Managed Funds Should I wait until after 30th June

During a meeting with my bank's financial planner, I was advised to wait until after the 30th June before buying some managed funds.

I queried this twice in the meeting and was told it was to do with interest payments and only one dispersement????? I was also told that several accountants had rung the planner to emphasise that their clients should not invest until after June 30th. (I can only think that it has something to do pre-paying interest....)

I do not understand why I should delay my investment. I will be buying the funds through Investsmart using money from a line of credit that is already set up. I just have to write the cheques.

Am I missing something about managed funds, the end of the financial year and/or a fund payout?

Thanks in advance

TailCat

 

if you are not re investing distributions, then you really should be doing it BEFORE June 30, this way you (example) invest 10k on june 28, get a 10% distribution on June 30 and recieve 1k which can be paid off non deductible debt...

also for prepayments, you could invest now and prepay for the next year, claiming a deduction for the interest costs of all the prepaid interest... if interest is paid monthly this isnt really an issue

i think it should be made before not after June 30 but thats just my opinion.... the only think you need to be worried about is will there be a correction in early july as people delay selling out of investments so tax doesnt have to be paid this semester...

 

Hi Tailcat

I can't pretend to understand why a planner, based on suggestions in relation to someone else, would give you advice...Not saying it's wrong - just poor communication.

I suspect the issue may be this: by investing your capital (i.e. drawings under the LOC) before 30 June you'll effectively be converting capital to income becase a on 30 June the managed fund will have to distribute all its income to its members (otherwise punitive tax on the trustee/RE).

You will then get taxed in the 06-07 financial year on that income. Whereas if you invest on or after 1 July then you'll only receive distributions and be taxed on them in the 07-08 financial year (i.e. some time away) and also there's a change to the tax thresholds so it could be even better for you.

BUT I'm speculating as to what the reason is. I'd suggest:

1) call you FP and keep asking until you get a meaningful answer - that's why they're getting paid!
2) ask YOUR accountant or tax adviser.

Cheers
N.

 

As Nigel said, the only possible reason I can think of for this "advice" is a desperation not to have any more income.
This is definitely not a blanket recommendation though and I cant understand why someone would advise all their clients in this manner...

 

Awsome response times guys!!!!!!!!

THANKS for the advice.

I am currently filling in the application forms......

Here goes my first venture into managed funds......

BTW my chosen funds were not on the banks `acceptable' list.

All the Best

Tailcat

 

Successful first step

Thanks for all the advice.

I managed to get the cheques there on time and as you all predicted, I was duly rewarded. All 3 funds paid up nicely.

This then begs the question: when is the best time to plant your money in the different types of funds?

Presumably for a mainly growth fund ASAP is the best time.

For a cashflow fund (like NavraInvest) then the closer to the payout date the better, especially if you are using equity to make the payment.
(Do many funds pay income based on the length of time the units have been held?)

But what about a fund that does both?

Oh well, back to the bank manager, to see if we can find some more lazy equity......


Tailcat

 

you will notice that your unit price drops after the distribution, meaning that on the whole it is merely a timing issue.
I am not aware of any funds that distribute on a pro-rata basis for how long you have held the fund, and to me that would seem illogical anyway.
The funds reinvest all their profit during the year (thus the unit price goes up) and then distribute all that profit at year end (thus the unit price goes down). What you gain in income, you lse in capital gain. Unless you have specific tax planning objectives, I wouldnt get to hung up on when to buy, if you are going to buy it anyway.

 

Found this thread too late to make a difference ...

I'm not sure about the details for this product, but generally speaking:

CGT for an individual is better than income, so buying after June 30 will lower the cost base as distributions have been made. Otherwise you buy and immediately get some of your money back but it is taxed !

Prepayments for non-business individuals cannot get full up-front deductions unless it is for a period of no greater than 12 months & ends prior to 30th June 2008 (unless expense is less than $1000).

Does this affect you ?

Cheers,

Rob

(Check these facts as this is GENERAL !)

 

australian unity does this, and yes it is quite illogical, imagine the extra paperwork...

 

I am new to investing and actually did invest in the NavraInvest income fund on 21st June.

Nine days later at end of financial year, I recieved 7.6% of this back as income (which I had elected to reinvest) and will now have to pay tax on it.

It will end up costing me ~$3000 in my tax return.

I think what I have done is extremely stupid, and would have been well advised to wait until the start of the next period.

To top it off, the unit price dropped over this period, so it was a double blow not to wait.

Oh well, live and learn.

 

its a double edge sward...

i know people who will invest buck loads on the last few days of the quarter, so they are able to get a large distribution to pay down non deductable debt... however as you reinvested yours directly you would not have this opportunity...

yes but it only dropped by roughly the same amount as the distribution that was paid...

 

Dont worry too much mate, it is just a timing issue, in 2 years you wont care.

 

Not quite as bad.

Your cost base is higher so not as much CGT when you sell.

Also, the longer you hold the less relevant the timing of aquisition.

Cheers,

Rob

 

Thanks for the feedback all - I feel a bit better now.

A couple of questions though
1. As far as CGT is concerned, is there any difference between receiving a distribution income and selling off some of your units to the same value?

2. Trying to understand Rob's comment. If the value of my holding were back to where I started ($100,000) and I sold all. Would CGT cost base be:

a. $100,000
b. $100,000 + income distribution of $7500
c. Or something else

 

Yes, one is income the other is a capital gain. Indivuals have access to a 50% reduction in the taxable capital gain if the asset is held fore more than 12 months, so if that is the case then the capital transaction is better from a tax perspective.

Your cost base is simply the cost at which you acquired the asset +/- any cost base adjustments (for example if you receive tax deferred distributions, capital returns, etc). Your distribution is income, thus does not affect the cost base at all (unless as I said the income consists of cost base adjustments in which case they are not taxable until you sell). Your cost base is still $100,000 - if you sold now you would make a capital loss, but the distribution is still taxable as income.

 

Ok thanks. As you may have guessed, I have a long way to go in my investment education.