Forum Replies Created
sadly it seems some people just aren’t getting the message……..
Marketmad lol
He sends me free sample reports. About 9 months ago I got one saying “short the crap out of SGB at $17.50”. Immediately it ran to $22.00. Now he sends me another one saying “short the crap out of SGB at $21.00” lol hilarious. short banks with a 7% yield, good one. Does he expect a 15% yield or something?
TLS is ok I spose. I like STO and WPL for yield also, though havent looked at them for a while. WES is high yielder also.
I would recommend kickin off with the ‘bonus dividends’ strategy so that you are always ahead on interest payments. Covered calls on top?
good luck
yep
understand now
I think we were having 2 completely different arguments LOL
So in conclusion you should always claim depreciation regardless or positive or negative gearing? Guess so.
The original argument was about yield vs cap gains, Jan Somers I think it was, was sayin that
cap gains was better because of the depreciation deduction. She argued that while you saved weekly $$$ with high yield, the compunding effect of the cap gains was better in the end. The trouble is that she ignored any investment return from that excess cashflow, which I reckon would closely match the capital gains result. Theres another mission for ya if ya get bored LOL. I did my own but I would like to see your maths.hmmm just read it again.
The argument is not about the compounding effect of the refund/excess cashflow. It is about whether it is better to claim depreciation or not. You are suggesting that only the refund can be invested in another property, when the excess cashflow can also be invested that way. You make it sound as though the refund money is better than the cashflow money because it can be invested differently, which is wrong. Money is money and it can be invested in any way.
Having said that, redo the sums on a level playing field and I will happily eat my hat if I am wrong.
Jim
“I’m going to put this refund straight back into a second property that is going to give me a capital gain averaging 7% for the next 25 years”
then
“Now for a bit more fun, lets assume we put that tax refund in year 1 into a good cash account that pays 7% pa, ie with no capital gain involved, just to see the effect of nipping away at your return by the tax man.”
you are comparing apples with oranges.
You are giving the first example a bias. Why cant you invest the saved capital into an asset that DOESNT get nibbled by the taxman? Secondly, why always use 48.5% as the tax rate? The average rate is 31.5%.
Swap the taxable/non taxable investments around and see what happens….
Colonial First State warns investors that trust structures do not permit the flow-through for tax purposes of any capital loss accruing in the separate geared structure. This means unsuccessful gearing can result in a total loss of the original investment without any tax compensation.
This is, of course, why the government introduced a blanket restriction against gearing by super funds.
some good examples here:
http://www.myersbp.com.au/update/documents/october1998.pdf
In August 2002 all Family Trusts had to be amended. Otherwise you would automatically NOT be able to get the Capital Gains Tax Small Business Roll over relief. The relief reduces the CGT that your Family Trust has to pay when it sells its business.
It is common for trusts to make a company “presently entitled” to trust income without actually paying out the money. In this way, the trust can accrue income taxed at the 30 per cent corporate rate, which can be distributed via an asset revaluation to individuals who can then avoid paying “top-up” taxes to the 48.5 per cent marginal rate.
“Often parents who have accumulated wealth set up trusts to control that wealth,” Frost says.
“If anything happens to them and their children end up with substantial assets at 18, they may not be financially mature enough to handle it.
“Trusts are a good way of controlling wealth and protecting children from themselves,” he says.
Trusts are also very flexible, he says.
“They can elect where income can be distributed while in a corporate vehicle, the dividend goes to the shareholders with little flexibility,” he says.
“Also, only half of the capital gains on an asset held by a trust for more than 12 months, is taxable. Companies don’t receive this concession.”
The Australian
from another site:
Advantages of a trust include:
there may be taxation advantages – although this depends on current tax laws;
allows for income streaming;
limited liability etc.
The disadvantages of a trust include:possible implication for capital gains tax;
distribution of tax losses;
establishment and administration costs etc.from ATO:
Trust
A trust is an obligation on a person to hold property for the benefit of others (who are known as ‘beneficiaries’).
The trust’s tax file number is used when the annual income tax return for the trust is lodged.
However, except in special circumstances it is the beneficiary, rather than the trustee, that is taxed. Usually the beneficiary has to include their share of the trust’s net income in their personal tax return (Form I). The trustee is liable to pay tax on income distributed to minor or non-resident beneficiaries, or on any income it accumulates.
The trustee needs to register for an ABN in its capacity as trustee of the trust. The trustee is taken to be an entity in that capacity.
Company
A company is a legal entity separate from its shareholders. For tax purposes, a company means a body or association, incorporated or unincorporated, but does not include a partnership or a non-entity venture.
A company needs to register for an ABN and for a tax file number.
Companies are regulated by the Australian Securities and Investments Commission.
