most tax effective structure for share trading

Discussion in 'Share Investing Strategies, Theories & Education' started by Fuzzy, 20th Mar, 2017.

Join Australia's most dynamic and respected property investment community
  1. Fuzzy

    Fuzzy Member

    Joined:
    27th Oct, 2015
    Posts:
    9
    Location:
    Orange NSW
    I would like to ask for some ideas on how best to do some share trading. Am under preservation age, live off super income stream due to injury which I pay no tax on drawings. Am considering family trust, SMSF, or an industry super like Australian Super who let you do your own share investing within super. Appreciate any advice or even new ideas I haven't thought of . Also should I take a lump sum from my super to start the share portfolio or borrow ?
     
    2 people like this.
  2. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    What is your goal with share trading? Specifically, why "trading" as opposed to buy and hold?
     
    2 people like this.
  3. Fuzzy

    Fuzzy Member

    Joined:
    27th Oct, 2015
    Posts:
    9
    Location:
    Orange NSW
    It will probably be a combination of both. I want to have a portfolio of secure blue chips that produce income, but I quite like the trading side as a "job" if you like. As I have become unemployable due to my back injury, I like keeping my mind stimulated and learning about the share trading, with lots to learn I might ad. My strategy was to hopefully make some quick gains if I get good at it, also knowing ofcourse there are I can loose.
     
    4 people like this.
  4. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    This is probably one of the rare cases where I would actually encourage you to learn about share trading - if your injuries prevent you from holding down a regular job, then providing for yourself by learning how to generate income from the sharemarket is not a bad way to proceed.

    However, risk management is your number one priority - if you have a pool of capital, you number one goal should be to avoid eroding that capital with foolish investments.

    I would suggest starting with a large pool of low-risk funds (LICs, ETFs or index funds) - specifically those which pay good income ... to set yourself up with a core income stream. Don't try and pick the stocks yourself until you have more experience and a greater understanding of stock selection.

    Then allocate a small portion of trading capital which you can use to learn to trade with - don't commit more until you are certain you can make money consistently.

    There are plenty of books out there to get you started - look for books by Darryl Guppy or Louise Bedford (I'm sure some of our other members can recommend other good books too).
     
    2 people like this.
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Ownership structure depends on more than tax. Super may be good in some cases but discretionary trust in others.

    With a discretionary trust there are other strategies to employ so that the assets of your trust end up in your estate at death and then into a testamentary trust.
     
    2 people like this.
  6. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    "......... I quite like the trading side as a "job" if you like."

    "If you are attracted to the romance of trading or the belief that it is a get-rich-quick scheme then the markets are the wrong place for you".


    There are a lot of books written about trading/investing (there is not much difference between trading and investing).
    One of the best book published in OZ is "The Art of Trading" by Christopher Tate, who also wrote "Understanding Options Trading in Australia", "Understanding Futures Trading in Australia" and "Taming The Bear".
     
    2 people like this.
  7. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    I would disagree here - there are huge differences between trading and investing - asset selection, timing, risk management ... all very very different approaches when you are buying an income stream versus looking for short or long term capital gains.

    Sure, if you are "investing" with a goal of capital growth alone and income is secondary, then yes - there are a lot of similarities with trading ... but don't discount the other approach of buying an income stream and reinvesting dividends to get a compounding effect.
     
    2 people like this.
  8. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    "but don't discount the other approach of buying an income stream and reinvesting dividends to get a compounding effect.[/QUOTE]"

    In this case there is no difference with trading.....
    If you bought XYZ which is moving in the "right" direction, you are not selling only because you are a trader but pyramiding (adding up) to the open position, collecting/reinvesting dividends (bonus) and getting compound effect
     
    2 people like this.
  9. Corey Batt

    Corey Batt Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    2,091
    Location:
    Adelaide, SA
    Hi Fuzzy, I am assuming due to your injury you are living off a disability income stream which you can withdraw from whenever you want and pays no tax on earnings? If so this is a perfect vehicle as you don’t have restrictions on your superannuation but still have the tax benefits.

    Depending on the amount of money you are talking about a SMSF might be worthwhile. Due care needs to be taken if you were to rollover any benefits. I would also seek advice if you plan on buying shares with money you have received as a result of a disability.
     
    2 people like this.
  10. Fuzzy

    Fuzzy Member

    Joined:
    27th Oct, 2015
    Posts:
    9
    Location:
    Orange NSW
    thanks for thinking of the structure structure. how is share capital gain taxed in a discretionary trust? and income from dividends ?
     
    2 people like this.
  11. Fuzzy

    Fuzzy Member

    Joined:
    27th Oct, 2015
    Posts:
    9
    Location:
    Orange NSW
    Thanks for the reply. Most definitely take your advice on the education . my thoughts were to take a small lump sum ( about 5%) out of the super account , and put into a superfund like australian super who have an option to do your own investing in shares. this way I would keep the best tax effectiveness ?? I want to get a portfolio of about 5 blue chips that pay reliable dividends.
     
    2 people like this.
  12. Fuzzy

    Fuzzy Member

    Joined:
    27th Oct, 2015
    Posts:
    9
    Location:
    Orange NSW
    Thanks Corey. Not tax free but by the time you apply the disability rebate it just about wipes tax amount out. The TPD has both a taxable and non taxable component. No advantage in staring SMSF , I think I can do my own share investing in funds like Australian Super and not have the hassle of SMSF management
     
    2 people like this.
  13. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    Are you planning on actually trading these shares? If dividends are that important, I would have thought that it's income you are seeking rather than generating revenue via trading?

    In which case - why not consider some LICs instead? There are a few LICs which focus on dividend paying stocks and consistently generate good income and they do all the hard work of stock selection and managing the portfolio for you.
     
    2 people like this.
  14. Hosko

    Hosko Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    293
    Location:
    Victoria
    I'll throw it out there for those better educated. Is share "trading" within Super a good idea?
    And if income is required, won't this be tied up within Super until the TPD expires? If the income isn't required until after then congrats.
     
    2 people like this.
  15. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    1,461
    Location:
    QLD
    first let me qualify 'share trading ' as i use the term .

    share trading ( to me ) means buying and selling shares ( but maybe NOT all the shares i have bought in that portfolio or even that company )

    i sometimes do something like channel-trading ( buying at a certain $level and reducing at a certain higher $level ... but time is less important than the $value trigger )

    normally i buy to hold BUT reserve the option to take SOME cash off the table when wise

    so 'share trading ' to grow capital assets ( cash and equity assets ) over time yes , but also sadly , one of the few good options currently available to beginners .

    i would prefer a mix of property , fixed interest rate equities and shares , but sadly two options are currently poor value .

    more property for me ( maybe not ) but fixed interest rate investments maybe later when bank rates rise higher .( most of my previous ones were redeemed by 2015 ).