Private investor - best way to reduce tax?

I've got about 600k in various managed international share funds and am planning to borrow to invest a lot more. What would ordinarily be the best way to keep my tax bill down? Maybe a company, trust or super fund? (I'm 44 and play online poker for a living btw.)

 

Now that's a job you don't hear about every day!

 

Thanks Sim! No not married, and it does appear that a Company might be a poor option due to the loss of the 50% CGT discount as you say. I've got another 500k in cash and shares and the poker's made me about 300k p.a. the last three years, so obviously tax has become a major issue. I've looked at SMSF's but see that you're not allowed to borrow to invest in those; not sure about other types of super funds... Currently I'm looking for a good financial adviser on the Gold Coast who I can trust to give me good advice.

 

I'll probably buy some real estate in a coupla years - sadly it doesn't seem to offer as good a return as international share funds, and an awful lot of people seem to want a chunk of cash for every deal, including agents, lawyers, accountants, bankers, inspectors etc etc (not to mention stamp duty.) Seems to me you need to make about 25% profit to break even - am I far wrong in this assessment?

 

Hi SJ!

You must be a damn fine poker player!

Property is all about leverage and ability to value add.

Yes the transaction costs are high...but if you're holding for the long term those pale into insignificance with the benefits of growth on a highly leveraged position.

Further if you are able to renovate or improve the property through renovation or subdivision/development then the rewards can be even greater.

Cheers
N.

 

Actually apart from all the people who want a slice of your action, I find the biggest problem with real estate is how time intensive it can be, esp. if you want to renovate. With managed funds I fill out a single form and the job is done. Also international shares outperform property over the long term.

 

I totally agree with this.. I have highlighted this issue many times before.. Plus property only returns on average about 12% PA according to the Russell report..

How much income do you plan to 'retire' on? Once you set yourself a goal, then work out a strategie on how to get there..

Currently the resources and Asia is whats making the money.. so if you want to be a little aggressive, increase your exposer to these area's.

If your after a good financial planner.. I can recommend Freeman Fox. They are quite good and have a more innovative approach compared to your traditional planner.

If you don't have any experience in investing, best to pay a planner a few grand to prepare a plan for you.. with freeman fox, they also offer lots of training as well which I like.... quality advise can save you lots in mistakes.. FF also do direct property, so they can recommend it if thats what your after.

 

If he is able to make $300k per year playing poker, why would he waste his time renovating IP's? He is not going to make that type of money renovating and developing.. I suggest he sticks to what he is good at, and invests his money into quality assets via managed funds.

Property is only good when you use its high leverage. He should be more conservative with his money since he has a large ability to earn money.. Usually gearing at 50-60% is more sensible.. and this can easily and cheaply be done via shares and managed funds...

Freeman fox also have some ways he can reduce his tax, so best he calls them for professional advise.

 

He can also invest in property via managed funds... and global property which in Europe and US is booming at the moment (commercial property)

With funds he can spread out his risk, and its a 'set and forget' stratergie while he focus's on his poker..

 

I'm so jealous right now!!! I love poker

 

You may loss all your money money only move from a person to another person (maybe, sharejunky).

 

Hi sharejunky

One way you could restructure is using a hdt with a corporate trustee and then have another company as a beneficiary.

The HDT give you the ability to subsidice and losses should there be any -ve gearing

It also allows you to distribute any earnings to beneficiaries, this could be you, the company or both.

You then only distribute to yourself any income you need with the remaining income distributed to the company.

I use this to limit the income I get to a 30% tax regime (including imp credits) any excess is then distributed to the company, which only pays 30% and retains those as tax credits that can be passed back with any dividends declared.

The beauty of this is if there were CG then you can distributed them to yourself and get the benefit of the 50%

So in this way you should be able to get the best of both worlds.

If you could somehow get your winnings pumping through this structure then you could really control your tax and avoid any super contributions to boot.

Obviously talk to your accountant

Cheers

 

Hmm, anyone else think this is a good idea? It sounds rather convoluted to me. Wouldn't the tax office look at this and say it's obviously just set up to avoid taxes?

Re Freeman Fox - I google this and keep seeing the word 'guru'. (Scary!) Also it seems he made his alleged fortune from property, not shares or funds - would that be correct?

 

What can I say!!!!

This is the approach we personally use (and have done so since '98) taking about $250k pa in dividends(if we need it) and leave the rest in the structure. We pay no more than 30% tax and most of that is paid by the companies. We virtually pay no tax due to the associated imputation credits as a result of getting dividends.

It really comes down to your scale.

If you are you simply talking about generating income that naturally stays within the 30% tax scales then what I have proposed is convoluted. If you really are going to ramp it up as per your original post and generate mega bucks from the investments then you want to be able to fully control your income.

Cheers

 

He made this initial wealth from property, but now only has about 20% of his wealth in direct residential property.. In about 2003 he said to focus more on the stock market, over direct property... and since then more money has been made in stocks with 20-30% PA growth!

 

bit confused here... while its a hdt cant you only distribute only to the unit holder while units exist? How are you getting around this. Sounds more like a dt (or a hdt without any units)

 

Hi Dave

Must admit not sure on the actual mechanics that the accountant uses to achieve this but then again we have loans and make money so that may be the difference.

Thinking about it, the only time you really need the HDT is in the -ve gearing sense and that is not what we are doing.

Cheers

 

With regards to neg gearded property solutions,

I suspect it may be a little difficult to get finance for property being a poker player. Definitely in the NO Doc region.

Margin loans make more sense as a pure asset lend but at 300kpa and single SJ may be able to pay cash for his property but then it wouldn't be negatively geared would it.

Oh well someones got to pay for the roads and hospitals

MJK