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Listener Questions Answered : Defensive assets, super tax sting and US investment risks · The Money Puzzle

• 0:09
  Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
• 0:13
  Speaker 1: James Kirby. Welcome aboard everybody, and thanks actually for the
• 0:17
  Speaker 1: wishes for the new year that came in. Thank you
• 0:19
  Speaker 1: from listeners, and thank you for the correspondence and questions
• 0:23
  Speaker 1: and queries that have been coming in and I am
• 0:26
  Speaker 1: going to get to some of them today. At last,
• 0:28
  Speaker 1: you might say, we will answer questions from you on
• 0:34
  Speaker 1: anything you like on every episode from now on. As
• 0:37
  Speaker 1: you know, we had an initial series to do when
• 0:40
  Speaker 1: we started the year. The majority of the questions so
• 0:42
  Speaker 1: far I can see will require the answer of a
• 0:46
  Speaker 1: financial adviser, and my guest today is a financial advisor,
• 0:49
  Speaker 1: particularly good one Liam short sh or Te of the
• 0:54
  Speaker 1: Sonas Group, who you would know who was recently also
• 0:58
  Speaker 1: voted sms of congratulations Liam.
• 1:03
  Speaker 2: Thank you very much. Happy twenty twenty six.
• 1:05
  Speaker 1: Well, happy new year. View. I suppose you're probably the
• 1:08
  Speaker 1: last guest on the show. I can say that too.
• 1:10
  Speaker 1: It's the Thursday, January twenty now, so I've got to stop. Now,
• 1:14
  Speaker 1: we've got to stop saying happy new year, and we're
• 1:16
  Speaker 1: moving into February. We're going to get to these questions folks.
• 1:20
  Speaker 1: But I also want to bring you up to split
• 1:22
  Speaker 1: on one or two newsy items that you should know
• 1:26
  Speaker 1: in relation to tax and other issues that are forming
• 1:29
  Speaker 1: this year. If you heard the show earlier this week
• 1:33
  Speaker 1: with Peter Esher, you will know that CGT is very
• 1:38
  Speaker 1: much under threat this year, the discount in particular for property.
• 1:42
  Speaker 1: There is a Senate inquiry which is starting in March,
• 1:47
  Speaker 1: and there is really, what would you say, concern across
• 1:51
  Speaker 1: industry stakeholders about that. And I'm not surprised because I
• 1:54
  Speaker 1: think that is a sitting doc basically for tax changes
• 1:57
  Speaker 1: in the new year. If you listen to that part
• 2:00
  Speaker 1: you'll see why. Separately, Liam, this new supertax, of course
• 2:03
  Speaker 1: was redrafted just before Christmas and we did try to
• 2:06
  Speaker 1: cover it. But of course now that everyone's had a
• 2:08
  Speaker 1: few weeks to read what they're actually saying, there's a
• 2:10
  Speaker 1: couple of things I think people should be aware of.
• 2:14
  Speaker 1: Very briefly, would you just explain what is the new supertax?
• 2:17
  Speaker 1: As we know what redrafted? How does it work?
• 2:20
  Speaker 2: Okay, So the new division two nine six, it's basically
• 2:23
  Speaker 2: a separate tax charge to the individual. If your balance
• 2:27
  Speaker 2: is over three million, you'll pay an extra fifteen percent
• 2:30
  Speaker 2: tax on your earnings. Now they've added in if your
• 2:33
  Speaker 2: balance is over ten million, it'll be further ten percent
• 2:36
  Speaker 2: on top of that fifteen on the earnings over ten million,
• 2:39
  Speaker 2: So it's really hitting the higher end, which nobody's got
• 2:43
  Speaker 2: much sympathy.
• 2:43
  Speaker 1: For, of course. Yeah, and most of our listeners would aspire,
• 2:47
  Speaker 1: they would aspire to get into the bracket where they're
• 2:49
  Speaker 1: playing the new supertax. But things can change, folks, and
• 2:52
  Speaker 1: life is long. Really what you need to know, we're
• 2:57
  Speaker 1: going to just talk a little bit about a couple
• 2:59
  Speaker 1: of crucial parts of it. One other thing Liam Worth
• 3:03
  Speaker 1: saying is that a lot of the rumpus last year,
• 3:06
  Speaker 1: of course, was that this tax originally was going to
• 3:08
  Speaker 1: be based on realized gains, which was a daft, silly,
• 3:13
  Speaker 1: unnecessary idea which we covered again and again, and the
• 3:16
  Speaker 1: government has actually had the political smarts to close that down.
• 3:21
  Speaker 1: So this tax is based on actual gains. So all right,
• 3:25
  Speaker 1: very good, that's what you need to know. There are
• 3:28
  Speaker 1: two things that have there are two items of debate
• 3:30
  Speaker 1: that have popped up on it in the new year,
• 3:34
  Speaker 1: and maybe we could very briefly just explain to our
• 3:37
  Speaker 1: readers the issue one is that under this new tax,
• 3:43
  Speaker 1: for the first time in super frank dividends will actually
• 3:49
  Speaker 1: come under a superannuation tax. And this is controversial. Could
• 3:55
  Speaker 1: you just explain in simple terms, to the extent that
• 3:58
  Speaker 1: anyone can explain frank dividends and in terms what's changed, Liam.
