Join our investing community

Best GARUNTEED investment strategy ever..?

Discussion in 'Investing Strategies' started by Sk3tChY, 13th Sep, 2007.

  1. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Someone please correct me if i'm wrong, or if theres some sort of law which means you must pay a certain percentage of tax, but hypothetically speaking if you put practically ALL of your salary into your superannuation, technically you'd be making a [insert tax bracket] gain, on top of what your super makes for that year.

    Example: Luke Skywalker is on $55,000 salary, and must contribute the compulsary 9% to super, which is $4,950, but instead he contibutes all of his pay apart from $6,000.

    This way, his taxable income stays within the tax free threshold and he makes $6,000 tax free, and because the rest of his salary was contributed to hs super, the rest of his salary becomes tax free also.

    Is this right..?

    And lastly, isn't there some sort of government incentive where for every extra dollar you put into your super, they match it..? I remember seeing some ad on the tv about this.

    Am I a genius or what..? :p
     
  2. Liverpool St

    Liverpool St Well-Known Member

    Joined:
    21st May, 2007
    Posts:
    96
    Location:
    Sydney
    Super


    What does Luke live on?? The rest of his salary which he puts into a super fund is taxed at 15percent so in therory there is no incentive to go below $28000. However, saying that I salary sacrifice 100percent of my salary and live off the Navra Distributions which are taxed from $0 upwards.

    It's all good fun

    Liverpool St
     
  3. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    So any contribution over the compulsary 9% is taxed at 15%?

    And what about this government incentive thing, how does that work?
     
  4. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    any salary sacrifice you make into super becomes a tax deduction against your income (I think there are limits of $100k per year or something)

    On salary sacrifice your super pays 15% tax. So any income over $30,000 PA is normally taxed at 30% or more, so any income between $6000 and $30,000 is taxed the same rate of 15% and any income above 30k your saving tax..

    Individual income tax rates

    this is a good stratergie if your willing to say good buy to your income till you hit 60. This stratergie works well if your close to retirement. But if your like me, and has to wait 30 years to see the money, well I will invest my money outside super.

    Also profits within super aren't taxed. You only pay tax on the entry of the money. Whether through salary sacrifice or the compolsury 9%.

    Note that member un-deducted contributions are not taxed, and qualify for the government co-contribution of up to $1500. So making a tax-dedectuable contribution may not be the best option for everyone. as these don't qualify for the co-con.

    If you want to reduce tax, you might want to consider a negatively geared investment, along side some salary sacrifice.
     
  5. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    any super contribution which claims a tax deduction is taxed at 15%, so the 9% is also taxed at 15%.. along with any salary sacrifice.

    Member non-deducted contributions arn't taxed, and also qualify for the government co-contribution up to $1500 per year...

    its all fun :)
     
  6. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    by the way, you don't need to salary sacrifice to get the tax deduction.. you can also make a tax deducted contribution which you can claim as a deduction at tax time and get a refund on the tax paid..

    Colonial First state has different codes depending on the type of contribution you make. you use these codes at the time of making the contribution to inform them on how to treat the contribution. I don't know how other super funds handle this..
     
  7. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Thanks crc, i'll read over, and try to process all of what you've said. heh :p
     
  8. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    how old are you?
     
  9. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    20 atm, 21 in december.
     
  10. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    Wish I was that age again and still know what I know now.......

    December is not the best choice for having a birthday :(
     
  11. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Heh, tell me about it...

    "This is going to be your birthday AND christmas present, because they're so close"

    Story of my life. :p
     
  12. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    although I do agree you should make a additional contribution into super, I don't believe you should be sacrificing 100% of your wage... as your to far away from retirement.. unless your happy not to see your money for 40 years!

    However making a $500 after tax contribution each year, matched by government $750 making it a $1250 contribution each year, that will compound into a nice sum over 40 years! and $500 wont be missed by most people!

    Another thing to consider, if your able to contribute say $15,000 per year into geared share funds for the next 10 years, in 10 years time you can have almost $400,000 to your name! all by the time your 30! I don't think there are many 30 year olds with 400 grand next to their name! that 400 grand can make you 8.5% yield from commercial property funds, almost $40k per year to live off, nice hey!
     
  13. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Active investors in their 20's are too young to be thinking about super strategies other than maximising the returns on their SGC contributions, with few exceptions.

    Mark
     
  14. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    why is that? A contribution in your 20's is worth far more than a contribution in your 40's.. as you have 40 years of compounding to work for you.. and who is going to miss $500? Most people in their 20's piss their money up the wall on crap.. most have no commitments living at home, so whats wrong with making a small contribution at that age?
     
  15. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Hope the bolding makes it a bit clearer for you.

    Mark
     
  16. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Thanks for the info man.

    How what do you mean making $500 'after tax' contributions..? And how does the government match it with $750? I'm very very interested in this..!

    I'm also quite interested in your second suggestion of putting $15,000 per year over the next 10 years, I've planned on doing something similar, however in direct shares.

    ps: crc i've sent you a pm, please read it.
     
  17. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    In my view, this is 'missing the forest for the trees' type thinking. Sketchy is 20 years old. Which means that he should be able to achieve financial independence by 35. Which means that he wont be able to touch the money in super for another 25 years after this (by the time he reaches super age, it will almost certainly have been pushed up to 60, if not older).

    So that $500 he puts into super to get the Government co-contribution is locked in there for another 25 years minimum. I'm willing to bet that he's a pretty sharp fella and that with that $500, he'll be able to make a lot more money over a 25 year period (actually starting from this year it'll be 40 years) than his super fund will, co-contribution or no co-contribution.

