
Speaker 2: Yes, if it's a new property, then I would imagine
21:41
Speaker 2: that your portion of that ownership. And you know, time
21:44
Speaker 2: will tell as we see the final legislation and the
21:46
Speaker 2: practicalities of the implementation of it, but I would imagine
21:50
Speaker 2: that you would be able to negatively gear that yourself. Yes,
21:52
Speaker 2: your super fund doesn't get any negative gearing benefit. They've
21:56
Speaker 2: put up just cash.
21:57
Speaker 1: Because it's on gear and it's it's isolated from your
22:00
Speaker 1: It's a joint venture, I thought, James. The only issue
22:05
Speaker 1: ultimately with that arrangement, and listeners might keep this in mind,
22:09
Speaker 1: is it sooner or later? Or you know all joint
22:12
Speaker 1: ventures have to end, Yes, somehow, so sooner or later.
22:16
Speaker 1: Either you have to buy out your own super fund
22:20
Speaker 1: or your super fund has to buy you out, don't they.
22:22
Speaker 1: I mean, really, that's the key issue, isn't it.
22:25
Speaker 2: Or alternatively, you sell the property and you wind the
22:28
Speaker 2: wine the whole thing up.
22:29
Speaker 1: So I do. But when you say the property you
22:31
Speaker 1: have to give the super fund, it's of course you
22:35
Speaker 1: have to give it. You have to split the money
22:37
Speaker 1: the way the units were split. Isn't that right of course.
22:39
Speaker 2: Yes, so you you know you're eighty twenty split or
22:41
Speaker 2: whatever the split was, your money goes back to be
22:44
Speaker 2: a simissive and money goes back to you individually.
22:47
Speaker 1: Yeah, So look, I think that's worth highlighting folks, again,
22:50
Speaker 1: strictly for listeners who are experienced and know what they're doing,
22:56
Speaker 1: ideally on this occasion with advice.
22:58
Speaker 2: You definitely tax and legal advice in setting up that
23:02
Speaker 2: that you know, that's a pretty advanced strategy, not something
23:05
Speaker 2: you'd want to be doing on your own.
23:06
Speaker 1: Yes, so I was surprised that it had very few
23:09
Speaker 1: issues or wrinklers and banks had no problem whatsoever. Okay,
23:13
Speaker 1: can I ask you a quick one? We were saying
23:15
Speaker 1: the first part of the show. If if Super is
23:17
Speaker 1: better than it used to be, then I wonder the
23:20
Speaker 1: new super tax division Turnettics, which imposes an effect of
23:25
Speaker 1: thirty percent tax amounts of of three million. I wonder
23:30
Speaker 1: is that super tax less of an issue than it
23:33
Speaker 1: used to be and would less people be running around
23:36
Speaker 1: trying to take money out of Super? If Super is
23:38
Speaker 1: more attractive than it.
23:40
Speaker 2: Was, interesting take on it. But I think you're right there.
23:44
Speaker 2: So it always comes down to and you know it
23:47
Speaker 2: did before, and it does going forward under this new
23:50
Speaker 2: ne CGT regime that we will likely have. It all
23:53
Speaker 2: comes down to what is the alternative alternative structure and
23:56
Speaker 2: ownership for these assets. And you know, there's some people
23:58
Speaker 2: that we work with that, for whatever reason, they're already
24:01
Speaker 2: a thirty percent marginal tax rate payer in their own name.
24:04
Speaker 2: Maybe they're still working running a business, or got assets
24:07
Speaker 2: at such a level, whatever it may be. And for
24:10
Speaker 2: that person, it probably didn't make sense for them to
24:12
Speaker 2: take money out of SUPER anyway, even if they're going
24:15
Speaker 2: to have to pay a higher rate of tax. But
24:17
Speaker 2: now for that person that doesn't have any income in
24:20
Speaker 2: their own name, it may not make a whole lot
24:23
Speaker 2: of sense to pull large amounts of money out of SUPER.