• 4:03
  Speaker 2: Well, the main change is that, you know, the franking
• 4:06
  Speaker 2: credits will actually be added to the earnings of the
• 4:08
  Speaker 2: super front for the year when it's been when they're
• 4:10
  Speaker 2: calculating the division two, nine and six tax. So you know,
• 4:13
  Speaker 2: a lot of people say the whole idea of franking
• 4:15
  Speaker 2: credits was to avoid double taxation. The company pays its tax,
• 4:18
  Speaker 2: it gives you the franking credit so you don't have
• 4:21
  Speaker 2: to pay that part of the tax. Under this rule,
• 4:24
  Speaker 2: the company pays the tax and you're going to have
• 4:26
  Speaker 2: to probably pay at least, you know, fifteen percent tax
• 4:28
  Speaker 2: if your balance is over three million, and twenty five
• 4:31
  Speaker 2: percent if it's over ten million. So it's basically it
• 4:35
  Speaker 2: is double taxing the franking credits and reducing the refund
• 4:38
  Speaker 2: that people will get.
• 4:40
  Speaker 1: And I suppose the worst thing about it is that
• 4:41
  Speaker 1: a lot of people loaded up for years and years
• 4:43
  Speaker 1: on fully frank dividend shares because their advisor says to them, listen,
• 4:48
  Speaker 1: this is the best thing you could possibly do, because
• 4:51
  Speaker 1: not only are you in a tax sheltered environment when
• 4:54
  Speaker 1: you're retired, but franking credits. The nature of how it
• 4:57
  Speaker 1: works is that you, because there is zero tax investor
• 5:02
  Speaker 1: as a retiree, you will actually get a refund on
• 5:07
  Speaker 1: franking credits. But you're saying that if you for the
• 5:11
  Speaker 1: earnings the segment of your investments that go over three
• 5:15
  Speaker 1: million in super your franking credits will actually be a problem.
• 5:20
  Speaker 2: Is that right, Well, basically there'll be. The earnings will
• 5:23
  Speaker 2: be grossed up to include the franking credits. So yes,
• 5:26
  Speaker 2: you can pay fifteen percent tax on that higher man.
• 5:28
  Speaker 2: Franking credits are still beautiful, They're still a lovely thing
• 5:31
  Speaker 2: they have. Just the after tax return is going to
• 5:34
  Speaker 2: be slightly lower, so people should expect lower. People on
• 5:37
  Speaker 2: those higher balances should expect lower refunds.
• 5:40
  Speaker 1: Is it an exaggeration to say that the franking credits
• 5:43
  Speaker 1: under the new supertax for the segment where you're for
• 5:46
  Speaker 1: the taxes applicable are neutralized.
• 5:49
  Speaker 2: No, because it's still fifteen percent on over three million.
• 5:53
  Speaker 2: So the franking credits thirty percent, so there'll still be
• 5:55
  Speaker 2: some effect and you'll use those franking credits to offset
• 5:58
  Speaker 2: the division two nine and six tax as well.
• 6:00
  Speaker 1: Probably okay, but it might be an idea to review
• 6:04
  Speaker 1: if you're a heavily franked dividend, if your portfolio is
• 6:08
  Speaker 1: heavily secured towards frank dividend, if your whole game was
• 6:10
  Speaker 1: frank evident, it really might be time to have a
• 6:12
  Speaker 1: look at that, all right. One another thing, very briefly,
• 6:15
  Speaker 1: there is some people say a sneaky little death tax,
• 6:18
  Speaker 1: and everyone gets very upset about death taxes because we
• 6:21
  Speaker 1: don't have any in Australia technically, that is, we don't
• 6:24
  Speaker 1: have any death taxes. We don't have an inherit and
• 6:26
  Speaker 1: taxes formerly. But there's a little there's a nasty little
• 6:29
  Speaker 1: tweak in the new revision that people have discovered since.
• 6:32
  Speaker 1: Could you explain that to our listeners.
• 6:34
  Speaker 2: Yeah, So basically, under the old version, you're the tax
• 6:38
  Speaker 2: is going to apply based on your balance at the
• 6:40
  Speaker 2: end of the tax year. But now they've brought in
• 6:43
  Speaker 2: what they call a measure to avoid people, you know,
• 6:46
  Speaker 2: taking integrity.
• 6:47
  Speaker 1: I think they like to call it integrity and integrity
• 6:50
  Speaker 1: measure lyon.
• 6:51
  Speaker 2: Yeah, so now after the first year, so on the
• 6:54
  Speaker 2: first of July twenty twenty seven. From then on, your
• 6:57
  Speaker 2: division two nine six tax will be actually worked out
• 7:00
  Speaker 2: based on the hire of your balance at the start
• 7:02
  Speaker 2: of the year and your balance at the end of
• 7:04
  Speaker 2: the year. So if someone under the old rules had
• 7:09
  Speaker 2: died during the year and their member account was paid out,
• 7:12
  Speaker 2: they'd have nothing at the end of the year, So
• 7:14
  Speaker 2: there's no division two nine six tax under the new
• 7:17
  Speaker 2: version of it. If someone died, say in January, they'll
• 7:21
  Speaker 2: have had six months because the rule is going to
• 7:23
  Speaker 2: look at their balance in the first of July of
• 7:25
  Speaker 2: the year, and then a portion the division two nine
• 7:28
  Speaker 2: six to the earnings up to their date of death.
