Hello, and welcome to the Australians Money Puzzled podcast. I'm James Kirby, was editor at the Australian. Welcome aboard everybody, and thank you actually for having me on board and back on board. Great to talk to you again. You may have gathered I was off for a few weeks there.
Last week's shows were a precord. I will now freely admit to you I hope you enjoyed the last few weeks that James Gerard and Stuart Wems stood in and I have to say I think they both did a sterling job on the show and you will hear them. Of course, we will have them both back as regular guests very soon. I've been trying to catch up with a month's worth of financial news and emails and everything else.
I've also been trying to catch up course with all the questions that have come in and just looking at this particular batch that I was confronted with on my return, it struck me that there are quite a few of the questions needed. What they needed was an accountant, you know, and we haven't actually had an accountant on the show before. And I have the ideal person to solve that particular issue.
Duncan Perkins of Tax Time Accountants is someone I talked to quite regularly, but I haven't held him on the show before, and I'm denighted to have him on today. How are you, Duncan?
Hello, everyone, I'm very good. Thank you.
Great to have you on board. You know, sometimes you come back from your holidays and you say, oh gosh, you know, there hasn't been much news. And sometimes you come back and you say, whoa. You know, I missed a few things. And one thing certainly that caught my eyes in recent days is this very intriguing for any
of the listeners that aren't or say with this. The hottest issue tax wise in the nation beyond a doubt really is the tax concessions granted to older people through super or through the general population, with both negative gearing and capital gains tax concessions. It is a hot today too. Politically.
Every politician that ever went near it didn't manage to do it, and I include Paul Keating, who believe it, our folks in nineteen eighty seven scrapped negative gearing and had to bring it back after a year because it was such a fiasco in many ways, more recently in New Zealand, the Aherne government that's Jacinda Hearn, she tried to scrap their version of negative gearing and capitally gains tax and reformed of the new government has basically reversed
those changes and in the interm it's not the only reason, but one of the things that happened in the course of that attempt to change their tax deductions on property is that New Zealand is now the worst by that I mean the worst affordability rental market in the world. Hard to believe, but if you live in Sidney or Melbourne, you will know that there are an enormous amount of young Diseasanders here and they are here because they think our rents are cheap. So we have a real issue
there about negative gearing and capital gainst text. Now what's happened is that a Treasury is reviewing both those issues. The Prime Minister Anthony Albinizi has distanced himself and said, you know that he didn't even know that this was going on. Whatever Treasury will ultimately report on this and if they suggest changes, the government will have to take them seriously. Big deal. Duncan I imagine you spend a lot of your time every.
Day every day.
Between kafiti gains and negative gearing, they're the two big tax deductions available to the every person in Australia. Do you think and do you think they'll actually do anything?
Although constantly do things in the negative gearing space and the caprial gains tax space they have to New Zealand's had a good go at it, and good on them. I mean they move their interest rates before us up and it's hurting them now. But look the every day I would get a question of Doug and I bought this property at such and such a time, I'm going to be selling it. I think how much capraal gains.
Tax will I pay?
And a lot of the time people are well surprised about it. I think you would be foolish if you if there were any changes coming in this space and you had a couple of properties, or even one investment property and the matter of sticking your head in the sand was your go to, it'ld be a very foolish thing to do. You'd really need to speak to your account and or financial planner or someone that's actually dealt in the capital gains tax space.
But most people then listening to the show, or who have property or aspire to have property, if when they do their numbers right, they building an an assumption that the two great sort of tax deductions up in the area that have been around for generations now will will stay. They assume one that any losses and that includes interest costs on their investment property can be set against their income tax big saying there's nothing else substantially can set
against your income taxes an every day Australian investor. And they also assume the data sell the property, assuming they hold it for more than a year, that they will have a fifty percent discount on CGT, which basically works out at your marginal rate. CGT basically works out to your marginal rate of taxes. So are you saying then that people should wake up and smell the coffee here and say there could be changes to these two tax.