24:25
Speaker 2: We need to remember that the interest or the dividends,
24:29
Speaker 2: or that kind of income return that you earn on
24:31
Speaker 2: these assets, that's still going to be taxed at marginal
24:34
Speaker 2: tax rates, whereas in the superfund that's going to be
24:37
Speaker 2: at thirty And so from an ordinary income perspective, you're
24:40
Speaker 2: better off in your own name than you are in SUPER,
24:42
Speaker 2: assuming you don't have any income other income in your
24:44
Speaker 2: own name. But from a capital gains tax perspective, then
24:49
Speaker 2: it's a fairly similar setup. Albeit remember that the capital
24:53
Speaker 2: gain on the assets in your own name is going
24:55
Speaker 2: to be indexed with inflation and then a minimum thirty percent,
24:58
Speaker 2: whereas the capital gain tax under this division two nine six,
25:02
Speaker 2: if that's where all of the earnings lands, is going
25:05
Speaker 2: to be a flat thirty percent. So you've probably got
25:07
Speaker 2: a higher capital gains tax bill in SUPER than you
25:10
Speaker 2: would in your own name. But it's not you know,
25:14
Speaker 2: it's not night and day like it was before. It's
25:16
Speaker 2: certainly something that needs some extra thinking. Is I think
25:19
Speaker 2: there will be less people pulling money out of Super
25:23
Speaker 2: because the alternative of outside isn't that much different for
25:26
Speaker 2: some people now anymore, for.
25:28
Speaker 1: Anyone who was rushing off to do a family truster
25:31
Speaker 1: or whatever. It just kind of shows, as Buffert said,
25:34
Speaker 1: don't move too quick when you have regulatory risk regular
25:38
Speaker 1: totally risk back we have at the moment. All right,
25:41
Speaker 1: I know we got into some fairly deep into the
25:43
Speaker 1: thickets there, folks, but very useful, i'm sure for some
25:46
Speaker 1: people in some places, Okay, I have some important questions.
25:50
Speaker 1: They've been absolutely loading up as you can imagine on
25:53
Speaker 1: the show. But we're trying to get some done with
25:55
Speaker 1: gems in a moment. Hello, Welcome back to the Money
26:05
Speaker 1: Puzzle podcast. James Kirby here with James Wrigley w or
26:10
Speaker 1: I G.
26:11
Speaker 2: L e.
26:11
Speaker 1: Y of First Financial Financial Advisor. Okay, I have a
26:16
Speaker 1: couple of questions. They are random by nature. This is
26:19
Speaker 1: from Sean Shaun Shawn with the negative gearing changes to
26:24
Speaker 1: property or but confirmed, what will the wrapp percussions be
26:28
Speaker 1: and how they play out? Do you think products like
26:31
Speaker 1: NAB Equity Builder will become more popular? Just to frame
26:35
Speaker 1: that question, folks, and as I say, I have a
26:37
Speaker 1: special Listeners Special Question episode coming up on Tuesday on property.
26:42
Speaker 1: I think what Shoan's thinking of there is there is
26:45
Speaker 1: not such a notion. It's a fact that the way
26:48
Speaker 1: the new CGT works, it's going to be more severe
26:54
Speaker 1: on the taxation of growth, price growth, capital growth than
26:58
Speaker 1: it is on income and dividends, and consequently, in a
27:05
Speaker 1: really perverse, non progressive, extremely unimpressive fashion, the government is
27:10
Speaker 1: pushing people into dividend p stocks and away from growth products.