• 7:31
  Speaker 2: The issue is that for somebody trying to handle a
• 7:36
  Speaker 2: deceased state, they want to get the money out of
• 7:38
  Speaker 2: the grieving family, but now they've got to work out
• 7:42
  Speaker 2: they've got to wait till thirty to June, look at
• 7:44
  Speaker 2: what the earnings were for the full year, do all
• 7:46
  Speaker 2: the calculations, wait for the ATOTI issue a notice for
• 7:49
  Speaker 2: the division two nine six, and then make sure they've
• 7:52
  Speaker 2: kept money in that estate or had a member's account
• 7:55
  Speaker 2: to pay any division two nine six tax.
• 7:57
  Speaker 1: There's a new death tax has arrived in a very
• 8:00
  Speaker 1: sort of subtle way, and admittedly in relatively limited circumstances,
• 8:04
  Speaker 1: but it's the precedent I think that investors might take
• 8:08
  Speaker 1: note of on the basis that once you start doing this,
• 8:12
  Speaker 1: you can expand it. So there's now two death taxes
• 8:14
  Speaker 1: and super what is in the division two nine SI
• 8:16
  Speaker 1: except femus just explained, and of course there's the other
• 8:18
  Speaker 1: standard one. When you inherit super as an adult, you
• 8:21
  Speaker 1: basically get hit with seventeen percent tax. But as I
• 8:24
  Speaker 1: said at the start, in theory, we've no inheritance taxes,
• 8:26
  Speaker 1: in reality we have now got two. Okay, very broadally,
• 8:30
  Speaker 1: one last thing just before we go to break, what's
• 8:33
  Speaker 1: your advice for the general reader on this new tax
• 8:37
  Speaker 1: in terms of long term structuring, We'll take it that
• 8:41
  Speaker 1: people who have that amount of money know how to
• 8:43
  Speaker 1: do get money out, watch out your capital against take
• 8:46
  Speaker 1: cash out for instance. That's the easiest way to reduce
• 8:49
  Speaker 1: it without complicating tax. I'm sure. But what about long
• 8:52
  Speaker 1: term for the person who's in the accumulation phase.
• 8:54
  Speaker 2: They basically just need to look at what their options
• 8:57
  Speaker 2: are going forward. Really content trade on equalizing balances for couples.
• 9:03
  Speaker 2: You know, you know, if one of the couple has
• 9:05
  Speaker 2: a high balance, start concentrating and building up the other
• 9:07
  Speaker 2: member of the couple's balance. You can do super splitting.
• 9:10
  Speaker 2: Each year of the higher balanced person's contributions, you can
• 9:14
  Speaker 2: look to boost the smaller balance the index. You know.
• 9:17
  Speaker 2: The good move is that the actual the thresholds are
• 9:19
  Speaker 2: going to be indexed each year, so that will help
• 9:22
  Speaker 2: longer term, you know, so people don't get hit with
• 9:25
  Speaker 2: know invexiation, and then look at alternative places to be
• 9:29
  Speaker 2: investing a lot of people who want to retire at
• 9:32
  Speaker 2: fifty five. If you can't, if you can't access your
• 9:35
  Speaker 2: SUPERTL sixty, you need to be building some wealth up
• 9:38
  Speaker 2: outside of super as well. So that's either in the
• 9:40
  Speaker 2: lower spouse's name or maybe an insurance bond or investment bond.
• 9:45
  Speaker 2: Looking for those options that are that complement super.
• 9:48
  Speaker 1: Okay, I mean, and we re absolutely daft if you
• 9:51
  Speaker 1: knew that you had at risk of crossing that and
• 9:53
  Speaker 1: paying extra tax that you don't need to because one
• 9:56
  Speaker 1: partner makes three times as much as the other partner
• 9:59
  Speaker 1: and the other partner is eyes away from never getting
• 10:01
  Speaker 1: across that, then why not just split the contributions or
• 10:05
  Speaker 1: non concession. I imagine it'd be a really fast way to
• 10:07
  Speaker 1: do it, Is that right?
• 10:08
  Speaker 2: Yes, yeah, especially people get inheritances, they may sell properties.
• 10:12
  Speaker 2: That's when you build up the spouses balance.
• 10:15
  Speaker 1: There's no negative in that. There is any negative to
• 10:18
  Speaker 1: that plan in terms of compounding or fees or anything.
• 10:21
  Speaker 2: No, but we just see there's often a difference in ages,
• 10:24
  Speaker 2: so you've got to consider who's going to be into
• 10:26
  Speaker 2: pension phase first. But often if it's a high incommerder,
• 10:29
  Speaker 2: they're probably gonna they probably love the juggling and to
• 10:31
  Speaker 2: continue working till sixty five. But their spouse may finish
• 10:34
  Speaker 2: at sixty even though they're younger. So in a lot
• 10:37
  Speaker 2: of cases it still works out benefit get the money
• 10:39
  Speaker 2: into sparses name, because we can get it into pension
• 10:42
  Speaker 2: phase at sixty rather than waiting until sixty five or
• 10:44
  Speaker 2: sixty seven.