Even if there isn't. They should consdt review their return on this return on asset, what they yield these on their investment. If they they should look at their opportunity
costs as well. So many people out there that are thinking they're making a fall and doing really good things in the investment property market when when they get closer to retirement, they could have or should have or should be thinking about moving those investment properties into something like superannuation, which has a lot less headaches and other things like that and beneficial tax implication.
So yeah, you.
Should always be reviewing what you're doing with property and is that the best investment for you? If it's giving you a two percent yield per anno net after your tax and other things like that, you sit there and go, well, why have I got this million dollar property with a
four hundred five hundred thousand dollars dead on it. I could have six hundred thousand dollars in the bake doing nothing, dealing with no tenants, no property managers, no repairs, no maintenance, no rais and I'm getting four percent five percent on it? Well when I do that.
So when you see the opportunity cost, do you mean the opportunity cost that it could be in something like the share market or do you mean it should be in a different structure like super It could.
Be in any of those, And you have to look at your opportunit unity cost in that regard. Also, diversification, is that so many people that you talk to that they have, say I don't know, a million dollar property and that's their principal place of residence, and they might have a five hundred thousand dollars homeland against that, which
is non tax do done. But they've also got an investment property for let's say a million dollars, and why having eight hundred thousand dollars debt on it if you're working very long hours and et cetera to pay off the five hundred thousand dollars homeland which is non tax deductible, which has gone up from two point five percent to six point five percent. So your cost of paying off that non tax deductible debt is it's not good.
Okay. So let's say so this is really good for listeners, particularly listeners who are saying mid career. So let's see the listener has a home and they have a mortgage. I'm just going to throw numbers out here, okay, And they have that, and they have their home mortgagees five hunder grand they also have and the investment property it
seems to be doing okay. The yield is hopeless, it's two percent, but they expected that, and they also have a mortgage on that, and that's about the same as their whole mortgage, and they're you know, there are forty eight's. But are you saying to them, are you saying to them that property you've got to shift it into super? What do you say sooner rather than later? And why why would you say that to them?
Okay, so that the investment property has done really well for you if it's grown in values, so you might have bought it, I don't know, six hundred thousand dollars, and that's worth a million dollars, so you may four hundred thousand dollars on that, and you might have a superannuation were one hundred thousand dollars and you're forty eight, Like, get it across the super. It would be a smarter would be a smarter movie. Then you've got some diversification
going on. Yeah, this is just general advice, but look at your opportunity cost. Come. Well, I'm dealing with I'm dealing with landlords. I'm dealing with not landlords, I'm dealing with property managers. I'm dealing with tenants and repairs and all this other stuff. I'm going to do a tax returning a year ago, go and see dunk and I've got to do these tax return that if would you just shoved it into souper, how hard would that be?
And then every year now that I don't have an investment property yet, all I have is my non tax deductible online at I don't know. They sit down and juggle the numbers around.
Yes, okay, very good. What's the downside here? The money's in super forever right, So that's the only thing, isn't it. You can you have only one thing you can do with the money from that investment property. Then once you've transferred it into soup, which is financing souper, you can't do anything else.
The thing is that if the money's sitting in superannuation, you know, in an industry fund or retail fund, or sitting in a self managed super fund.
Who cares O.
Look, what does a person do with regards to an investment. Probably when they first buy it, they don't sell it and then go and spend it on a holiday or to bround the world. They reinvest it back into other investments, usually add a far lower yield than superannuation anyhow, Like, yeah, superannuation did eleven percent last year in most industry funes. Proper, Yes, may have done that, but then the taxation rates or
other things like that. So one of the things that I learned at the university is skills, knowledge and attitude, and skills is one plus one equals too, and then you build your knowledge from the skills that you've acquired. But the problem is from a financial planning or an accounting perspective, is that as soon as we talk to someone and we build their knowledge around that, And that's
with the listeners as well. As they start building their knowledge around alternative investments, superinnoation or egs or whatever the case they be, it doesn't matter because their attitude may be property, so therefore it doesn't matter what you took. It all sounds great, but I like property because my dad did well in property, or my next door Yaby did well in property, so I'm going to do well in property.