A company pays income tax on its profits – the general rate of tax is 30%.
Jim
I understand from Steves book that he does not claim depreciation (might be wrong). Are you saying he would be wiser to claim it?
Thanks Jim
I must admit I did not do the sums for every scenario crossed with every tax bracket. I simply did one sum based on the average wage. You are right in that some will get less benefit than others.
The normal ‘simple’ explanation of dividend stripping is that the capital loss is roughly equal to the net dividend, which cancels out, leaving the franking credit. I did not make it clear that you must either have other capital gains to offset or else be classed as a stock trader in order to cancel the two out. Nevertheless, the average taxpayer on 30% tax would end up with a $3.50 capital loss (if bought Friday), offset by a $3.90 net dividend (I assumed the capital loss would be the same as the net dividend which actually it is not) thus leaving the $1.67 franking credit. To somebody in the 30% tax bracket, this $1.67 is like tax paid on $5.57 income ($5.67 x 0.3 = $1.67) so that part was correct. Since the $1.67 franking credit counts as income, this means the person can effectively earn $5.57 – $1.67 = $3.90 in extra income tax free. I said $4 rounding up, slight exaggeration. I did make the error with the difference between the dividend and the capital loss, which means there is extra income of 40c, but still we are left with $3.50 of tax free income.
Also I did not make it clear that my sums assumed you bought Friday instead of in the floats. Neither did I make it clear that I used the best case scenario. My bad.
Obviously in your 48.5% example, the results are different. Still, with the $1.67 franking credit and taking into account the 40c dividend/cap loss difference, I get $3.44 of gross income.
Less the $1.67 franking leaving $1.77 of tax free income. Less the 40c difference leaves $1.43. Yes, that is a lot less than the $4 in my example. Still, it is a free lunch for those who take advantage of it.The medicare levy is added to income, but in my example there is no “income” because the cap loss cancels out the dividend. I am too confused now to tell whether you should or shouldnt have allowed for it in your examples.
Cheers
sounds very dangerous
Ive read some posts here about people getting done over by managed apartments.
Kevin
It is possible to have slightly positive cashflow but still claim a tax deduction, if you claim depreciation (and building tax, as Rod nicely highlighted). In order for that to happen, it would need to be slightly positive cashflow. While you do get a tax deduction, it wont be very big. Proerties like this should be referred to as neutral cashflow, not positive cashflow. Since the main aim of negative gearing is tax deferment, I wonder if it is really worth the effort to claim deductions on such a property?
Matt
“whereas in these posts on this forum he says that he is TRYING to get a job as a financial planner and is getting knocked back due to a lack of experience”
I wanted a relevant job so that I could obtain a license. A licence means I can start my own investment company. Secondly, I have been a student for two years, which has meant I could not work much, I had to subsidise my income using the strategies I promote. I did not make false claims of retiring a millionaire as some do, I merely said that I stopped working at 29 (which is true) by using positive geared strategies (which is also true). I could not have studied like I did nor moved interstate without this added income.
“he is looking for someone to help him get finance to do renovations as he is self employed as a tradesman – ‘Im looking for someone who can help me renovate FULL TIME, or help with finance'”
Im not sure what you are saying. Im not allowed to invest in property now? I WAS a self employed tradesman in NSW. I stopped working last year (when I was 29) and moved to QLD. Why wouldnt I spent my spare time renovating? As I have already stated, it is hard to get finance when your income is low (thanks to my tax minimisation strategies).
“What i found most concerning though was that in one of the posts from above, he says ‘I still trade stocks at night which makes some money, but its very irregular, risky and the banks dont like it for financing”
Oh god. So now Im not allowed to TRADE either? Dont confuse trading with positive cashflow share investing. (seems I need to keep explaining this). Whether I trade or not is my business. I discourage others to trade because 95% of people suck at it. The risk of night daytrading has absolutely nothing to do with the risks of positive cashflow shares. Please dont quote out of context.
I have not misled anyone and I think you owe me an apology.
Rod
“Whether a property is positive or negatively geared is the situation before any tax deductions related are taken into account.”
I get what you are saying, but there is gearing (as in leverage) and then there is gearing (as in after tax profitability). Since tax deductions are a major part of the negative gearing strategy, is it not better to refer to gearing in post tax terms? And since cashflow is the short term profitability, while gearing is the profitability on a yearly scale, why would you omit the tax savings for that year? I thought that is why we had two different terms, cashflow and gearing.
Perhaps other members can debate this issue.
Jim
“but as I keep trying to get through to him, you only pay tax on half of your capital gain, and it will be in time eroded dollars if you hold the property long enough.”
Quite right, thanks for reminding me. But dont forget that many people forgetto allow for the investment return on the saved capital over the same period. Its all swings and roundabouts.
