Latest / The Money Puzzle / Property investors fret over CGT but rate rises may stall soon

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Property investors fret over CGT but rate rises may stall soon · The Money Puzzle

• 0:09
  Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
• 0:12
  Speaker 1: James Kirkby. Welcome aboard everybody. Now, since we did one
• 0:16
  Speaker 1: of our first shows of the year, we mentioned capital
• 0:19
  Speaker 1: gains tax was a potential change this year, I think
• 0:22
  Speaker 1: we can move that considerably forward now. As you would know,
• 0:25
  Speaker 1: there is a Senate inquiry this week. But more than that,
• 0:28
  Speaker 1: the government have made it very clear that they do
• 0:30
  Speaker 1: plan to change and that means raise capital gains tax.
• 0:36
  Speaker 1: The issue for our listeners, particularly is for property investors,
• 0:40
  Speaker 1: is that capital gains obviously is crucial really in terms
• 0:44
  Speaker 1: of property investing because it's certainly not a game in
• 0:48
  Speaker 1: the metropolitan markets for income yields are so low. I'm
• 0:52
  Speaker 1: going to talk about CGT today. I'm also going to
• 0:55
  Speaker 1: talk about interest rates and the sort of all I
• 0:59
  Speaker 1: say word narrative, the narrative that we have just kicked
• 1:02
  Speaker 1: off a new upward cycle that is now being questioned.
• 1:05
  Speaker 1: And I have some great questions from you on a
• 1:08
  Speaker 1: number of hot issues, including in Harrison's tax. My guest
• 1:12
  Speaker 1: is doctor Sam Widely of the Windlestone Education Group and
• 1:15
  Speaker 1: Melbourne Business School.
• 1:16
  Speaker 2: How are you Sam? Well? Great? Well, James, Thanks for
• 1:19
  Speaker 2: inviting me back.
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  Speaker 1: Thanks for coming on the show. We have so much
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  Speaker 1: we could talk about. We might even get to talk
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  Speaker 1: about your goal video, which I thought was terrific as well.
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  Speaker 1: But for today's purposes, because this is very much the
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  Speaker 1: item on the agenda is CGT, could you actually, just
• 1:35
  Speaker 1: for the general listener, could you explain why we have
• 1:39
  Speaker 1: a capital gains tax and why most people understand it
• 1:44
  Speaker 1: as it's a taxi payer. When you sell something, you
• 1:47
  Speaker 1: pay it more or less at your income tax rate,
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  Speaker 1: and you get a fifty percent they call it discount,
• 1:51
  Speaker 1: but it is reduced by fifty percent if you hold
• 1:53
  Speaker 1: from more than one year. Most people know that. Could
• 1:56
  Speaker 1: you explain in an academic fashion as to why it
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  Speaker 1: exists and why it might be other question?
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  Speaker 3: Now, Well, investors get returns in two forms, in the
• 2:06
  Speaker 3: form of income so dividends, rants, interest payments, et cetera.
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  Speaker 3: And the form and in the form of the growth
• 2:13
  Speaker 3: of their assets, so shares going up in value, properly
• 2:17
  Speaker 3: going up in value, And the government wants a share
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  Speaker 3: of each of those returns because everyone represent increases in wealth,
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  Speaker 3: and the income tax applies to both of them. You know,
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  Speaker 3: as has been said quite commonly recently, there really is
• 2:33
  Speaker 3: no capital gains tax or there is an income tax.
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  Speaker 1: By that actually mean just in terms of just to clarify,
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  Speaker 1: what do you mean there is if I own something
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  Speaker 1: the day I go to sellers, I'm taxed at whatever
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  Speaker 1: rate of taxipey on my income.
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  Speaker 2: Okay, yeah, that's right.
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  Speaker 3: Your capital income So whind at one hundred dollars today
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  Speaker 3: in two years time, because you won't get the capital
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  Speaker 3: gains discount unless you've hold it for more than a year.
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  Speaker 3: In two years time, it's gone up to one hundred
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  Speaker 3: and sixty dollars, then the government's going to say, we
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  Speaker 3: bought it that one hundred, that's your basis for capital
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  Speaker 3: gains purpose. You sold it at one hundred and sixty.
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  Speaker 3: You made a capital gain of sixty. Now we are
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  Speaker 3: going to tax that, but we're not going to tax
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  Speaker 3: it at the standard income tax rates.
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  Speaker 2: We're going to stand it. We're going to tax it
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  Speaker 2: at half that.
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  Speaker 3: We're going to give you a fifty percent discount, and
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  Speaker 3: then we're going to add it to your income taxes.
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  Speaker 3: So they will take one hundred and sixty, subtract one
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  Speaker 3: hundred sixties giving you the discount. They'll add thirty dollars
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  Speaker 3: to your income tax for this year.