Yeah, And there's a sense that it's easy. There's a sense that, as you said, there's a sentence you here, but it's not. It's another a lot more at work than any other acetas I certainly would agree with you there. But here's the thing about the sensible option. For many people are holding an investment property. If you ever have one or more than one, or aspire to have one to have it in super. So is it which is
better than duncan? Is it better to have the investment property for a few years and transfer it into your superfund or is it better to start at the very start and say, I know I'm only thirty or forty, but I got to put I got to start with the investment property in super always it's going to be inside super from the beginning, and I have to have an SMSF to do that.
Of course, that's another crazy idea because if you purchased a property in superannuation, you're most likely going to need to borrow for that, and the superannuation is a trust type structure. So therefore you're talking negative gearing in a superannuation vote which only has a text rate of fifteen
percent and a kapagainst sex rate of ten percent. Why would you do in that investment, especially if you're earning one hundred or two hundred thousand dollars you and salary, you would use the negative gearing in the capital gains tax advantages through your own personal name. So instead of holding the asset in the superheus the only time that you would buy super is with cash.
Okay, so you're saying that the optimum, the optimum way to do it is to build up the investment property capital access the negative gearing because you're paying loads of tax in your mid career years, and then switch it into super. We won't spend much longer on this, but just tell the listeners, Just tell the listeners if you could in succinctly about what you would have to do. You know, basically you have to sell it to your
own super funded at market cost. Isn't that right? So how does it work?
You can sell residential property to your own superinnoation phone, so I would forget that. Look, you've already got a property. You might have a probably with a ME in your owner. So diversification is the key. So like, once you've paid off your homeland, which is a non taxductible there to pay off one hundred thousand dollars non tax duct but you can basically earn two hundred thousand dollars pay tax on that to pay off one hundred. So it's a
hard yard. And there's so many people out there getting to retirement and they're say selling their investment property paying capric gastics, et cetera. They've still got debt on their own home. They don't move that money into their super
they actually pay off their own homeline. And then they sit there with a property that they have worth a million dollars, no debt, full pension, and no little to no super And it's a horrible, a horrible way to look at these It's hard work because the income is so poor.
Just to expland to the listeners once more about the nature of the property. If I own a shop, I can transfer it into my super fu yes, commercial property, yes, Okay. If I own a house down the street and it's an investment property, I'd like to have it in my super funds. No, well you say no, do you mean it doesn't make sense or it's legally it's actually legal.
You can't do it. No, you can't do it, Okay, just expland to people before.
You can't do it.
Well, it comes under the taxation, so what you're doing is yours. It's almost tax avoidance. So you've got to you've got a property that is a residential property and you're moving it across to a superannuation fund. Then it turns into pension phase. There's no taxes on that income when it's in pension pose. So but even if it's in superannuation accumulation shoe, it's still only tax fifteen cents the dollar, and the capri gat tax is only ten cents of the dollar.
Yeah yeah, yeah yeah so yeah so yeah, so you're so. The point you're making is that tax wise, it's so much better outside because of negative gearing.
That's right, yes, yes.
Okay, And I suppose, just to finish off on this, negative gearing is as reds are relatively high at the moment, negative gearing is relatively better I a film because it is so higher.
Yeah yeah, but again it comes down to your net yield.
Yes, yes, yes, unless us it must be improving a bit with rent scoring up so much.