• 10:45
  Speaker 1: Yeah, very good and very good. Okay, very interesting, All right, folks,
• 10:49
  Speaker 1: will take a break back in the moment. Hello, welcome
• 11:02
  Speaker 1: back to the Australians Money Puzzle podcast. James Kirby here
• 11:07
  Speaker 1: with Liam Short of the saunas well sonas Now Liam.
• 11:12
  Speaker 1: We'll get to all that. There's lots of questions for you.
• 11:14
  Speaker 1: I want to deal with them. But just before we do,
• 11:16
  Speaker 1: I have a bit of news in terms of the
• 11:19
  Speaker 1: new thresholds and caps that are going to come in
• 11:22
  Speaker 1: July this year. Folks worth thinking about. If you're contributing
• 11:26
  Speaker 1: to super and you're a bit frustrated you can only
• 11:28
  Speaker 1: put in thirty a year, which is much too low.
• 11:33
  Speaker 1: That's going to improve. Everything's going to improve a little bit.
• 11:35
  Speaker 1: Could you just briefly tell us what the new caps
• 11:38
  Speaker 1: are expected to be on the basis of the inflation
• 11:41
  Speaker 1: that we have seen.
• 11:42
  Speaker 2: Yeah, so based on the CPI figures which come out.
• 11:45
  Speaker 1: For December, which are getting worse and worse.
• 11:47
  Speaker 2: Yeah, they come out of three point eight percent. Based
• 11:49
  Speaker 2: on those, the transfer balance cap and the total superbounds,
• 11:52
  Speaker 2: so the amount you can move into pension phase and
• 11:55
  Speaker 2: the amount you can have in super their bo can
• 11:58
  Speaker 2: arise from two million to two point one million. Okay,
• 12:02
  Speaker 2: So that means that people will have a little bit
• 12:03
  Speaker 2: more that they can move into pension phase, which is great. Now,
• 12:07
  Speaker 2: although the concessional caps and non concession they're not tied
• 12:10
  Speaker 2: to this CPI, they're tied to Awati the average week
• 12:13
  Speaker 2: in the ordinary tournament. Those figures will come out later
• 12:16
  Speaker 2: in February, okay, but it's already very likely that they
• 12:21
  Speaker 2: are also going to trigger an increase from thirty thousand
• 12:24
  Speaker 2: for the concessional to thirty two thy five hundred, which
• 12:27
  Speaker 2: means that the non concessional will go from one twenty
• 12:30
  Speaker 2: year two one thirty and a three year bring forward
• 12:33
  Speaker 2: will go from three sixty to three ninety. So it'll
• 12:36
  Speaker 2: mean that be a fair amount of extra money that
• 12:39
  Speaker 2: can be put into super for those near retirement that
• 12:41
  Speaker 2: want to build their balances terrific.
• 12:44
  Speaker 1: Okay, I know it's all about technical folks, but I'm
• 12:45
  Speaker 1: sure you're across it very We have a very bright audience.
• 12:48
  Speaker 1: They can capture all this. You can if it's if
• 12:51
  Speaker 1: you find it difficult. There is a transcript always with
• 12:53
  Speaker 1: these shows. Take a look and obviously we cover this
• 12:56
  Speaker 1: in the World section of the Australian all the time,
• 12:58
  Speaker 1: but very briefly, the transfer bands cap that you're allowed
• 13:03
  Speaker 1: to start your tax free retirement in the amount you
• 13:05
  Speaker 1: can put in the day you retire moves from two
• 13:07
  Speaker 1: million to two point one. The amount you can put
• 13:09
  Speaker 1: in pre tax Okay, pre tex that's concessional pre tax
• 13:13
  Speaker 1: salary sacrifice moves from thirty thousand years to thirty two thousand,
• 13:17
  Speaker 1: five hundred. Did you say, Liam in July one? And
• 13:20
  Speaker 1: the amount you can put in concessionel that is after tax?
• 13:23
  Speaker 1: Should you be so lucky to have big lumps of
• 13:25
  Speaker 1: money hanging around that you'd like to put into super
• 13:28
  Speaker 1: inheritance or whatever? That goes from one hundred and twenty
• 13:31
  Speaker 1: thousand a year to one hundred and thirty thousand a year. Okay,
• 13:36
  Speaker 1: very good. All right, let's catch up with the listener questions.
• 13:39
  Speaker 1: Here we go. Number one Andrew asks, I want to
• 13:43
  Speaker 1: know about defensive investments. And I don't blame you because
• 13:47
  Speaker 1: this market is red hot and it's wonderful. It's great.
• 13:50
  Speaker 1: I mean, who doesn't like to see markets jumping up
• 13:52
  Speaker 1: by a percent a day? But I tell you what
• 13:55
  Speaker 1: a time will come people will say, oh gee, what
• 13:59
  Speaker 1: do I have that isn't she so? And you asked
• 14:01
  Speaker 1: in particular cash bonds, term deposits and whether it's still
• 14:05
  Speaker 1: a role for hybrids. Now there's a lot there, I
• 14:08
  Speaker 1: think obviously. Can I just jump and say make sure
• 14:12
  Speaker 1: you do have non listed investments in an investment portfolio.