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  Speaker 1: Where did they come up with that? Who came up
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  Speaker 1: with that idea that it was a fifty percent, that
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  Speaker 1: they were reduced at fifty percent after one year? And
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  Speaker 1: why did they do that?
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  Speaker 3: Well, it came up in nine A ninety nine, So
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  Speaker 3: there was no capital gains tax at all before nineteen
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  Speaker 3: eighty five, and then when it was brought in, the
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  Speaker 3: rule was that your basis, the price from which the
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  Speaker 3: capital gains is a tax is taxed above that was
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  Speaker 3: one hundred dollars in the previous example. Your capital gain
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  Speaker 3: tax basis goes up with inflation, so you hold it
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  Speaker 3: for to years inflation is ten percent. Then they say, well,
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  Speaker 3: we're not going to start one hundred and sixty minus
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  Speaker 3: one hundred and one hundred sixty minus one hundred and ten.
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  Speaker 3: So that was the rule from nineteen eighty five when
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  Speaker 3: the capital gain stacks came in, until nineteen ninety nine,
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  Speaker 3: but then it was agreed by both parties that was
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  Speaker 3: just it wasn't a good idea and it was too
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  Speaker 3: difficult to administer, so they decided we're just going to
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  Speaker 3: have a simple discount of fifty percent.
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  Speaker 1: Okay, So it was in the interest of fairness, and
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  Speaker 1: it was in the interest of simpleness ensuring that you
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  Speaker 1: were taxed only on the real improvement in value as
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  Speaker 1: opposed to the rafting up on inflation that you might
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  Speaker 1: that's had anyway. Okay, so now they're talking about reviewing this.
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  Speaker 1: Just tell us what you think. I'd ask you two questions,
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  Speaker 1: what do you think they should do and what do
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  Speaker 1: you think they will do? Very different questions.
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  Speaker 2: Well, I think they should do nothing.
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  Speaker 3: H what if they choose to introduce the capital gains tax,
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  Speaker 3: then they should reduce the operative income tax, So instead
• 5:02
  Speaker 3: of taking a bigger chunk of tax as a part
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  Speaker 3: of the total economy, they should just rebalance taxes from
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  Speaker 3: less on income tax and more on capital gains tax.
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  Speaker 3: What I think they will do is that they will
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  Speaker 3: confine it to property. Now we don't know whether that
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  Speaker 3: will be commercial property officers and retail and the like,
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  Speaker 3: as well as residential property houses and apartments and the like,
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  Speaker 3: So we don't know, but it is likely to be
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  Speaker 3: contained to property. Katie Gallagher said that in front of
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  Speaker 3: the Parliament just the other day. She's the Finance Minister.
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  Speaker 3: It's likely to be contained, and I think it's likely
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  Speaker 3: to be twenty five percent. I think that's what they'll
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  Speaker 3: come in. They'll reduce the discount from fifty to twenty
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  Speaker 3: five and it will be all about property. It won't
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  Speaker 3: be about shares or bonds or real businesses or everything.
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  Speaker 1: Just to wind back, Why did you think they should
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  Speaker 1: leave it alone? Why do you think it works?
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  Speaker 3: Well, look at a lot of companies which have very
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  Speaker 3: dynamic economies don't have any capital gains tax. So there's
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  Speaker 3: no capital gains tax in Singapore, for instance, And so
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  Speaker 3: we went from having no capital gains tax to having
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  Speaker 3: capital gains tax with a fifty percent discount by the
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  Speaker 3: time we got to by the time we got to
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  Speaker 3: nineteen ninety nine. And you know, I think that's a
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  Speaker 3: good number. So it in center Bouz people to it
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  Speaker 3: decernded by people both to save and to hold their
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  Speaker 3: assets for a significant length of time. So you know,
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  Speaker 3: I think I don't think they need to change it.
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  Speaker 1: Well, what do you say to the argument? Obviously that
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  Speaker 1: everyone's batting away, that is, everyone inside property is trained
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  Speaker 1: to bat away. Is the argument is that the capital
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  Speaker 1: making capital gain from residential property is the sort of inert,
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  Speaker 1: non productive use of money, and that it was supposed
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  Speaker 1: to be for dynamic investment in businesses because you do
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  Speaker 1: actually pay the same If you have a startup and
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  Speaker 1: put your sort of life on the line and kill
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  Speaker 1: yourself building a company and you sell this, your CGT
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  Speaker 1: is the same as if you just doporly bought a
• 7:00
  Speaker 1: house around the corner for ten years and solvet to
• 7:02
  Speaker 1: ten years later without doing a thing. So what do
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  Speaker 1: you think of that argument.