Yeah, but there's always a peak to that. I think property will always give you a gross five percent. So in other words, if you've got one hundred thousand dollar property and it's giving you ten thousand dollars a year rent, you say, well, it's giving you ten percent, Ill you're speaking rubbish, duncrent. I say, no, your property is actually probably worth closer to five hundred thousand dollars. So therefore
your yield comes back to more than five percent. So if you've got if, you've got, if you've got costs and other things on top of that and repairs the mate. It's just hard. It's a hard it's a hard thing when you've got a massive home liun So, what the easiest thing to do is buy a property, live in it, do it up. When it's too big or too small for you, sell it, take your tax free wing roll it into the next venture. There's a lot of people that have made a lot of money just in their
principal place of residence. You get bigger discounts and everything like that, and then build your wealth over there in your superinuation or building in your etf or or other little side hustles, and you've got nice diversification.
Very good, but very good. Dude. You're we haven't heard you on the show before, but we can hear clearly you're a hard numbers man. I should have accountants on the show more often. Okay, folks, but take a short break. We'll be back with Duncan in a moment. Hello. Well, welcome back to the Australians Money Puzzle Podcast. I'm James Kirby and I'm talking to Duncan, but Can of the Tax Time Accountants group. Now, Duncan wants to tell you a little bit about home equity and the home equity
access schemes. Just to introduce this to again to listeners. I'm sure most of them are familiar with it. But there is a growing appetise and a growing supply of products whereby you can access the equity in your home to do other things. Mostly this is older people. So for instance, let's say someone is whatever, seventy seven and they have you know, a small pension income, but they're sitting on a house and it's worth you know, a million dollars or two million dollars. This is completely common
in our bigger cities now. So there are products. One of them is a government product that allows you to do an arrangement basically where you get some cash as income and then you pay the price for that cash at the far end when you sell your home. This is home equity. There's also there's also product. They don't
have to be older. And I've heard some stories which make me shudder, Duncan about quite young people who in one case, I've heard stories of people who inherited homes and two seconds later we're tapping the home equity to do who knows what, you know, just have fun. Tell us about that and what opportunities might be out there for the listeners.
Yeah, okay, so I'll talk about that how I make with the actress game first, and your example, they're a million dollars with no debt, little old seventy seven years of age, maybe has been passed away ten years earlier. Your listeners are probably a young listener, and so this applies to your parents. Maybe I don't know, but anyway, so mum's sitting in there. The gutters are falling down, the house needs repair. She's been in there since the seventies.
She raised ther kids there and she loves the home. But she's got no money.
In the main.
She gets the full pension, which is about twenty three thousand dollars a year. She could get access to the home equity access gain, which is twenty percent of the value of the asset, and she can get one hundred and fifty percent of the value of the pension. So in other words, that would give her roughly about ten thousand dollars extra a year in cash flow, which would help her with living just that day to day living. So it's a great product and it's only at three point nine to five.
There's a government product.
Yeah, it's a cracker, and it's a cracker.
It's a cracker because it's three for for SAI because it's way cheaper. Therace is way.
Lower than commercial prostructs, which is yeah, and it capitalizes on itself, so there's no repayments forer my bet, so we just capitalize us. So in this first year she would have a ten thousand dollar alone, roughly a little bit more than that because of the three point nine to five percent interest capitalizing herself. But then that a year after that it's twenty one thousand dollars. In a
year after that it's about thirty. Well, she's she's got a two hundred thousand dollars limit their jokes, so she's never going to use all of that money up. But it just gives her some quality of life, gets her to go down and see a green. It's on the side of the it's really good.
You get you stay in the house, and certainly your income goes from twenty three thousands to whatever thirty three pout thirty three way better.
Well, children have concerns over that because they feel that mum's home is being eaten away from the reverse mortgage aspect of it. But again, as I said, it's only three point nine to five percent, and the value of that home is probably increasing per annum by five or six percent, so you'll probably fine it. Really, it's I believe that if it was my mother in that position, I would be more than happy for her to load
up on a facility like that. But also in regards of that facility, what if you've got a couple that have got two million dollars in a two million dollar home and no debt, and they've got a million dollars in their bay. They're self undered retirees there, and that investment's earning them seven or eight or nine percent in income. They have to keep drawing down on that investment, don't they.