• 14:16
  Speaker 1: Look at the big super funds and look at the
• 14:18
  Speaker 1: future funds. Of course they have shares, but they're not
• 14:20
  Speaker 1: all in shares. They're not all at risk. And I
• 14:23
  Speaker 1: think the cash bonds except to speak for themselves. An
• 14:26
  Speaker 1: important one is hybrids. There. I thought they were closing down,
• 14:31
  Speaker 1: but then I've had someone and said to me, listen,
• 14:33
  Speaker 1: hybrids are really good. They're really good now. They're actually
• 14:36
  Speaker 1: underestimated and they are paying good, low risk rates of return.
• 14:42
  Speaker 2: What do you think, Liam, Yeah, so there's no new
• 14:45
  Speaker 2: hybrids being issued to the retail market, so at the
• 14:48
  Speaker 2: existing ones they will just phase out. As you know,
• 14:51
  Speaker 2: most of them are six or seven year terms for
• 14:53
  Speaker 2: the first call. So yes, they're still there, they're still available.
• 14:56
  Speaker 2: Yes they are paying good rights. We bought a lot
• 14:58
  Speaker 2: of them at the lower and interest rates were lower
• 15:01
  Speaker 2: because as interest rates went up, most of the hybrids
• 15:04
  Speaker 2: were pecked at the bank builds upright, So yes, they're good,
• 15:07
  Speaker 2: decent income. Just be careful. That may be a trap
• 15:10
  Speaker 2: liquidity wise of getting out of them as they become
• 15:12
  Speaker 2: unpopular and people move to other things. But I think
• 15:16
  Speaker 2: it will be a niche for people who know the risk,
• 15:18
  Speaker 2: understand the risk. They're happy with the big banks. They'll
• 15:20
  Speaker 2: still be able to get decent income from them for
• 15:22
  Speaker 2: a few years.
• 15:23
  Speaker 1: So when you say a few years, could you put
• 15:25
  Speaker 1: a time frame on it.
• 15:27
  Speaker 2: I think the last ones will expire around twenty twenty nine,
• 15:30
  Speaker 2: twenty thirty. The one thing you have to be careful
• 15:32
  Speaker 2: is the ones that are paying good rates, be careful
• 15:35
  Speaker 2: of the actual cost because they have one hundred dollars
• 15:37
  Speaker 2: face value. A lot of the ones that are paying
• 15:39
  Speaker 2: decent income, they're trading at one o two or one
• 15:41
  Speaker 2: oh three, So you're paying hard in the capital value.
• 15:44
  Speaker 2: So make sure you ad just the yield that you're
• 15:46
  Speaker 2: seeing for the actual cost of the bond that you're buying.
• 15:49
  Speaker 1: And most people I imagine are going to go into
• 15:51
  Speaker 1: bank and being realistic about it, and the liquidity should
• 15:54
  Speaker 1: be there for at least, let's say, for at least
• 15:56
  Speaker 1: two years. Separate on Andrew also defensive investments. I mean
• 16:01
  Speaker 1: there's the obvious, there's the obvious cash bonds, term deposits,
• 16:06
  Speaker 1: which are perhaps going to improve because we're going to
• 16:11
  Speaker 1: see interest rates lift this year.
• 16:14
  Speaker 2: Yeah, for once, the banks have actually been increasing the
• 16:16
  Speaker 2: term deposit rates before the interest rate comes in expectation of.
• 16:20
  Speaker 1: It genuinely competitive.
• 16:22
  Speaker 2: That change you only unforeseen. So yeah, look at the moment,
• 16:27
  Speaker 2: I'm getting four point sixty five percent for six months.
• 16:29
  Speaker 2: I'm reluctant to looking for twelve months because we know
• 16:31
  Speaker 2: the interest rates may arise. But you can get a
• 16:33
  Speaker 2: really good six point five percent for six months, and
• 16:36
  Speaker 2: that will probably rise when the interest if the interest
• 16:38
  Speaker 2: rate goes up next week. Always also, maybe look at
• 16:42
  Speaker 2: annuities as well, because at the moment they tend to
• 16:44
  Speaker 2: be paying about a quarter to a half percent extra
• 16:47
  Speaker 2: on top of the term deposit rates. So there are
• 16:50
  Speaker 2: sources out there where you can get about a five
• 16:53
  Speaker 2: percent return risk free. So look at those options.
• 16:57
  Speaker 1: Is it possible to get an annuity in a small way?
• 17:01
  Speaker 1: By that, I mean can someone just go in and
• 17:02
  Speaker 1: put ten and twenty grand in an annuity?
• 17:04
  Speaker 2: I think the minimum is twenty Okay, so you can
• 17:07
  Speaker 2: look at.