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  Speaker 3: Well, look, the government doesn't like people turning income into
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  Speaker 3: capital gains. That's what negative gearing does. So you take
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  Speaker 3: some of your income that would have been taxed at
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  Speaker 3: forty seven percent if you're on the top rate, and
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  Speaker 3: you put it into supporting the property because the rents
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  Speaker 3: you receive are less than the interest you have to pay,
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  Speaker 3: so you've got to pump money into the property. You're
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  Speaker 3: taking some of your income and you're turning it into
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  Speaker 3: delayed capital gains in capital gains that you will receive
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  Speaker 3: in the future, and the government really doesn't like that,
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  Speaker 3: and that's what it's got to target on. They want
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  Speaker 3: to sort of shut down any avenues that prevent you
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  Speaker 3: from paying forty seven percent tax if you're on the
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  Speaker 3: top tax rate. Look, I think they should cut the
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  Speaker 3: top tax rate. Bill Kelty was on about this the
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  Speaker 3: other day. I think they should cut the forty seven
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  Speaker 3: percent tax rate. And if they don't want to introduce
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  Speaker 3: capital gains tax, then then fair enough they should do that,
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  Speaker 3: but then cut the top cut the top tax rate,
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  Speaker 3: which is just beautitive, and it really starties people's incentive
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  Speaker 3: to produce wealth, to work hard and produce wealth.
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  Speaker 1: And as you say, it is the rech you pay
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  Speaker 1: on your capital gain in any event, or the rate
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  Speaker 1: from which you get a fifty percent discount. Let's say
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  Speaker 1: they change it to twenty five percent. What impact do
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  Speaker 1: you think I've read You know, again, it depends on
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  Speaker 1: who you're really. The property industry will say this will
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  Speaker 1: be very detrimental, if we'll push up rents, if we'll
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  Speaker 1: damage the market. Economists say, actually, you know, it will take.
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  Speaker 1: It might produce some private investors in the markets, will
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  Speaker 1: bring more home buyers in, and it will have very
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  Speaker 1: little impact.
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  Speaker 2: Who do we believe well it will look.
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  Speaker 3: I don't think the effect on property investors will be
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  Speaker 3: as great as some people think, because there's two things
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  Speaker 3: going on in capital gains. There's two good things about
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  Speaker 3: capital gains for investors of all kinds. One is the discount,
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  Speaker 3: and that's what's going to be effect by the government's changes.
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  Speaker 3: But the other is the delay in the pain of
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  Speaker 3: capital gains. So you get a discount, but you also
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  Speaker 3: with capital gains, unlike income, you have the discretion over
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  Speaker 3: the year in which you're going to realize the capital gains.
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  Speaker 3: So you know, if we switched to shares for just
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  Speaker 3: a second, your income is the dividend that BHP pays you,
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  Speaker 3: and you don't have any discretion over that. The board
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  Speaker 3: of BHP decides that, and then you just have to
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  Speaker 3: pay your income tax. But when it comes to selling
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  Speaker 3: your BHP shares and realizing capital gain, that's up to you.
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  Speaker 3: And the longer you delay that, the lower the effective
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  Speaker 3: tax rate is. So you know, just take an example.
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  Speaker 3: Let's say that we have an asset like a property
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  Speaker 3: that where our investment is growing at ten percent per year.
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  Speaker 3: If we only held it for one year, then the
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  Speaker 3: government would take twenty three and a half percent of
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  Speaker 3: our ten percent return, so our ten percent return would
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  Speaker 3: go down to seven point six five percent. But if
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  Speaker 3: we held it, if we add it for twenty five years.
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  Speaker 3: Then the governments take would go down from twenty three
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  Speaker 3: and a half percent of our ten percent down to
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  Speaker 3: ten point two percent.
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  Speaker 2: It really huge effect to delay.
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  Speaker 3: And the reason for that, James, of course, is that
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  Speaker 3: if you delay the realization of capital gains, you get
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  Speaker 3: the benefit of the compounding of your return before tax
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  Speaker 3: kicks in, So you get the whole ten percent compounding
• 10:14
  Speaker 3: over the twenty five years, and then the twenty three
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  Speaker 3: and a half percent tax the half of forty seven
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  Speaker 3: percent kicks in. So delaying capital gains is as big
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  Speaker 3: or bigger part of the benefit of capital gains as
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  Speaker 3: the discount.
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  Speaker 2: And the discount is.
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  Speaker 3: Going to be reduced, but the ability to delay capital
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  Speaker 3: gains is not. So it's easy to overestimate full effect.
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  Speaker 3: I don't think it'll be as damaging as a lot
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  Speaker 3: of people think.
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  Speaker 1: And that ability to manage your crystallization event very important,
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  Speaker 1: you reckons more important than the discount. Okay, okay, very good.