But if they're entitled to the home Equity Access scheme as well, which is one hundred and fifty percent of their joint income, so they'd give about sixty five thousand dollars a year income at three point nine five percent, it's not means tested, no, no, no, no, it's sixty seven. What you're saying is once you are sixty seven years of each, that's the only entry code here. That's right, it's one hundred and fifty percent of your age pension
less you're existing age pension. So that couple are not getting an age pension because they've got money in the bay, so they can get sixty five thousand.
That's that's really terrific. And you know, I had doctor Sam Binley on the show and he called that it's the best cap secret in Australian finance. Two cents.
I love it. So can pay that to reverse mortgages or equity release mortgages where you're giving the example where the young couple have just ripped everything out and water portion, holiday overseas and other things like that, and then all of a sudden they go, oh, we've got a lot of debt. It's three hundred thousand dollars. This is really hard for us to pay off. We do know what we're doing here. We inherited this mell and one point five million dollar home from mum and now we we've
got to earn all this money to pay off. Is yet not going to happen? Yeah? Maybe, so you home take the win. You'll probably make another eight hundred three hundred thousand dollars on the sale of the one point five million dollar home that you inherited, but get rid of that debt real fast because otherwise that debt is going to accumulate. And there you'll be joking if you'd be choking as close to ten percent on those types of planes.
It's sounds that you're deeply intolerant to non tax the doctor ble desks. Would that be a fair things to say?
Well, absolutely, because you've got to earn nearly twice the amount of to pay back the debt. So if you borrow ten thousand dollars from me, you've got to go and earn twenty thousand dollars depending on your tax rate, pay the then just to pay me back the ten thousand dollars. But again then there's if there's interest on that, you're going to pay the interest at the same time as well. So yeah, I'm deadly against it. So yeah, yeah, you're dead against it.
And I can see why. Okay, very interesting, just to cover back on that, folks. So this is the whole MAC. It used to be called a pension loan scheme. It was upgraded and improved by the previous government actually changing. I'm pretty certain did all this and it opened it up. It used to have all sorts of limits, right, but now it doesn't. You just have to be fixed sixty
seven or over. It's government funders, it's government run. It has some limitations compared to the commercial ones, but not many. And it has a rate which is I'm not kidding it don't can it's it's coming up on for half the commercial rates. Yeah, so so don't check it out.
And it capitalizes on itself as well.
Yeah, if you have a parent in that situation, or if you are in that situation, just have a look at it. It's sitting there on the web. It's quite well explained. They're not as they're not as fast as private operators. But hey, if they're giving it to you for half the price, I imagine that's a worth.
Just one really quick note on that too. If you've already if you're already seventy seven years of age and you already have one hundred thousand loan against that property as a child, he may want to pay that out for your parents, and they're only paying three point nine quart perxtent, but you're paying six point five percent against your mortgage. The income that they're receding from there will actually well and truly cover it until they do get
the home equity access gain. So yeah, So if there's a way that you feel, oh we're not going to get it because of X y Z, look at it differently, you look at right outside the box.
Yeah, look at it creatively. Very good. Okay, thank you Doucin. All right, hey you would take a short break and we will come back and do with of the questions that have been accumulating. Okay, back in the second folks, Hello, welcome back to The Australian's Money Puzzle podcast. James Kirby talking to Duncan Parkins of Tax Time Accountants, a debut guest on the show. Duncan, you're okay with the questions? Have you had a look at them all? Are you able to have a go with them? We're try and
get through them all. Howard, my friend's parents bought an investment property for one hundred thousand in the nineteen nineties. Oh those were the days. Let's say it's worth a million today. They move in to it and live out their days in this property when they die and the property passes down to my friend, would it be exempt from CGT if it were sold?