27:15
Speaker 2: But what do you think, James, look Possibly, but I
27:18
Speaker 2: think it will also skew like that particular product that
27:22
Speaker 2: was mentioned as a share market gear type of product
27:25
Speaker 2: that's available. I think we'll see people moving forward where
27:30
Speaker 2: it was the default for a lot of ozsies to
27:31
Speaker 2: buy their house and then go and buy an investment
27:33
Speaker 2: property and another one, whereas I think we'll have a
27:36
Speaker 2: lot more people now considering, okay, well do I invest
27:39
Speaker 2: in the property or shares essentially, because you can still
27:43
Speaker 2: negatively gear your share portfolio. You can negatively gear your
27:46
Speaker 2: commercial property if you're going down that route. So not
27:49
Speaker 2: only does the ordinary income that dividend type income, it's
27:53
Speaker 2: going to be taxed at marginal tax rates, not this
27:56
Speaker 2: capital gains tax regime that you're talking about before, but
27:59
Speaker 2: also the losses that you take if your interest bill
28:02
Speaker 2: is more than the income that you're earning, that's deductible
28:05
Speaker 2: against your ordinary income as well. So I think we
28:08
Speaker 2: will see a lot more people considering the share market
28:12
Speaker 2: for their investing and potentially negative for the gearing investing,
28:15
Speaker 2: whereas before.
28:16
Speaker 1: The okay, so negative gearing off shares. Yeah, we'll come
28:19
Speaker 1: back into focus, which had faded the subject extent. I'm
28:22
Speaker 1: shy of mentioning single products like that. That's not the
28:25
Speaker 1: only product of that nature out there, but fair enough.
28:28
Speaker 1: It is has come up often on the show over
28:30
Speaker 1: the years. All right, thank you, Sean. I hope that's
28:33
Speaker 1: useful to you. Short answer is yes. Short answer is yes, Brad.
28:39
Speaker 1: Great to have the vanguard CEO on of LEAZ that
28:43
Speaker 1: was Daniel Schrimsky. It got me thinking, why do ETF
28:49
Speaker 1: providers offer specific products for children investing in a miner's
28:54
Speaker 1: name is a minefield with current interest rates and balance
28:58
Speaker 1: of just over eight thousand orders can push a child
29:01
Speaker 1: over the income thresholds, triggering a brutal sixty six percent
29:07
Speaker 1: tax rate. Could an ETF launch a safe high growth
29:11
Speaker 1: offering specifically for this They could even call it kids
29:15
Speaker 1: kid Z or k ideas. He's thinking of all these
29:19
Speaker 1: smart ETF houses that are forever calling their ETFs by
29:23
Speaker 1: smart names to capture people's imagination. Yes, thank you, Brad.
29:28
Speaker 1: The marketing department of the various CTF houses will be
29:31
Speaker 1: delighted with your idea. I'm sure I wonder. I don't
29:35
Speaker 1: know when I haven't had the chance to ask them.
29:36
Speaker 1: And you know what, if I ask them, they will
29:38
Speaker 1: never come back because if we're just confound and there'll
29:41
Speaker 1: be about twenty people involved, and they would just be
29:43
Speaker 1: paralyzed and giving an answer like that, So I'm not
29:45
Speaker 1: even going to try. Sorry, there's a reason they haven't
29:49
Speaker 1: and I imagine it's too hard. What do you think, James,
29:53
Speaker 1: could they?
29:54
Speaker 2: Yes? You know, for the most part, these ATF providers
29:58
Speaker 2: are really just in the market of providing an investment
30:01
Speaker 2: option that the entity through which you own that investment
30:05
Speaker 2: option is then entirely up to you the investor. Now
30:08
Speaker 2: mentioning Vanguard, they have launched a super product. But for
30:11
Speaker 2: the most part, these ETF providers are really just providing
30:14
Speaker 2: an investment option, and then the product providers will then
30:17
Speaker 2: provide almost like a wrapper around the outside, one area
30:20
Speaker 2: where you can get and it's not the ETF version.
30:23
Speaker 2: It's the managed fund version of a lot of these indexes,
30:26
Speaker 2: and the high growth option or the Australian share option,
30:29
Speaker 2: or wherever it might be that that is commonly used
30:32
Speaker 2: for children in this case is an investment bond, and
30:35
Speaker 2: so you use the rapper of an investment bond which
30:38
Speaker 2: doesn't have this brutal tax rate that was mentioned. The
30:41
Speaker 2: investment bond will pay a maximum rate of thirty percent tax.