• 10:47
  Speaker 1: That's an interesting point of view. All right, Well hold
• 10:50
  Speaker 1: it there for one second. One of the things we're
• 10:52
  Speaker 1: going to talk about, folks, also is rates. You may
• 10:55
  Speaker 1: be under the impression that we had a rate lift
• 10:56
  Speaker 1: and this is the beginning of a cipher we question
• 10:59
  Speaker 1: that would be back at the moment. Hello, Welcome back
• 11:13
  Speaker 1: to The Australian's Money Puzzle podcast. James Kirby here with
• 11:16
  Speaker 1: doctor Sam Wiley of the Melbourne Business School and the
• 11:19
  Speaker 1: Windlestone WI N D L E S t O ND
• 11:23
  Speaker 1: Group Education Group. I talked to Sam Regley and all
• 11:26
  Speaker 1: sorts of issues and he can talk about all sorts
• 11:27
  Speaker 1: of issues, which is terrific. So we mentioned about capital
• 11:30
  Speaker 1: gains tax there and we have made the assumption Sam
• 11:34
  Speaker 1: that it will be restricted to property. I think that's
• 11:36
  Speaker 1: safe enough because this Senate inquiry which is on this week,
• 11:39
  Speaker 1: which is why we're getting so much attention, it's restricted
• 11:43
  Speaker 1: to CGT on property because this whole debate is really
• 11:46
  Speaker 1: or certainly seen through the prism of housing, and so
• 11:50
  Speaker 1: it seems that activity will be quarantined within residential property.
• 11:55
  Speaker 1: Annie knock on effects of that, I mean, wouldn't it be?
• 12:00
  Speaker 2: I mean we're much.
• 12:00
  Speaker 1: Better off buying shares, even shares and property companies. If
• 12:04
  Speaker 1: you're getting a fifty percent discount on your capital gain
• 12:07
  Speaker 1: tax on your shares but only twenty five on your property.
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  Speaker 3: Well, people who can undertake negative gearing. People are on
• 12:16
  Speaker 3: the highest tax rate and have a lot of income
• 12:18
  Speaker 3: that'll be taxed at forty seven percent, and who are
• 12:22
  Speaker 3: able to undertake negative gearing, meaning that they've got the
• 12:24
  Speaker 3: ability to borrow money it's negative gear and give some
• 12:28
  Speaker 3: free benefits. It turns income into capital gains they get
• 12:31
  Speaker 3: then they get the capital gains discount, and they get
• 12:33
  Speaker 3: the ability to delay it.
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  Speaker 2: So it's really terrific.
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  Speaker 3: And even if it goes from fifty down to twenty
• 12:39
  Speaker 3: five percent, I think many people are still going to
• 12:41
  Speaker 3: be better off in negative gearing than in shares.
• 12:44
  Speaker 1: But dollar for dollar, I mean I could negatively gear
• 12:46
  Speaker 1: my shares as well. So like just dollar for dollar,
• 12:48
  Speaker 1: if one thing offers me a tax discount of fifty
• 12:51
  Speaker 1: and the other thing offers me a tax discount of
• 12:53
  Speaker 1: twenty five, isn't the other thing being non property share,
• 12:58
  Speaker 1: hasn't it got an advantage system if they do that.
• 13:02
  Speaker 2: Look, there's definitely a role for both, and I love
• 13:04
  Speaker 2: them both, And for most Australian investors, the pillars of
• 13:07
  Speaker 2: their of their portfolio should be Ossie property and US shares.
• 13:14
  Speaker 1: But it says out just down the question does the
• 13:16
  Speaker 1: shareholder have a tax advantage over the property owner.
• 13:21
  Speaker 3: Well, you can't borrow as much in shares as you
• 13:23
  Speaker 3: can in property, so you can pretty easily get up
• 13:26
  Speaker 3: to an LVR loan evaluation ratio. You can pretty easily
• 13:29
  Speaker 3: borrow eighty to eighty five percent of the property that
• 13:32
  Speaker 3: you in, whereas borrowing more than twenty five to thirty
• 13:36
  Speaker 3: percent of the share portfolio is exposing you to the
• 13:39
  Speaker 3: risk of margin. Course that the market goes down a
• 13:41
  Speaker 3: lot and you're fort to sell your portfolio.
• 13:44
  Speaker 2: Down at the bottom of the market. Now that never
• 13:47
  Speaker 2: really happened.
• 13:48
  Speaker 1: You can borrow much more with property, but dollar for
• 13:51
  Speaker 1: dollar on leveraged, doesn't the share ownership have a tax
• 13:56
  Speaker 1: advantage over the property ownership.
• 13:58
  Speaker 3: Yeah, and not just to take acidvantage, just to return
• 14:01
  Speaker 3: advantage as well.
• 14:03
  Speaker 2: It is, but it's not, but it isn't a fair comparison.
• 14:07
  Speaker 3: I mean to say, investing in property without leverage is
• 14:10
  Speaker 3: to really take away the best part of investing in proty.
• 14:14
  Speaker 3: So it's not a mattle apples comparison. But look, there
• 14:16
  Speaker 3: is a big role for both. People should have shares
• 14:18
  Speaker 3: and property in their portfolio.
• 14:21
  Speaker 1: Do you think there would be any behavior distortion if
• 14:24
  Speaker 1: they went ahead along the lines I'm talking about.