No?
No, okay. Alternatively, my friend could live in it as principal praise of residence, which I assume would reset the cost space of the property. Both thoughts okay, So I'll just break it down of it.
So QUARTD for one hundred thousand and the nineties worth a million today as of today, with no changes to negative viewing or capital gains tax in the future. You've got to assume that. So let's just look at the situation today, nine hundred thousand dollars gain fifty percent discount, four hundred and fifty thousand dollars, you're going to be probably paying around about two hundred thousand dollars worth of tax there. That's the So that's if the parents own
at fifty to fifty. So therefore each each person would be assessed on roughly one hundred thousand dollars income each. Now, if they're retired and they've got no income, really, you'd probably be about maybe twenty thousand dollars tax each. So so my thoughts are is, take your wing, take you nine hundred thousand dollars in a year, that you're not working anyway, I would not play around with the future of what's going to happen in ten years time because
it will hurt and had heard big coock. So we've actually had one very similar to this recently where the grandmother died and passed the asset down to the daughter and anyway, it's a bit of a mess, but capital gains tax on that is around about four hundred thousand dollars and they're not happy about that. So what they should have done is sell the asset years ago. But anyway,
it's a wonderful thing. So when they die probably passes down would have be no we said that, so even if the parents pass away, the capital gains tax is still calculated from the nineties to say today when they moved into it, and then there's a percentage rule that
you use and convoluted and calculated it. But the estate, the estate would pay the capital gains tax, and then the person receiving it, like the person the sun, the beneficiary, they would receive that with no tax, and if it was their principal place of residence, they could sell that within twelve months, six six weeks whatever, and then there'd be no tax on that pull them either.
All right, I hope that makes sense. And by the way, Howard and all the Howards out there, this is never advice. This is information only, as you all know. Okay, Graham says, this is this question was specially curated for you, Doug Goods. Is it worth purchasing accounting software to help with bookkeeping prior to sending to an accountant you around your returns? Or is it reasonable to just use an Excel document?
Or someone might say is it reasonable to bring in an envelope full of receipts and spread them out on the tables.
Yeah, those days are going, especially with single touch, single touch pyrole requirements and other things like that. There's so many. I mean, if you can staff, you have to have single touch pyrole. What I would holly recommend they The best one to have is the one that your bookkeeper or your accountant uses. So don't run off and boring off the shelf, block out a zero or moil or whatever and then you find it your bookkeeper heights moil
or hight zero. Sorry, lot that The best one to have is the one the bookkeeper of the account uses. And they're all pretty good. They're all most of them are all CLAOUD based, so you can sit at home and look at your bookkeeping in your accounting and your account can look at it exactly at the same time.
So okay, and there's that. What about for people, say doing an SMSA for something or the only thing that you like?
So our self managed sheep I fun. They're very specialized programs. BGL is one that we use is a couple of others out there. But for a self many sleep, you probably better off linking up with your accountant and again using the program and the system that they use. As I said, ours is big also, that would be the best one for us.
Yeah, okay, now thank you for that one. Andrews says, from the recent podcast with Bruce Brammel, there were some details about the six year rule, which I've always been fascinated with. I'd also like to pulp Bruce, I think consciously said six or six point five years, which I've also heard from others. Perhaps it's not even a six year rule. After all these six year rules, could you explain what it is and why our audience should know about us?
So the six year old was originally brought in I believe back in the day when a lot of us worked in banks, police officers, teachers, nurses and you were transferred to be promoted within the job. Those days have literally gone. Also, fringe benefits taxes wiped out a lot
of the benefit from that. So to give you an example, if a police officer was living in Brisbane and they were transferred to Cannes as the sergeant, there was usually a police officer's home provided for them, and so they were going, oh, I've just been transferred from Brisbane, I've just bought a house with my wife and two kids, and now I've got to go and work up in cans So the government had a relaxation around capital gay sex on that they said, okay, if you're forced to
sell your home because of work, you got up to six years to sell their home. So the that police officer could have bought that home a week before he found out about his transfer. There's no real timeline in regards. It's not a twelve month waiting period or anything like that.