    Mark
     
  18. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Awesome!

    Hi guys,

    This is the sort of thread I love...Strategy!


    First of all Crc is right, $6,000 you can live on?
    Excellent if you can, though not too many of us can.


    Limits and taxation are based on the following:

    Any taxable money (in the super fund), concessional contributions, eg, SGC, salary sacrifice or personal deductible contributions are taxed at 15%. If you are under 50 you can have a maximum of $50,000 per annum. Transitional rules are if you are over 50 you can have a maximum of $100,000 per annum. This transitional rule applies up until 30th June 2012. If you go over any of the maximums you will be taxed at the top MTR plus medicare, ie, 46.5%.

    Any untaxable money (in the super fund), non-concessional contributions, eg, money you put in after tax, government co-contribution are not taxed. You can contribute a maximum of $150,000 per annum or a maximum of $450,000 using a bring forward rule. If you exceed these maximums you will be tax at the top MTR (46.5%).

    If you really stuff up and blow both these limits your going to be taxed at 93%!!! Is it worth it???

    Tax on income for you superfund are also taxed at 15%, capital gains are also taxed at 15%, though similarly they get discounts on holding things over 12 months. If a superfund makes capital gain from an asset they have held for over 12 months they pay 10% tax.

    Allocated Pension funds pay 0% tax on income and capital gains.

    An active investor in their twenties would probably set and forget a "non-default" superannuation go look across all of their investments no just investments, personally I have split my super 50% Aussie Shares and 50% International Shares with one geared Aussie fund. Over the long term this should rock :) Over the shorter term I love the rollercoaster ride because I've got another 37 years till I can access it.

    Let's talk about salary sacrificing, there is a tiny fraction of benefit of salary sacrificing down to $10,000 (This is all tax-free for residents when including the Low Income Tax Offset). Between $10,000 and $30,000 your marginal tax rate is 15% plus 1.5% medicare levy, ie, 16.5% MTR vs 15% Contributions Tax. Difference is 1.5%, now you've got to say "Is 1.5% tax benefit worth it?" to most people it probably wouldn't be (but hey there are always exceptions).

    Let's talk about gov't co-contribution.
    If you earn less than $28,980 in the 07/08 financial year and put in $1 of after tax money into your superannuation fund, the ATO will put in $1.50. The government/ATO will put a maximum of $1,500. You can also either see this as free money from the government or 150% return guaranteed! Also I like to think that the government is paying for younger peoples insurance premiums in super. You can find out more here Super co-contribution but basically you can calculate it yourself:

    $58,980 less your salary, divide this figure by 20 is how much the government will give you. To figure out how much you need to put in divide how much the government will give you by 1.5 .


    Spoiler, imagine if over 20 or 30 years you held a managed fund inside your super and had massive capital gain, you'd pay 10% on the gain. If you could convert this to pension phase you'd pay 0% on the gain.

    Cheers,

    Dan

    PS The above does not advise any one to do anything without speaking to a FPA registered financial planner, accountant or tax adviser. All of the abovementioned information is available freely from the Tax Office Website Australian Taxation Office Homepage
     
  19. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    You can make two types of contributions into Super, a tax deductible contribution (or can be salary sacrifice same thing really), and a non-tax deductible contribution, which is 'after tax' has been paid.

    If your tax rate is say 30%, then you will get 30% of your tax deductible contribution back from the tax man at tax return time. that could be a refund of $150 on a $500 contribution.

    however if you make a non-tax-deductible contribution, the government could give you up to $1.50 for each $1 you contribute. So on a $500 contribution the government can give you up to $750 ontop of your $500 into your super fund. The formula is a sliding scale, and the government gives you less and less the more you earn. here is the scale. Super co-contribution

    You can see if you earn less than $29,000 per year, you get the full amount. Once you hit $59,000 per year you get nothing, so in this case a tax deductible or salary sacrifice would be better. Salary sacrifice or a tax deductible contribution is also better for contributions over $1000 per year.. ie make the first $1000 non-deductible, and anything over $1000 would be better off been tax-deductible. reason for this is cause government caps the co-contribution at $1000 per year.

    Here is a calculator which will tell you how much the government would give you in your situation Super co-contribution

    In your situation, I doubt you would want to contribute more than $1000 per year, so the salary sacrifice or tax-deductible contributions would not apply..

    other super info Super co-contribution

    Remember, small amounts today, compound heaps over 40 years! Don't leave super till later in life, as then playing catch up, without time up your sleeve makes things 10 times harder..
     
  20. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    This is great.. but you need to gear your investments.. so with shares you would use a margin loan.. so you borrow for every $ you put in, the bank lends you another dollar, effectively doubling your investment exposure. Without gearing, your returns are reduced significantly.. Gearing is a nessecity in my opinion.. just like you borrow to buy a house, the same should apply to shares/managed funds. But you need to have a longer time frame view for your investment, so with the 10 year plan, gearing is great.. this is so you can ride out the up's and downs during the period, which are magnified with gearing. (you hope to be up 10 years later!)

    Gearing is also excellent in super, especially if you have 10 years plus to go before retirement.. anyone who doesn't gear in their super, I think is wasting a opportunity. Gearing would not work well in a high interest rate environment.. which at the moment, we are not in.

    I'll check my PM. :cool:

    I only wish someone told me this when I was 20, rather than wasting money on the latest computers and cars! now I'm 30, and think to myself.. if I only knew! I could be better off for the rest of my life! But its never to late to start!