• 14:28
  Speaker 3: Oh, yes, there will, but I don't think it'll be
• 14:31
  Speaker 3: very large. There'll be some substitution. Of course, if taxes
• 14:34
  Speaker 3: go up on property and they don't go up on shares,
• 14:36
  Speaker 3: then people who are indifferent between the two are going
• 14:40
  Speaker 3: to shift to shares.
• 14:40
  Speaker 2: But I don't think that'll be very large.
• 14:42
  Speaker 3: But look, it is to the extent that people pull
• 14:45
  Speaker 3: back from negative gearing that is going to be hard
• 14:47
  Speaker 3: for renters. It'll be good for people who go from
• 14:51
  Speaker 3: being renters to buying homeowners. And that's what the government
• 14:54
  Speaker 3: is thinking, is that we'll have for the same supply
• 14:57
  Speaker 3: of housing, there will be less that is owned by
• 15:00
  Speaker 3: wealthy investors and more that is owned by first home buyers.
• 15:04
  Speaker 3: And that's terrific. But what about the renders? What about
• 15:07
  Speaker 3: people who never buy? That puts them behind the eight ball?
• 15:11
  Speaker 3: And that's what's being forgotten here a little bit.
• 15:13
  Speaker 1: So the rental vacancy would stay the same, if not
• 15:16
  Speaker 1: worse than if it could worsen, that could happen.
• 15:19
  Speaker 3: Yeah, you know, so Bill Shorten in twenty nineteen when
• 15:23
  Speaker 3: he brought his when he brought his agenda, a really
• 15:26
  Speaker 3: comprehensive agenda of tax reform, including the lowering of income
• 15:29
  Speaker 3: tax rates. When he brought that to the election in
• 15:33
  Speaker 3: twenty nineteen, he said that he wanted to get rid
• 15:36
  Speaker 3: of negative gearing completely except for new houses. So you
• 15:40
  Speaker 3: could negatively gear. You could have the benefit of that,
• 15:43
  Speaker 3: but it had to be it had to involve the
• 15:45
  Speaker 3: increase in the supply of housing.
• 15:47
  Speaker 2: You could only do it. You could only negatively gear.
• 15:50
  Speaker 3: It was going to grand fast father all the old houses,
• 15:52
  Speaker 3: but you could only if you entered in the new
• 15:53
  Speaker 3: negative gearing arrangement. It had to be related to the
• 15:56
  Speaker 3: connection of new housing. Yeah, and that had some merit
• 15:59
  Speaker 3: to it, that idea.
• 16:01
  Speaker 1: Yes, okay, Yeah, it's gone quiet on that obviously because
• 16:04
  Speaker 1: it was an election loser as such. Okay, just another chack,
• 16:08
  Speaker 1: but highly relevant to all property investors, particularly at all
• 16:11
  Speaker 1: investors in terms of the future course of interest rates.
• 16:17
  Speaker 1: The RBA did a raise recently and it was seen
• 16:22
  Speaker 1: as as surprise by some, but it was also seen
• 16:25
  Speaker 1: then largely taken that was the first raise in a
• 16:27
  Speaker 1: series of raises that we were on the start of
• 16:29
  Speaker 1: a new upward cycle. It's very important for anyone investing
• 16:32
  Speaker 1: and leveraging in any fashion.
• 16:34
  Speaker 3: What's your view, Well, it's crucial of course for people
• 16:38
  Speaker 3: who have a lot of leverage into their property, which
• 16:41
  Speaker 3: as property investors do. I don't think rates are going
• 16:44
  Speaker 3: up too much. The the RBA has got a bit
• 16:47
  Speaker 3: of egg on its face. It's only in August of
• 16:50
  Speaker 3: twenty twenty five that they can't raise from three point
• 16:53
  Speaker 3: eight five down to three point six zero. And then
• 16:55
  Speaker 3: and then in February, just six months later, they are
• 16:58
  Speaker 3: raising rates.
• 16:59
  Speaker 2: Now, what happened between August and.
• 17:01
  Speaker 3: February, of course, is that that inflation went up in
• 17:04
  Speaker 3: the December quarter, went up quite a lot. They got
• 17:06
  Speaker 3: a bit spooked and panicked and they pressed the button
• 17:09
  Speaker 3: to raise rates. But the RBA, through COVID. You know,
• 17:14
  Speaker 3: if we jump back to what happened through COVID, the
• 17:16
  Speaker 3: RBA didn't raise rates as much as other central banks.
• 17:19
  Speaker 3: It didn't raise rates as much as the FED. The
• 17:23
  Speaker 3: US Federal Reserve put rates up to five point three five.
• 17:25
  Speaker 3: We only put it dours up to four point three five.
• 17:28
  Speaker 3: In New Zealand. They went up to five point five
• 17:30
  Speaker 3: in the UK and Canada. Everywhere else they went up more.