Do you have six years to enjoy the benefits of the tax of the capital against tax exemption?
That's right, so you can claim all of the expenses, the rates and mortgage rates, maintenance, insurance interest, except that you can claim all of that and then if you move back into the property, it starts again. And that's what happened a lot of the time. You'd be promoted and moved up north, or you'd be moved out west or something, and then you So I think that may actually be an area that government and ATO may focus
on changing. Because so in the if a bank officer was transferred, they actually stayed in a bank officer home and they lived in that home and it was provided for by the banker, that was part of their package. Well they actuala looked at that and they went, hay, in a second, that's a fringe benefit, so therefore we need to tax you on that. So the banks all set said, well, we can't provide housing for staff anymore. So the and again the whole banking system and the
transferring has changed pot of work. But again fride benefits is not government. It's not a government tax. So therefore state government so police officers and nurses and that they still have housing. But it's a very interesting space. There
will be some major changes in there. But a lot of people now what they're doing through what they call rent festing is that they buy a home, a unit or something like that, they rent it out and then they call it their principal place of residence and then they move back into mum and dad's flights and so that's called rentfesting. So people are abusing that rule.
Some mom who does toost for six years or up to six years.
Yeah, that's true. Yeah, I understand. So that rule is being abused. And once you start abusing it, the ATO and the government will actually start.
So it sounds to me like you accountants are of the opinion they can't last forever. But do you know anything more than that is just supposition?
Are Now that's just the Duncan theory. It's just wait, definitely, But watch this spice. I watched this space. There's a lot of people doing it.
There's a lot of people do Yeah. Yeah, there's a lot of people doing it, and we've just told them all about it. Okay, very good. Now there are three more questions and they are all about ETFs. So I'm going to try and put them together if I could. James, Josh and Joe's soapd and exchange funds are terribly increasingly forpular everyone I'm sure on the show knows the basics.
They know the basics that you buy these funds. Let's say you buy the Australian market where you buy the NASDAC and you get whatever return that market did in the year up or down. You can't do better than the market, you can't do worse. That's good enough for lots of people, and that's the traditional ETF. So the variety of questions around that, especially the main theme from
these three questions is actually about children and kids. And I used to get to sophab two on radios when I did these radio shows for people would call in and they say, you know, I want to buy something for my kids. How do I start? Once upon a time you'd say, oh, look, you know, buy one of the banks and one of the miners and start to build out from there. I mean, there was nobody tfs or index funds, so now they're there. But the teams of these three questions is I want to do it
for my kids. How did they do it?
Well, that'll be in the parents name either it could be you could either a trust structure or something like that, but you can't be in the kids names because they're miners. One of them is under one year of age, so it must be in your name. So therefore you're going to be paying any tax on any income that rolls in from that investment. So if you're on two hundred thousand dollars a year, every dollar that comes in the young JOWI two year old child, it's going to hurt you.
So that you you should probably lean towards looking at your growth type investments. So CSL was one share that I made told me to buy when my daughter was born back in two thousand and two.
What I got suggestion that was idiot.
Didn't buy it. He bought ten thousand dollars with a BHP because because I watched the share price go from twenty eight dollars down to twelve dollars because of our hepatitis C scare. So I said, oh, well, I'm smarter than umrate, I'll buyo BHP And it was the stupidest thing I ever did. But yeah, So, so you want to look at your super high growth type ets.
My suggestion anyhow, Duncan you're suggesting that because they have little dividends and you don't want to be pintact.
