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Navra - after tax issues?

Discussion in 'Managed Funds & Index Funds' started by Tom Alaka, 27th Feb, 2008.

  1. Tom Alaka

    Tom Alaka Member

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    Hi All

    Can any current Navra holders tell me what the after tax consequences of holding Navra funds have been like?

    As a fund which is an active trading funds, I would assume that the CGT consequences for the end investor would be quite high at tax time ?

    And this would take the gloss off the high income yields somewhat?

    Cheers
    Tom
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Actually - being an income generating fund which pays out the majority of its gains by way of income rather than realised capital gains (they are "traders" which allows them to treat realised capital gains as income) ... there is typically relatively little in the way of CGT to pay - even when you sell units.

    The main after tax consequence is from having to pay tax on realised income each year - which is typically higher than you would pay from unrealised capital gains from a growth fund, and indeed still less than realised capital gains from selling your units in a growth fund which might attract a 50% discount if held long enough.

    On it's own, Navra funds are not very tax effective - you are paying tax on your returns in each financial year rather than defering them like you can with a growth fund (although you would still pay tax on the income distribution component of a growth fund - although that is typically less than what Navra distributes).

    Navra funds come into their own as a vehicle for generating income to offset the holding costs of a negatively geared investment portfolio (typically from real estate) ... especially in a trust structure where losses are quarantined and effectively wasted in the short term. This makes the income effectively tax-free.
     
  3. Smartypants

    Smartypants Well-Known Member

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    Hi Sim.

    The above phrase is bandied about a fair bit in reference to the Navra funds (which is also the reason I bought in).

    Just curious as to whether or not others out there would use the Navra funds purely to generate income.

    I.e, lets say that you initially got into Navra funds for the above purpose but for one reason or another your portfolio gets to positively geared. Would you still invest in the Navra funds?

    Or another scenario. Lets say you have X amount of cash to invest (and want an income from it), would you invest in Navra?

    Look forward to replies.

    ** Sim, if you see fit to start new thread with this, feel free **
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    My father in law is a self-funded retiree and invests in Navra for the income. He likes the fact that once you get the cash, the markets can't take it away from you.

    I think the validity of Navra as a stand-alone investment depends very much on your circumstances, timeframes and goals. If you need capital preservation and can't stand the risk, or have a short investment timeframe - then a high interest savings account might be a better bet.

    If you can weather market downturns like we have at the moment and are prepared to hold through them (short-to-medium term negative growth) - then the higher income being generated by the fund is good (average of 15%+ per annum so far ... and hopefully 12% or so distributed this year despite the downturn ??).
     
  5. Smartypants

    Smartypants Well-Known Member

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    Hi Sim.

    By the above comment, do you mean that once the distribution has been paid, it is yours, as opposed to reinvesting and perhaps unit price drops in value thus corroding your $$$$.

    The reason I ask the question (previous post) re Navra for income only (not using to help out with neg geared portfolio), is because it is a part of my overall strategy to live off the distributions (once I get to that position).

    I would be happy to receive 10% PA on my investment, so long as it doesn't lose too much value. I.e, with the current market correction, my holdings value have gone well below what I originally invested (as I'm sure any other mgd fund has as well). Hopefully this will correct itself in the near future.

    Thanks for your reply/ies Sim
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Of course - if you reinvest, you put it at risk once more, and could potentially lose it. If you take the distribution as cash - it is yours (once the tax man takes his slice).
     
  7. Alan

    Alan Well-Known Member

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    I find the concern about paying tax on the Distributions a fairly limited view in many circumstances.

    Firstly, by all means let's minimise our tax, I have no problem with that point! :D

    However, let's use another example of a young couple with children. Both HAVE to work while the children are young even though this may not be their real preference. One would really like to stay at home but to do so requires some real CASH coming in the day to pay various bills.

    If receiving Distributions that you have to pay tax on gives you this option, then is it worthwhile?

    Many opportunities are difficult to put a price on...........
     
  8. kevinb

    kevinb Well-Known Member

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    Hi Tom

    To give you an example, our we joined Sept 2005, units in wife's name as she earns approx $30k part time. 2005/06 Navra paid her $65k. Paid an extra $4k to tax office and paye tax of $4k for next year (2007)

    2006/07 Navra paid her $120k + $30k earned as part time work - tax was extra $4k (as we already paid $4k as paye -total of $8k extra) plus $8k paye for next year.

    We have 1 IP in Brisbane 50% each, slightly -ve geared, older premises with not many deductions

    So she gave up her part time job and we haven't invested in any trees or grapes.

    Rgds

    Kevinb
     
  9. Tom Alaka

    Tom Alaka Member

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    Thank you all for your replies, very helpful.

    I am giving serious consideration to making investing in Navra, though I might wait to see how their results stack up at the end of March firstly.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Good idea - and investing at the beginning of the quarter is generally better anyway - slightly more tax effective (unless you have income losses to offset the distributed income against)
     
  11. Redwing

    Redwing Well-Known Member

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    Hi Sim,

    Do you think that investing at the start of the 1/4 is better than investing in NAVRA at say...Tuesday (11th-March-2008 at 0930 hrs ;)) :confused: with the recent drop in unit price (of course prices could go either way injthe next few Months but why the start of the 1/4 rather than now):confused:
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I said "in general".

    Falling markets kind of throw that theory all out the window - and if you think we are well into a bear market right now, I wouldn't actually be investing yet anyway - I'd be waiting to see the markets swing back into bull territory - or at least maintain their levels consistently for a while to avoid as much capital erosion as possible.

    ... and I'm only talking purely from a tax perspective and not taking into account any potential gains (or losses) you might sustain from waiting until the beginning of the quarter.

    In theory it is best to wait until the beginning of the quarter - since that gives you the best after tax result ... but in reality, you can't know what the markets will do between now and then, and that may have a significant impact on your final outcome.