• 17:33
  Speaker 3: So the RBA said, well, we're not putting it up
• 17:35
  Speaker 3: as much, and they were later as well.
• 17:38
  Speaker 2: And what they had in.
• 17:39
  Speaker 3: Mind was that the inflationary spike from COVID, from all
• 17:43
  Speaker 3: the government spending and all of the printing of new money,
• 17:45
  Speaker 3: that spike would pass and that we would go back
• 17:47
  Speaker 3: to what we had before COVID, which was very powerful
• 17:50
  Speaker 3: deflationary forces and very powerful forces pushing inflation down. That's
• 17:54
  Speaker 3: what the RBA thought would happen. So they didn't raise
• 17:57
  Speaker 3: rates as much. But if you don't raise rates as much,
• 18:00
  Speaker 3: then you have to hold them at a higher level
• 18:03
  Speaker 3: for longer. You know, what doesn't go up can't come down,
• 18:06
  Speaker 3: as they say, and the RBA hasn't done that.
• 18:09
  Speaker 2: They didn't raise rates as much.
• 18:11
  Speaker 3: They were later, and then they started cutting rates with
• 18:14
  Speaker 3: everyone else, and they overdid it and they cut them
• 18:17
  Speaker 3: too much, and now they've been forced to put them up.
• 18:19
  Speaker 3: But I don't think there's going to be very much
• 18:22
  Speaker 3: in that. Of course, the problem Jones is that there's
• 18:24
  Speaker 3: too much government spendings out of control in Australia.
• 18:27
  Speaker 2: Really, so sorry.
• 18:28
  Speaker 1: Do you think it's a cycle, an upward cycle, or
• 18:30
  Speaker 1: do you think it was literally a race that was
• 18:33
  Speaker 1: a stabilizer as such?
• 18:34
  Speaker 2: I think it's a stabilizer.
• 18:36
  Speaker 3: There might be one more, and then I think they
• 18:37
  Speaker 3: will hold them there for between aight ay between twelve
• 18:41
  Speaker 3: and twenty four to say eight a months, and then
• 18:44
  Speaker 3: I think we will be back to cutting rates and
• 18:47
  Speaker 3: we'll go back to the world that we had before.
• 18:49
  Speaker 3: We'll go back to the world that we had before
• 18:51
  Speaker 3: COVID and of significantly lower interest rates. People forget that
• 18:57
  Speaker 3: immediately before COVID the cash rate was your own point
• 19:00
  Speaker 3: seven five percent. And that's before COPE. That was on
• 19:03
  Speaker 3: the first of October twenty and nineteen. That's four months
• 19:07
  Speaker 3: before the Corona and nineteen virus came came to public knowledge.
• 19:11
  Speaker 3: So before COVID, the cash rate was at zero point
• 19:15
  Speaker 3: seven five percent. People forget that before COVID, we have
• 19:18
  Speaker 3: very powerful deflationary forces in the world, and I think
• 19:21
  Speaker 3: we are going back to that.
• 19:23
  Speaker 1: So if you're right, we will have actually for properly
• 19:26
  Speaker 1: investors better conditions in terms of lower rates, but for
• 19:31
  Speaker 1: income investors, particularly people who do some extent depend on
• 19:34
  Speaker 1: term deposits and cash, that that problem emerges again that day.
• 19:38
  Speaker 1: It's not enough, okay, we should We have some great
• 19:42
  Speaker 1: questions I've kept for you there are on issues that
• 19:44
  Speaker 1: have been bouncing around on the show for weeks, and
• 19:46
  Speaker 1: I think you've been a great position to answer them.
• 19:48
  Speaker 1: The takes short breakfolks, and we will come back to inheritance,
• 19:51
  Speaker 1: We'll come back to CGT in a way. We'll also
• 19:53
  Speaker 1: come back to what might be called super recontribution strategy
• 19:58
  Speaker 1: or what someone here calls laundering. Well we did call
• 20:02
  Speaker 1: it washing out the show, so it's not that far away.
• 20:04
  Speaker 2: Back in a moment.
• 20:14
  Speaker 1: One, Hello, Welcome back to the Australian's Money Puzziti podcast.
• 20:17
  Speaker 1: James Kirby with doctor Sam Wiley, well known lecture at
• 20:20
  Speaker 1: Melbourne Business School and also runs the Windlestone Education Group,
• 20:24
  Speaker 1: which isn't a kind of investor school, but I call
• 20:26
  Speaker 1: it an investor school.
• 20:27
  Speaker 2: Is that fair enough? That's right.
• 20:29
  Speaker 3: It's a ten waight course, ten step program to get
• 20:32
  Speaker 3: everything about your investing in great shape.
• 20:35
  Speaker 1: And Sam also does some great videos. He's got one
• 20:37
  Speaker 1: on Gold out there at the moment. Just put in
• 20:40
  Speaker 1: Sam Wiley on Gold on YouTube and it's Sam. It's
• 20:44
  Speaker 1: very good, except for one thing. It's not even a
• 20:47
  Speaker 1: I don't remember did you say after all that he
• 20:50
  Speaker 1: thought it was going to keep going up or not,
• 20:53
  Speaker 1: did you.