• 17:08
  Speaker 1: You can bite sized annuity. Yeah, all right. So, because
• 17:13
  Speaker 1: one of the questions that has come up regularly is
• 17:15
  Speaker 1: people say, okay, you know, in defensive investments, I know
• 17:18
  Speaker 1: I can get cash, and I can get bonds, and
• 17:19
  Speaker 1: I can get hybrids, and and I can get my three,
• 17:21
  Speaker 1: four or five percent, and I know I can go
• 17:23
  Speaker 1: to the other end and I can do secured mortgages
• 17:26
  Speaker 1: or debt funds or infrastructure, and I can probably get
• 17:28
  Speaker 1: nine percent. But what's in the middle. What's in the
• 17:31
  Speaker 1: middle between the four percent and the nine percent? Well,
• 17:34
  Speaker 1: is there anything that comes to mind?
• 17:36
  Speaker 2: Really? It's good quality corporate bonds, the Tier two bank
• 17:41
  Speaker 2: credit and stuff. Everything is a trade off. Though, if
• 17:44
  Speaker 2: you're getting more than the four and a half percent,
• 17:47
  Speaker 2: you're taking some risk. A lot of people, like, you know,
• 17:50
  Speaker 2: despite what happened in the GFC, a lot of people
• 17:52
  Speaker 2: are still confident with some of the mortgage funds, but
• 17:55
  Speaker 2: you really want one that's got a lot of experience,
• 17:57
  Speaker 2: like a track record. They're paying about sixty so that's yeah,
• 18:01
  Speaker 2: But again you need to be careful about how much
• 18:03
  Speaker 2: you put in them and understand the risk that's involved.
• 18:07
  Speaker 2: Bonds have really taken ay, they've been on a roller
• 18:10
  Speaker 2: coaster for the last five years. That were meant to be,
• 18:12
  Speaker 2: you know, a counterbalance to equeries if the market's changed.
• 18:15
  Speaker 2: Whenever the markets went down, the bond market just seemed
• 18:18
  Speaker 2: to go down as well. So a lot of people
• 18:19
  Speaker 2: have lost confidence in individual bonds especially so but they
• 18:24
  Speaker 2: will have their day and that they may be coming
• 18:26
  Speaker 2: in twenty twenty six. So I would just say, look,
• 18:33
  Speaker 2: try and avoid individual bonds. Maybe use a managed fund
• 18:37
  Speaker 2: er an ETF bond funds.
• 18:38
  Speaker 1: Yeah, yeah, okay, very good, And folks, this is information only,
• 18:43
  Speaker 1: it's advice, as you know. All right, I want to
• 18:46
  Speaker 1: get through through questions. I will take a short break.
• 18:49
  Speaker 1: We have a couple of very interesting questions from Sandra,
• 18:52
  Speaker 1: from Mark, from Daniel coming up. Hello, welcome back to
• 19:01
  Speaker 1: the money Puzzle. Liam Short is my guest on the
• 19:04
  Speaker 1: show today from the Sonas Wealth Groups Sonas Okay, soundra.
• 19:09
  Speaker 1: I'm in my early fifties. Super is at the forefront
• 19:12
  Speaker 1: of my mind. I've worked in the UK for sixteen
• 19:15
  Speaker 1: years and I have a fair amount of super over
• 19:19
  Speaker 1: there that they wouldn't call it super there, of course,
• 19:21
  Speaker 1: and they'd call it something else, pensions is it? They
• 19:24
  Speaker 1: just call it? The question is do I bring it
• 19:26
  Speaker 1: back now? It sounds actually in her fifties, wondering what
• 19:32
  Speaker 1: your thoughts are on those who oversee SUPER. I know
• 19:36
  Speaker 1: it's never individual information here, very broad brush look at
• 19:40
  Speaker 1: that issue. Liam.
• 19:42
  Speaker 2: Okay, So the first point is you can't bring it
• 19:45
  Speaker 2: back before age fifty five, okay, so you have to
• 19:48
  Speaker 2: be very careful about that. And also there are very
• 19:51
  Speaker 2: limited options now for bringing it back into what funds
• 19:54
  Speaker 2: you can bring it back. The main option is to
• 19:57
  Speaker 2: have an SMSF where you exclude members on the fifty
• 20:00
  Speaker 2: five because the UK pension rules do not allow for
• 20:04
  Speaker 2: early access before fifty five. My personal view is I
• 20:10
  Speaker 2: believe people should look to bring the money back, depending
• 20:12
  Speaker 2: on their circumstances, after fifty five to get rid of
• 20:15
  Speaker 2: that exchange r at risk. If you're going to be
• 20:17
  Speaker 2: living in Australian retirement, do you really want you know,
• 20:20
  Speaker 2: a lot of your super innuation or your UK pension.
• 20:24
  Speaker 2: You've got the exchange rate exposure on that, but really
• 20:29
  Speaker 2: get specific advice. There's a lot of people who play
• 20:33
  Speaker 2: part time in this area. We use absolute experts in
• 20:37
  Speaker 2: that niche. I don't touch it myself. I'd get the
• 20:39
  Speaker 2: experts in to do it, and it's amazing what they
• 20:42
  Speaker 2: can do and how they can reduce the tax on
• 20:44
  Speaker 2: it if it's planned properly.
• 20:46
  Speaker 1: Okay, So Sandra, it's not hard to find that, just
• 20:49
  Speaker 1: google it. Basically, there are UK pension fund experts they're
• 20:52
  Speaker 1: switching to Australia is what you might call a sizeable
• 20:55
  Speaker 1: Niche sorry for taking so long to answer your question, Sandra.
