Tax Havens?

[mbooth]

I live in Australia and our super annuation scheme doesn't allow for withdrawals until 60+ currently. This doesn't work so well for early retirement..........

Not quite! You can draw on superannuation assets from age 55, but will pay tax on it at your marginal rate. However, as a self-funded retiree you will get a 15% tax rebate, which reduces the tax liability considerably. In concert with the recently introduced tripling of the tax-free threshold to ~$AU18k, this means the tax 'hit' is actually quite reasonable. After age 60, superannuation income-streams are tax-free.

Yes, Oz is a higher taxing country, but then there are many social offsets, such as the medicare system, that 'account' for those taxes. Infrastructure costs are also far greater in OZ than, say, the US, because we have a country roughly the same size as continental US or China [or Canada], with a population of less than 25m, so paying for the highways/roads, electricity-grids and such is proportionally far greater for us because of the distances/area covered.

I think it'd be worth be seeing an aussie tax-specialist accountant to try and legally minimise obligations, but don't try chasing minimisation schemes as a goal in itself, it'll only end in tears

Cheers - Mick

[retired aged 56 on a superannuation drawdown + taxed military pension]

 

[dr_popeye]

Thanks Mick, Finding a good accountant is not easy! I have a financial advisor who specializes with doctors. He is supposed to be providing me with some info regarding investments the banks supposedly only offer to doctors. Of course I am suspicious! The problem is that if you have a high salary at 46.5% it becomes really difficult to save quickly. Every retirement scenario I go over results in a minimum of 10 years of work despite using 250-300k salary as a base. It seems hard to believe that even on a high salary you can't really organize an early retirement. I don't even think I can maintain the 250k-300 for 10 years unless the trend with my health improves. If I used negative gearing to build up a real estate portfolio, ER could be possible within 6 years. If the real estate market was down this strategy would work but I think it is a bubble waiting to burst currently so all bets are off. The only thing that I am considering is buying property in a country without overvalued real estate. That way, I can still get the negative gearing tax advantage here but build up an asset base that will appreciate over time as opposed buying in a market ready to burst. The only problem is that with this strategy, I would need to get a mortgage in a country in which I have no credit rating.

 

[Wasting]

3. Everyone here is giving advice on whether or not to pay off a mortgage. However, you need to remember that most peeps on this site are US based with 3% mortgage rates that they can deduct from tax. Mortgage on principal property is not deductible in Australia and interest rates are probably 6-7% on mortgages.

Not to put too fine a point on it, the above statement, while generally true, is not always true (thanks to the overcomplicated US tax code), called phaseouts. Now I am not a tax attorney but its been my experience that 3% of your AGI is excluded from deductions. It gets more complicated as your income increases, due to nasty things like AMT addbacks. Personally I don't have a mortgage, don't take any mortgage deductions and don't believe in the govt subsidizing peoples homes, but that's beside the point.

 

[dr_popeye]

Yep, it looks like 6.8% on mortgages here. When a 2 bedroom apt costs 450k it makes little sense. I am not sure how the interest is counted for tax purposes. Australia doesn't allow you to write off the expenses of a university education on your taxes. Not even the interest. They have loans scheme called HECs. Essentially it was in my best interests to pay down my student debt ASAP since my loans were in Canada and accumulating interest. I paid most of it off whereas people in NA tend to take their time. I hate negative gearing because it has meant that the lower end of the housing market is especially overvalued and that's where I would be looking to start now. Of course I will probably take advantage of it once my salary increases.

 

[DangerMouse]

I think you are being totally unrealistic if you think you could become FIRE'd within 6 years given your current assets. The risks you would have to take would be crazy. Have you come up with an amount you would need in retirement to live on?

Even on a salary of $300k before tax, over 6 years that is only $1.8 mil. Taking out taxes and living expenses what would be your target to be FIRE'd.

Another suggestion, why not contact some of the banks and see what they offer for customers like yourself. I know that ANZ has advisors that are only open to high net worth individuals and they offer investment opportunities to select groups of customers.

The other option would be buy an investment property that you negatively gear now with the intention that you would move into down the track. Alternatively buy some choice real estate and get a room mate. However it would have to be location, location, location. I see you are in Brisbane, what about an area like Bulimba? Would be big bucks but doubt you would do your dough there.

Whatever you do, don't go chasing crazy returns. I don't believe that property prices are going anywhere in Oz at the moment, despite the media constantly talking it up. Take a good 12 months to get your head around what you want to do. I think your primary focus has to be to identify your goal and then do the rounds with various advisors and ask how they would get you there.

 

[Nords]

I have a financial advisor who specializes with doctors.

I'll bet he does... like Willie Sutton specialized in banking...

 

[dr_popeye]

I'll bet he does... like Willie Sutton specialized in banking...

Yeah, I don't really trust financial advisors in general. I am not taking any risks at this point. The advisor has stated not to buy real estate in Melbourne and to be relatively careful as well.

My scenario is not a full retirement in 6 years. That was the absolute worst case scenario if my health takes a turn for the worst. I am anticipating working full time for 6 years, creating some wealth and then working part time for another 10-15 years without touching the original amount. So I am not really a typical ER but partial ER.

 

[Danmar]

Don't let tax considerations drive your investment stategy. Doctors often do this and save 50% of their 100% losses.

 

[DangerMouse]

You know Popeye I am not sure what you are after. YOu have been given plenty of guidance and suggestions but I'm not seeing much action on your part. No good complaining about tax rates etc. because they are not changeable. You primary goal should be to come up with some kind of life plan and make your financials work to achieve those goals.

You state continually how much you distrust financial advisors, well in that case get off the pot and educate yourself so you do not need to use one. You seem to have very little knowledge of the Australian system at all. You state your tax rate is 46% with a salary of 250k, in fact if you run that salary thru the ATO tax calculator your actual effective tax rate is 36%.

The obvious first step for you has to be superannuation to save some tax. If I were you I would come up with some kind of life plan as follows:

Ages 40-46 (6 years) - fulltime employment, salary $250k, disposable salary after tax $160k.

Investment goals for this period:

- maximise superannuation to be available at age 60
- purchase a residence that you feel you could live in for the next 20 years. I would do fortnightly mortgage payments, put all the extra cash into the mortgage offset account and it would be done in 20 years.
- open an account with Commsec and transfer X amount of dollars every month and over time build up a portfolio of blue chip shares that offer franking credits. Remember you buy shares in Australia for dividend/franking credits as capital growth is a lot smaller than in the US market.

Age 47-57 - Reduce income due to PT work - $s expected less tax

Age 60
- Housing paid off
- Access to superannuation
- Dividend stream from shares

Agree with Danmar that basing an investment decision on tax minimisation is not the way to go. You only get a tax deduction if you made a loss.

 

[dr_popeye]

No need to be insulting. You suggest to take action and then suggest to educate myself. I think educating myself before taking action is what makes most sense! I am going through the ASX courses and taking on board all the advice given here. The tax minimization questions are all related to the uncertainty with my health. I wanted to have a retirement fund built up in the fastest manner possible so that I could relax a bit on this. My condition is something that would cause disability insurance to be sky high (and unlikely to pay out) if they would even insure me, thus the urgency in the plan. I will look into real estate likely next year since I am looking at a change of city/state for work. Already doing super. Not planning to rush into any decisions.

 

[rescueme]

I'll bet he does... like Willie Sutton specialized in banking...