• 20:54
  Speaker 3: Yeah, I think, okay, demand that the sources of demand
• 20:59
  Speaker 3: are several and very strong, and the ability for supply
• 21:02
  Speaker 3: the increase is quite restricted.
• 21:04
  Speaker 2: You know.
• 21:04
  Speaker 1: I do like it a lot for the active investor
• 21:08
  Speaker 1: as a proportion of their portfolio. The Morgan Stanley is
• 21:11
  Speaker 1: at Mike Williams ciolsoys twenty percent and then it drops
• 21:15
  Speaker 1: from there. Mostly put on the show seem to say,
• 21:19
  Speaker 1: in the order of five percent, is there a number
• 21:21
  Speaker 1: that you think is to be recommended?
• 21:24
  Speaker 2: Well, it depends. It depends.
• 21:28
  Speaker 3: And I'm not going to bang on about this parageous
• 21:30
  Speaker 3: change because I do that in the video the but
• 21:32
  Speaker 3: the it depends upon whether you are investing in gold
• 21:35
  Speaker 3: as an investment theme or whether you're using gold at hedge.
• 21:40
  Speaker 2: Now if you and I just.
• 21:41
  Speaker 1: Jump in and say I'm just using it as an
• 21:43
  Speaker 1: investment theme.
• 21:45
  Speaker 3: Well okay, Well there's lots of investment themes around, so
• 21:48
  Speaker 3: you look, I like two to three percent in gold
• 21:51
  Speaker 3: as an investment theme, you know, and as uncertainty grows
• 21:54
  Speaker 3: then maybe a bit higher than that, But there are
• 21:56
  Speaker 3: many competing investment themes. As a hedge, I think five
• 22:00
  Speaker 3: percent is a good number, but only if.
• 22:01
  Speaker 1: You're hedging interesting. All right, very good. Now questions from
• 22:06
  Speaker 1: Ben when you talk about a seventeen percent inheritance tax
• 22:10
  Speaker 1: on superannuation, is that only for money in super or
• 22:14
  Speaker 1: is there a tax on where that is passed on
• 22:16
  Speaker 1: outside of Super? Okay? And you have many other related questions. Ben,
• 22:20
  Speaker 1: we will clarify on that there is no official inheritence
• 22:22
  Speaker 1: tax in Australia Part one, Part two. If you, as
• 22:26
  Speaker 1: an adult in Harris your parents super, there is tax.
• 22:32
  Speaker 1: Could you explain how it works some?
• 22:35
  Speaker 3: So if you if your SUPER goes to your spouse,
• 22:38
  Speaker 3: then there's no top up tax. If it goes to
• 22:40
  Speaker 3: a dependent child, even if they're older than ad A,
• 22:43
  Speaker 3: there's no.
• 22:44
  Speaker 2: Top up tax.
• 22:45
  Speaker 3: But if it goes to anyone else then you have
• 22:48
  Speaker 3: to pay a seventeen percent top up tax. And it's
• 22:50
  Speaker 3: stopping up from the fifteen percent you paid when the
• 22:53
  Speaker 3: money went into super originally up to thirty two percent,
• 22:58
  Speaker 3: which the government thinks is a reasonable way. It's actually
• 23:01
  Speaker 3: topping up to thirty percent plus the medi care Levee
• 23:04
  Speaker 3: the extra too.
• 23:06
  Speaker 1: So if you an adult dependence non dependents who inherit
• 23:11
  Speaker 1: super pay it at seventeen percent roughly and that's seventeen percent.
• 23:16
  Speaker 1: First of all, that's the fact. Secondly, someer's explaining it's
• 23:20
  Speaker 1: seen as a clawback. Basically, Sam, is it for the
• 23:23
  Speaker 1: tax concessions that your parents might have had when they
• 23:27
  Speaker 1: put money into SUPER in the first place, on a
• 23:29
  Speaker 1: tax concession.
• 23:30
  Speaker 3: It's seen as you know, you were given the tax
• 23:33
  Speaker 3: concession for SUPER so that it would support your retirement.
• 23:36
  Speaker 3: Now you didn't spend the money, so you actually there's
• 23:40
  Speaker 3: a part of your SUPER which became a mechanism instrument
• 23:43
  Speaker 3: for you to transfer wealth across generations, and that's not
• 23:46
  Speaker 3: the purpose of SUPER. So the government says, okay, well
• 23:49
  Speaker 3: that happens fair enough that you've got to pay a
• 23:51
  Speaker 3: top up tax. Everything other than the part of SUPER
• 23:55
  Speaker 3: that you contributed after tax, the non concessional whatever, how
• 24:00
  Speaker 3: do you put in non Concessionally, there's no top up tax.