• 20:59
  Speaker 1: I know that's been sitting in or in box for
• 21:00
  Speaker 1: some time, and at least the exchange rate hasn't caused
• 21:03
  Speaker 1: you any problems and times in fact, your inactivity was
• 21:09
  Speaker 1: probably very much in your favor. All right, Mark says,
• 21:13
  Speaker 1: we are working on a combin This is very interesting.
• 21:16
  Speaker 1: We are working out a combination of a loan and
• 21:19
  Speaker 1: a gift to help ease the financial burden for our daughter.
• 21:23
  Speaker 1: Fair enough, and you wouldn't be the only person, Mark,
• 21:26
  Speaker 1: I'm sure many people have this issue with their adult
• 21:30
  Speaker 1: children or young adult children facing enormous costs that generations
• 21:35
  Speaker 1: never faced, particularly housing. Mark's question is from the perspective
• 21:41
  Speaker 1: of the income and assets added stubility assessment for the
• 21:46
  Speaker 1: age pension. Is the amount of a loan viewed in
• 21:49
  Speaker 1: the same way as a gift In relation to the
• 21:52
  Speaker 1: five year rule? Also, does a loan agreement need to
• 21:55
  Speaker 1: be legally prepared or formally signed with our daughter? That's
• 22:00
  Speaker 1: a complicated question and there's center link issues and five
• 22:03
  Speaker 1: year rules in there. Could you try and synopsize the
• 22:06
  Speaker 1: whole issue of which is better a loan or a
• 22:08
  Speaker 1: gift for someone to whom center Link pension accessibility is
• 22:16
  Speaker 1: an ambition.
• 22:18
  Speaker 2: Yeah, so for somebody in that in those circumstances, a
• 22:22
  Speaker 2: gift an amount that your gift will fall off your
• 22:25
  Speaker 2: asset test with Centerlink after five years. A loan is
• 22:29
  Speaker 2: separate because the loan is a continuing asset of yours
• 22:31
  Speaker 2: where you've lent money to your family. So even after
• 22:34
  Speaker 2: five years, you still have that loan in place. Even
• 22:36
  Speaker 2: if you forgive it, it's still a loan that will
• 22:39
  Speaker 2: be there for another five years. So you've got to
• 22:41
  Speaker 2: be careful.
• 22:41
  Speaker 1: About what's the thing about five years? Why they why
• 22:45
  Speaker 1: did they wait five years long time?
• 22:48
  Speaker 2: Or because so many people were teaching assets to their
• 22:50
  Speaker 2: families just before pension age just to try and get
• 22:54
  Speaker 2: maximize their age pension. So Centerling brought in this five
• 22:57
  Speaker 2: year rule that's saying that, look, if you just before
• 23:00
  Speaker 2: you come to pension phase, give all this money away,
• 23:02
  Speaker 2: just get the age pension, guess what you're gonna have
• 23:05
  Speaker 2: to wait five years to get any benefit from. Well,
• 23:09
  Speaker 2: I still do it, doing it all the time.
• 23:10
  Speaker 1: It's a defective penalty for doing it. I see, I see,
• 23:14
  Speaker 1: all right, five year penalty.
• 23:16
  Speaker 2: The second part of that question about the loan agreement. Yes, Look,
• 23:19
  Speaker 2: we believe any written contract is better than verbal, especially
• 23:24
  Speaker 2: if you're dealing with family breakdown or if your children
• 23:26
  Speaker 2: are involved in the business. You want a loan agreement
• 23:29
  Speaker 2: in place that if something goes wrong, you can call
• 23:32
  Speaker 2: back in that loan for the family. You've worked hard
• 23:34
  Speaker 2: to build that money. You want to keep it in
• 23:35
  Speaker 2: your family. Call back in the loan when the trouble ends,
• 23:39
  Speaker 2: or the separation happens, or the business has gone you
• 23:42
  Speaker 2: can give them money back to your children again for
• 23:44
  Speaker 2: the future, so that they have something to start again with.
• 23:48
  Speaker 1: Yes, so the loan amount is ring fenced. Okay, very good,
• 23:54
  Speaker 1: all right, okay, final question from Daniel. We are really
• 23:57
  Speaker 1: rolling around on this one. We needed someone very good
• 24:00
  Speaker 1: to answer these questions. Daniel asks, but the ever increasing
• 24:05
  Speaker 1: interest in buying US shares through Australian brokers. I've been
• 24:10
  Speaker 1: trying to understand the tax implications in the US for
• 24:15
  Speaker 1: an estate. What happens to your estate if you hold
• 24:21
  Speaker 1: US shares? Interesting because no one used to hold US
• 24:24
  Speaker 1: shares once upon time, and it's quite rare Now this
• 24:26
  Speaker 1: is very common because it's very easy through all the
• 24:29
  Speaker 1: online platforms. So Daniel says it's a technical question and
• 24:33
  Speaker 1: I'm but I'm sure it's relevant to some listeners. My
• 24:36
  Speaker 1: accountant has no experience with this, and my internet searching
• 24:39
  Speaker 1: has produced confusing answers. That's why you have to listen
• 24:42
  Speaker 1: to a show like this. Okay, Liam hard One, I
• 24:45
  Speaker 1: never heard this question before. Very interesting, what do you think?