Cashflow is the day to day profitability of the investment. Investments provide a return, but may also suffer costs in order to receive this return. Example: a rented property provides an income in the form of rent, but it has outgoing expenses in the form of rates, management fees, repairs, maintenance, insurance and interest payments on the mortgage. When the income from the rent covers all these outgoing costs, the cashflow is said to be positive, because the net outcome is a profit, not a loss.
A positive geared investment is an investment that provides an increase in wealth after tax has been paid. Positive cashflow is a good start, but it is possible to turn a neutral (or even slightly negative) cashflow investment into a positive geared investment by claiming non-cash deductions.
Remember that the difference between gearing and cashflow is that cashflow is profitability without considering tax deductions, and gearing is profitability taking into account tax deductions. An investment may be one of three types:
1. cashflow positive & positive geared
2. negative or neutral cashflow and positive geared
3. cashflow negative and negative gearedIt is impossible for an investment to be cashflow positive and negative geared, because you cannot claim deductions on a profit. You can choose to claim depreciation which may turn a neutral or slightly positive geared property into a negative geared property, but this will simply defer tax, not save it.
In this situation the quality of the stock is irrelevant, because we are not holding it for long enough to care. TLS is known as the “gorrila” stock because it is so big and profitable. It has a virtual monopoly, but the telecoms sector is not a good place to be at the moment. But all of that is really not essential to know. Stocks should be bought based mainly on their dividend yield when positively gearing. It is therefore possible to ignore the majority of the market noise, and use the dividend yield as a yardstick. Novice investors have a hard enough time walking through the shares minefield without trying to understand the many complex ways to find the right share to buy. An investor should think like a bank. Either the numbers work or they dont. This is why buying based on dividend yield is the single best method.
There are many better stocks than TLS around, like the banks. Use and abuse TLS while it is being generous.
Well to avoid paying $180k in tax, you would need to trade a massive amount of stock, this would use up a lot of your investment capital (not to mention time), which would otherwise be earning a good return.
In the course I show an example where one person avoids paying tax, the effective return for doing so was 13.2% gross. Thats not bad, but he probably would have done much better if he forgot about the tax bill and focused on a strategy returning 20 or 30%. Buybacks like the TLS one are a gift, its like a years worth of dividend trading in one month. Its just a pity that very few people understand the mechanics and benefits of the deal. Lunches dont get any cheaper…..
Pin
“Will this be the case for every year or is it only the year the buyback happens.”
Only the year the buyback happens. In general one company a year will do a buyback like this. Last year it was IAG.
“If you were to make a net profit of $400,000 in a given financial year, How could you minimise your tax bill to less than $5,000 say?”
Theres no point going below $8000, as the first $8000 is tax free. Trying to get the income down from $400k would be rather difficult, not impossible, but probably not worth the effort. You might save yourself $180k in tax but in the meantime you could miss $250k in easy income. Avoiding tax is far easier for those earning less than $50,000. Like in negative gearing, we should focus on the profit after tax, and not the tax savings.
“I don’t understand much of it, but is that the sort of stuff I can expect to learn from your course?”
Yes that is one of the more basic strategies. wayne is correct in saying it is not as easy as it looks, but in my experience 2-3% return a month is a likely net return. wayne has not done my course so he cannot judge how well I explain the risks. 5 or 6 of the members from this site have just received the course, and I’m sure they will give you their own opinion of it. I have made a concious effort to expose the risks, because all of the options books I read didnt explain them if at all, and it cost me a lot of money to learn the lessons for myself.
When doing covered calls, you actually receive around 5%, but many times have to give some of it back.
A lot of my course revolves around dividends, much the same as Steve’s course revolves around rental return. Dividends are not widely understood. Today for example, I had to teach a chatroom full of 35 traders with 5-10 years experience why the TLS buyback was a great opportunity, because none of them could see it.
My philosophy is that investing is about yield, not capital gains.
Even if you only use one of the 45 strategies, Im sure you will get your moneys worth.
cheers
Hi Wolverine
“I’m looking at learning a lot more about creative share investing and would like any sites/course/seminars you could recommend.”
Ummm….I assume you mean other than mine? LOL, not sure I want to recommend the competition, though I know there is nobody promoting my sort of stuff. Check out my site listed at bottom.
“I need to know realistically what sort of returns I could expect if i invested $200K”
Well $200k in a basic bank share will earn around 7%, thats $14k a year…..juice it up with some of my strategies and 40% is not too hard, thats $80k p.a.
I wouldnt worry about the NAB instalments, NAB is a great stock. Maybe buy more?
CNBC – Comedy, Nuthin But Comedy
Those clowns are the laughing stock of the industry.
re international vs local……I teach about local stocks & strategies.