That's right, Yes, that's right. Really no income, only growth. So therefore they don't pay they don't pay a lot in dividends or you know, investment income. And then just just put it in the bottom drawer and look at it once a year and let it grow. And then so I was actually only talking to a mate on the weekend, and he did, he did one hundred dollars a month at each one of his kids. And they've they've just all been handed over one hundred and twenty thousand dollars.
Each, and so it was just he just said it was simple. I just shoved it away.
I didn't look at it. It was growth. Fun. And then he go, kids, he's one hundred and twenty thousand dollars. So it's a it's a great way to go. And you know, I really like the concept. If you want to add a little bit of spice to it, probably more so in your own personal ETF diversification portfolio. Never buy ETFs with cash or try and always borrow to buy the ETFs because it's tax deductible. And so you would never buy an investment property with cash. You'd always
buy it with borrowings, wouldn't you. So why wouldn't you do the same with ETFs.
Yeah, well, well why wouldn't you do the same with ETFs? Good question, look, very good point. Why do you think that is? Why do you think people are so confident of borrowing to by property and not confident to buy shares, especially eat when we know that the track record of these.
Well GFC is two thousand and eight. That put an end to all of that margin lending ideas. But I think margin lending is fine. If you've got a million dollar property in a one hundred and fifty thousand dollars home loan, you've got eight hundred and fifty thousand dollars with equity in your home. If you take a small split facility and borrow against that facility and drop it into an ATF through dollar cost averaging, you won't go right.
You're not gonna you're not gonna have you higher celled up on you and you get a getty interest taxedession.
Call just one not thing. Explain that again to the audience that it is a person thought that they were going to help their kids and when and they look at them, that the city out in the garden, and they raised at nine and they say, I really should do something so so so, so we both agree that's by an ETF. But you were saying, just explain the notion of how they might take What's what is the nature or the form of the loan or the gearing that they would do on it.
Oh well, I'll give you an examp. So a million dollar home and you've got one hundred and fifty thousand dollars mortgage against it, which is just a normal standard homeland. I would go to your boat broker or bank. I would top that up to say, you know, I don't know three hundred thousand dollars, So now you've got a one hundred and fifty thousand dollar limit with a zero
debt on it. That's your investment, so would he. And then you've got one hundred and fifty thousand dollars home loan with a limit of one hundred and fifty years, zero debt. And it's called debt recycling. You can do a YouTube onto people and then you just all you do is your dolar cost average out of the new facility, which has a zero ballance of zero and a limited one fifty. You're pour instead of taking money out of
your savings to the detriment of your homelan. So your homeland is going to reduce very fast, that your investment borrowings is going to increase. Before you hit one hundred and fifty thousand dollars worth of borrowings in investment borrowings, which is fully tax deductible, your home loan will be smashed. It'll be wide out. And so all the only borrowings that you have within a couple of years or five year sent the only borrowings that you have is tax deductible borrowings.
It's not only that, but the borrowings that you both the ETF song are on mortgage rates which are lower than all other commercial rates.
Yeah, and any interest that you're paying over this text, well, but it's in an invest it's in an ATF. It's probably giving and a growth EGF. It's probably giving you eleven percent or eight percent. You know me, so.
Very good, Yes, I like it. I like it terrific. Thank you very much, Duncan. Great to have you on the show today. Quite wein and some really interesting issues we picked up there, folks, I thought you I'm sure you found that very interesting. Interesting about the property in SMSFS or at least the you know, the outstanding advantage
of property outside super because of negative gearing. Also about the ETFs, It's funny we talk about ETFs all the time, but we haven't talked about financing them or gearing them. And and why don't people do it? Since their track report is would be comparable long term with the residential average residential home returns over across the country years.
The ATF can be sold to yourself.
Yes, that's fine. And they have no gutfers and they have no maintenance. Yeah, okay, very good. Oh just to let you know, we have no Whittaker, the legendary. No Whittaker on the show on Thursday, everybody, so look out for that. Keep the emails running to the money posit at the Australian dot com dot au and we'll talk to you soon