• 24:50
  Speaker 2: Yep? So, look, there's a few things you need to
• 24:52
  Speaker 2: be aware of. First, you know, if you're handling the estate,
• 24:55
  Speaker 2: you need to get a WABN eform into.
• 24:59
  Speaker 1: The Shouldn't they get that at the day that buy
• 25:01
  Speaker 1: the shares? They can you get it later?
• 25:03
  Speaker 2: No, but remember in your personal name it's the wa BN.
• 25:07
  Speaker 2: Once it moves into a state, it's a trust, so
• 25:09
  Speaker 2: it's a separate form. It's a DASHE form that needs
• 25:13
  Speaker 2: to go through capital gains. Tax Wise, the sale of
• 25:16
  Speaker 2: US shares is Australian CGT, not US, so that it'll
• 25:20
  Speaker 2: be dealt with under the Australian system, mister Boultro broker here.
• 25:24
  Speaker 2: A state tax then, is the other issue. In the US.
• 25:27
  Speaker 2: You may have federal taxes and state taxes on the estate.
• 25:31
  Speaker 2: But there was a nineteen fifty three tax agreement between
• 25:35
  Speaker 2: Australia and the US which means you would have to
• 25:37
  Speaker 2: have had a very large estate in order for state
• 25:40
  Speaker 2: duty to be charged. This is one where it all
• 25:44
  Speaker 2: depends on your circumstances and the level of your state.
• 25:46
  Speaker 2: But you know, for suddenly very basic, it's you know,
• 25:50
  Speaker 2: you just get some legal advice and probably I'll go back.
• 25:54
  Speaker 2: The first thing you should be doing is telling your
• 25:55
  Speaker 2: lawyer that you have these overseas assets when they're drafting
• 25:59
  Speaker 2: your will, because that will be used to apply for
• 26:02
  Speaker 2: provid in wherever those assets are, and your lawyer may
• 26:06
  Speaker 2: say you need a separate asset for a separate will
• 26:08
  Speaker 2: for overseas assets and a separate one for Australian So.
• 26:12
  Speaker 1: If someone in Australia goes and just simply buys Microsoft
• 26:17
  Speaker 1: on the US Exchange, hoose it forever they die, that's
• 26:24
  Speaker 1: an issue for their estates.
• 26:25
  Speaker 2: It could be depending on the level of their estate
• 26:27
  Speaker 2: and they would need to get advice. My simple tip,
• 26:30
  Speaker 2: James is to look to buy Australian domicile US ETFs
• 26:34
  Speaker 2: on those shares the basket shares, so that it's dealt
• 26:37
  Speaker 2: with under Australian rules, not You know, you used to
• 26:41
  Speaker 2: have to buy overseas. If you want to do overseas shares,
• 26:44
  Speaker 2: you used to have to use it overseas broken and
• 26:47
  Speaker 2: overseas exchange. Now that all can be done here in Australia.
• 26:50
  Speaker 1: It can there's some stuff you just can't buy unfortunately,
• 26:54
  Speaker 1: I mean you can't. The big ones tend to have
• 26:56
  Speaker 1: their version of the listing here, the very big stocks,
• 26:58
  Speaker 1: and of course the ETFs as well. And I think
• 27:02
  Speaker 1: broadly it could be an issue, but it's only an
• 27:06
  Speaker 1: issue for a small amount of people. It's unlikely to
• 27:09
  Speaker 1: be an issue for most people. Can we safely say that.
• 27:12
  Speaker 2: Yes we can, But there are a lot of US
• 27:14
  Speaker 2: people looking to move to Australia so with what's going
• 27:17
  Speaker 2: on there. But yeah, it's just one of those things.
• 27:20
  Speaker 2: If you've got overseas assets, you should always be talking
• 27:22
  Speaker 2: to your lawyer and your accountant about it in advance
• 27:26
  Speaker 2: because you could be living a nightmare for your children
• 27:28
  Speaker 2: to try and deal with paperwork wise, every time I've
• 27:31
  Speaker 2: had to deal with it, you know, any US assets
• 27:33
  Speaker 2: or UK assets, it's the time and the paperwork involved
• 27:36
  Speaker 2: in the stress involved.
• 27:38
  Speaker 1: It's just overwhelming, very good and there's enough paperwork in
• 27:41
  Speaker 1: those situations already. Okay, terrific. Thank you very much. Liam
• 27:45
  Speaker 1: Short from the Son as Well group, love you to
• 27:47
  Speaker 1: have you on the show again.
• 27:49
  Speaker 2: Really enjoyed it.
• 27:50
  Speaker 1: Thank you, James, and we'll have lim. You will hear
• 27:52
  Speaker 1: Liam again during the year. Don't you worry about that.
• 27:54
  Speaker 1: He is absolutely terrific on all issues. And that was
• 27:58
  Speaker 1: the test, wasn't it. We really injured around the world.
• 28:01
  Speaker 1: All right, let's have some more correspondents. Love to hear
• 28:04
  Speaker 1: more questions and queries from you the Money Puzzle at
• 28:07
  Speaker 1: the Australian dot com dot Au.
• 28:09
  Speaker 2: Talk to you soon.