30:44
Speaker 2: Could even be an education bond that then has some
30:47
Speaker 2: added benefits if some of the money has been used
30:49
Speaker 2: for children's education. But then through that umbrella of the
30:52
Speaker 2: investment bond or the education bond, you then pick one
30:56
Speaker 2: of these index style investments. Now it's not the ETF.
30:59
Speaker 2: They just some of the rules around them that it
31:01
Speaker 2: can't be an ETF. But most of these providers also
31:05
Speaker 2: have a managed fund version of exactly the same.
31:07
Speaker 1: Thing where they passive product, yeah.
31:10
Speaker 2: And where the cost is almost identical to what the
31:12
Speaker 2: ETF version is. So you can get the same investment experience,
31:16
Speaker 2: you just own it in US in a different structure
31:18
Speaker 2: that doesn't come with these tax burdens.
31:20
Speaker 1: That terrific answer. Thank you a question That was the
31:23
Speaker 1: next question I was going to ask you us for Brad.
31:26
Speaker 1: Is there something that comes to mind? This is never
31:28
Speaker 1: advised folks, it's information only several people. I have to
31:31
Speaker 1: see the majority of people on the show when this
31:35
Speaker 1: comes up. Listeners are always asking about investment bonds. People
31:40
Speaker 1: on the show are always saying I don't need them.
31:43
Speaker 1: What do you think?
31:45
Speaker 2: So the reason why they get a bit of a
31:46
Speaker 2: bad rap is that they pay a flat rate of
31:48
Speaker 2: thirty percent tax, whereas or ordinary income, you've got the
31:53
Speaker 2: marginal tax rates. But then also and this is you know,
31:57
Speaker 2: the world is moving in favor of investment bonds. Me
32:00
Speaker 2: out because you don't get the fifty percent CGT discount
32:04
Speaker 2: in the current world. So a capital gaining an investment
32:06
Speaker 2: bond is taxed at thirty percent, no ifs or butts,
32:09
Speaker 2: whereas in the current world with the fifty percent discount,
32:13
Speaker 2: the worst it is twenty three and a half percent,
32:15
Speaker 2: like you were mentioning at the start of the show.
32:17
Speaker 2: But now all of a sudden, in the new world
32:20
Speaker 2: where you don't get this CGT discount, that you know
32:23
Speaker 2: your minimum thirty percent tax.
32:25
Speaker 1: Okay, so there are tax four tax attractive than they
32:27
Speaker 1: were they will Yeah, okay, very interesting. You're the first
32:32
Speaker 1: person we've had on the show since that happened. All right, great,
32:35
Speaker 1: I know, I imagine that was useful to your brad. Okay,
32:38
Speaker 1: two last questions, Frieda, Actually we kind of cover this
32:41
Speaker 1: rita with the SMSF borrowing bound. I presume my constentuous
32:44
Speaker 1: my sms F funds for equity and the joint venture
32:48
Speaker 1: what I negatively gear from my stake in property. It
32:51
Speaker 1: seems to me this looks better than ever thoughts thoughts. Yes,
32:56
Speaker 1: broadly true, Frieda, Yes, you can do it. Your steak
32:59
Speaker 1: has to be in a new property. That's all all right, Ben.
33:03
Speaker 1: Last question, James, how does the new minimum thirty percent tax?
33:08
Speaker 1: What when you have old capital losses to be applied?
33:11
Speaker 1: Is there a particular way you should apply them? I've
33:14
Speaker 1: got an old capital losses because I'm a crap investor.
33:19
Speaker 1: Maybe because I'm good and I thought my losers and
33:21
Speaker 1: kept my winners. I bet you're good, Ben. Oh, this
33:24
Speaker 1: is tricky, isn't it about capital losses? There's also stuff here.