• 24:03
  Speaker 2: Because you could have just as easily given that to
• 24:05
  Speaker 2: your children. But everything else tax.
• 24:08
  Speaker 1: Some people have been on saying, you know, you misunderstand it.
• 24:11
  Speaker 1: We don't misunderstand it. I would just say to generalize, Sam,
• 24:14
  Speaker 1: the vast majority of people, the vast majority of money
• 24:17
  Speaker 1: is SUPER is subject to this task. Because most people
• 24:21
  Speaker 1: don't put in concession. Is that an overgener Am I
• 24:24
  Speaker 1: on the right track there?
• 24:25
  Speaker 3: No, that's correct if you discuss previous In previous shows
• 24:30
  Speaker 3: that people have recontribution strategies where they take money out
• 24:34
  Speaker 3: of soup and then recontributed that right to reduce the
• 24:39
  Speaker 3: amount that can be of the top up tax that
• 24:42
  Speaker 3: absent that and even including that's a small part of
• 24:45
  Speaker 3: the total of the total four and a half trillion
• 24:48
  Speaker 3: dollars in SUPER, only a very smaller part of it
• 24:50
  Speaker 3: has come from non concessional contributions.
• 24:53
  Speaker 2: I would have thought.
• 24:54
  Speaker 1: So, okay, Actually I can jump to a question from
• 24:56
  Speaker 1: Andrew here, which is he talks about that Super recontribution
• 25:00
  Speaker 1: and strategy. You know, just to go back over that, folks,
• 25:03
  Speaker 1: I won't call it simple. I call it mightily ridiculous.
• 25:06
  Speaker 1: But this is how it works. Once you are at
• 25:08
  Speaker 1: the appropriate age, you can withdraw money from SUPER and
• 25:11
  Speaker 1: when it comes out and you can put it back
• 25:13
  Speaker 1: in and it goes in as a tax free So
• 25:16
  Speaker 1: in doing so, each time you recontribute your own money
• 25:20
  Speaker 1: back into your own front, you reduce the taxable component,
• 25:24
  Speaker 1: which is the tax ability if you like, of what's
• 25:26
  Speaker 1: going to be inherited. Andrew asks, following your recent discussion
• 25:31
  Speaker 1: on SUPER recontribution strategy, It's hard to see how this
• 25:34
  Speaker 1: is any different to money washing or laundering. This is
• 25:37
  Speaker 1: surely a loophole and should be tightened up.
• 25:39
  Speaker 3: What do you say to that so well, Andrew, you
• 25:43
  Speaker 3: could just take the money out before you pass away,
• 25:47
  Speaker 3: And that's actually most people's strategy, not to recontribute. Most
• 25:51
  Speaker 3: people's strategy is that I'm not going to die suddenly.
• 25:55
  Speaker 3: That's what they think. I'm not going to die suddenly,
• 25:58
  Speaker 3: so before I do die, I'm going to take all
• 26:01
  Speaker 3: the money out of SUPER and I'm just going to
• 26:03
  Speaker 3: give it to my children, or I'm going to put
• 26:05
  Speaker 3: it into my family trust. I'm just going to gift
• 26:06
  Speaker 3: it into my family trust. So I'm going to do
• 26:08
  Speaker 3: something with it. You can just take the money out
• 26:11
  Speaker 3: of SUPER and then no tax is due, so it's
• 26:15
  Speaker 3: not really a loophole. It's just an artifact of the
• 26:18
  Speaker 3: way the tax rules are written. I don't think anyone's
• 26:21
  Speaker 3: saying that I take the money out of SUPER and
• 26:23
  Speaker 3: give it to my children is sort of tax avoidance
• 26:26
  Speaker 3: or a loophole. But that's actually most people's plans and
• 26:29
  Speaker 3: that's a lot more common than the cold recontribution.
• 26:32
  Speaker 1: Okay, well, with good answer, Sam, and a fair answer too.
• 26:35
  Speaker 1: I hope that's clear to you Andrew. As you can
• 26:37
  Speaker 1: see you know it's not a loophole, it's a pain. Well,
• 26:41
  Speaker 1: it's just how things actually work and there is an
• 26:45
  Speaker 1: explanation for it all. Okay, and do keep in mind
• 26:48
  Speaker 1: that they as always this is information only, not advice.
• 26:52
  Speaker 1: Take you very much, Sam, Doctor Sam Wiley there from
• 26:55
  Speaker 1: Melbourne Business School and the Windlestone Education Group. Today's show
• 26:59
  Speaker 1: what produced by Leah Sammon glue and do keep those questions.
• 27:03
  Speaker 1: They're soaked. Those questions are terrific folks that give me
• 27:05
  Speaker 1: great ideas for developing the show as well. Keep them
• 27:07
  Speaker 1: rolling the money puzzle at the Australian dot com dot au.
• 27:11
  Speaker 1: Talk to you soon.