33:28
Speaker 1: Isn't there loss ordering? No, it's murder. Would you like
33:33
Speaker 1: to try things?
33:34
Speaker 2: And that's I think the big thing that is you
33:37
Speaker 2: just kind of touched on is around this loss ordering
33:39
Speaker 2: in some of the accounting institutes. You know, I've written
33:43
Speaker 2: a bit about this, and there's a lot of people
33:45
Speaker 2: kind of upset about it. But through the legislation that
33:47
Speaker 2: we've seen, it looks like they're going to bring in
33:48
Speaker 2: some loss ordering, which says the losses that you have,
33:51
Speaker 2: whether you're carrying them forward or whatever, but the losses
33:55
Speaker 2: need to first be applied to gains that you've made
33:58
Speaker 2: under the current fifty discount method you need to have
34:03
Speaker 2: used up. You need to use those losses proportioned against
34:06
Speaker 2: that part first before you can use them against.
34:10
Speaker 1: Just in case you just in case you did better
34:13
Speaker 1: than they wanted you to do. So it's like sequention
34:16
Speaker 1: is that it You must the losses and the gains
34:18
Speaker 1: must be treated in sequence. That's it.
34:21
Speaker 2: So yeah, you've got to use those losses against the
34:23
Speaker 2: gains that you made under the current fifty rules first
34:26
Speaker 2: before you can use it against the current or the
34:28
Speaker 2: current you know, or what will be the future you
34:31
Speaker 2: know thirty percent rules, which means those losses become less valuable.
34:35
Speaker 2: I guess if you know this is what they may be,
34:38
Speaker 2: otherwise would add it. You could be selective with what
34:41
Speaker 2: you can upset them against.
34:42
Speaker 1: And it's also the case that it can only be
34:44
Speaker 1: nominal losses they would set against real gains. It's not
34:50
Speaker 1: real for real again, So if you had a stock
34:54
Speaker 1: folks that kind of did craft for years, but you
34:58
Speaker 1: didn't lose as such, didn't look like as for the
35:00
Speaker 1: causey loss because it didn't even match information, then you've
35:02
Speaker 1: had You've had a real loss, but that they don't
35:05
Speaker 1: want to know about that. It's just want now we're
35:06
Speaker 1: the losses that you can put against real gains. So hey,
35:10
Speaker 1: there are load that obligations getting harder. Do you think
35:12
Speaker 1: it's getting harder.
35:13
Speaker 2: To James, Yeah, sure is it sure is. And I'm
35:17
Speaker 2: not particulate as he said at the start. You know,
35:19
Speaker 2: every week there's different things that are changing. You think
35:21
Speaker 2: you've got your head around it, and then all of
35:23
Speaker 2: a sudden there's an announcement to beout something else.
35:25
Speaker 1: So that's right, Yeah, that's why we have shows like this,
35:28
Speaker 1: I have to say, if nothing else, they are starting
35:31
Speaker 1: to keeping us on our toes. Hey, James Wrigley, First Financial,
35:34
Speaker 1: thank you very much for being on the show. Where
35:36
Speaker 1: to have you again? Always a pleasure.
35:38
Speaker 2: Thank you, James, appreciate being you.
35:40
Speaker 1: That was James Wrigley, Folks, and I should advisor First Financial. Okay,
35:43
Speaker 1: so let's have some questions specifically, let's have them for
35:47
Speaker 1: this listeners questions special on property and it's the issues
35:53
Speaker 1: around is from here on in. And there are so
35:56
Speaker 1: many CGT negative gearing, family trusts, SMSAF lending, roll them
36:00
Speaker 1: all up. Let's have them. How we will deal with
36:02
Speaker 1: them on next Tuesday, this being the twenty fifth tunes
36:07
Speaker 1: So you can figure out which Tuesday there is. Today's
36:09
Speaker 1: show was produced by Leah Samma Gloom Talk. You Soon