DS1 is on school holiday for the next two weeks. I booked him in to a "bridge building" course which will be run next Monday and Tuesday afternoon at the NSW University by their GERRIC (Gifted Education Research Resource and Information Centre) department. The course only runs for a total of 6 hours, and costs over $100, but could be money well spent if it stimulates DS1 to do well at school. I'm not even sure if DS1 is "gifted" as such - he started independent reading when he was just turned 4 and is doing well in his reading and math as school even though he's one of the youngest in his class. But on the other hand we had an "assessment" done by a phsychologist at GERRIC when he was three (when he'd started reading), but at that age he was very shy and didn't assess as particularly exceptional. I'd get him assessed again (now that he's older and more confident with strangers), but at $500 an assessment it's too much money to waste. Anyhow, it can't hurt to expose him to a group of kids his age that are gifted - it may motivate him to excel. And if nothing else, spending a couple of afternoons designing and building model bridges sounds like fun.

Copyright

Enough Wealth 2007

The next large deduction item on our annual tax return is the expenses for our rental property. As it is owned in joint names with DW, we work out the total deductible expenses using the ATOs worksheet for rental properties, and divide each item in half to include on each of our personal tax returns (Australia doesn't have joint filing, although many government benefits such as Family Tax Benefit are based on the combined income of couples). The deductions for rental properties are fairly standard, such as interest on the mortgage loan (make sure you don't include any amount of your payments that is actually principal repayment), cost of repairs, council rates, land tax, water rates and insurance. Some other expenses associated with purchasing a rental property (such as solicitors fees, loan stamp duty etc) are deductible for the first five years after purchase, with 1/5 of the total expense being claimed each year.

If you only had the property available for rent for part of the year (either bought it during the tax year, or had the property off the market for part of the year) you can only claim a pro-rata fraction of the expenses. The ATO also takes a dim view of claims for expenses where the property wasn't really available for earning a rental income. An example would be where a holiday property is used by the owner during the peak rental season.

Another trap to watch out for is claiming deductions for repairs that are actually improvements. Improvements can't be claimed as an expense, but are taken into account as part of the cost base of the property when you eventually work out capital gains when the property is sold.

Copyright

Enough Wealth 2007

Once all the income items have been completed it's time to get to work on itemising my deductions. The biggest one for me is the interest paid on the margin loans I've used to buy stocks for my share portfolio. I pay some interest up to 12 months in advance (in late June) to bring forward the tax deduction, and the remaining interest component is part each month as it accrues. My overall gearing level is fairly modest - around 50% loan-to-value ration (LVR), which corresponds to a debt:equity ratio of 1:1. As the interest paid on the margin loan is more than the dividends received, I get a net income tax deduction from my stock portfolio. Eventually capital gains tax will be paid on realised gains when stocks are sold, but, provided they've been held for more than 12 months before being sold, the capital gains tax rate is effectively half my marginal income tax rate (the actual calculation is to apply my marginal tax rate to 50% of capital gains).

Enough Wealth

I saw an ad for a financial planning course and decided to visit ps146.com.au to see what was available. The Diploma course takes 8 days to complete (not quite the years of study I had to do for my Graduate Diplomas in IT and chemistry, but hey, it's probably a stretch for most insurance and investment salespeople to stay awake for 8 days of coursework!) and costs $4,360, or can be done by distance education over 4 months, for a reduced fee of $2,360.

Under the Australian Financial Services Reform Act 2001, all individuals who provide incidental personal or general financial product advice to retail customers must meet the minimum training standards as outlined in ASIC Policy Statement 146. (Hence the catchy website domain name ps146). I'm not planning on becoming a professional financial planner or investment advisor (I'm already doing a Graduate Diploma of Education in case I want to become a high school science teacher as a form of early retirement), but the subject matter looks quite interesting, and I like collecting bits of "continuing education" paper to stick on my home office wall So I decided to enrol in the course by distance education. I'll let you know if I learn anything interesting in the next four months. The subjects in the course are:

Subject Topics

Financial Planning (DFS 1) Generic Knowledge (GK)
Financial Planning Skills (FPS)

Insurance (DFS 2) Insurance (term, TPD, trauma & income protection insurance)
General insurance
Business overheads insurance
Consumer credit insurance
Travel insurance
Health Insurance

Superannuation (DFS 3) Personal superannuation
Retirement income stream products, pensions, roll-overs and annuities
Property ownership structures
Business superannuation

Investment (DFS 4) Managed investments (listed property trusts, primary production)
Securities (shares)
Foreign exchange
Derivatives
Fixed-interest products

Enough Wealth

The following

ad caught my eye - "Bid to Buy an Apartment for less than 5% of it's value!". It turns out that this is a sort of a lottery (although it appears that it probably is classified as a property auction, as there doesn't appear to be a lottery permit number on the site) with the entry (bid) fee costing $5 and the prize value being a Queensland apartment "valued" at $350,000. You have to pay $5 for each "bid" you enter in a reverse auction for the property, with a maximum of 20 bids allowed per bidder each week. The winning bid will be the lowest bid (below $17,000) that is unique at the time the auction closes - either a set date (although the site doesn't display that anywhere I could find) or when the required number of bids has been received (also that's also not listed anywhere that I could see).

In lotteries the total ticket sales generally add up to around twice the total prize pool value, so I'd guess the required value of bid fees is around $750,000. This would mean 150,000 bids. As bid amounts include dollars and cents, this means that a maximum bid of $1,500.00 would allow each bid to be unique, in which case the person who bid $0.01 would win the prize. In reality most people will be trying to bid as low as possible, so low bids are unlikely to be unique when the auction closes. High bids have more chance of being unique, but are unlikely to win.

Aside from the question of what the actual value of the prize may be, it's interesting to think of what the "best" strategy would be to employ in this contest. When you place you first bid you are emailed if it is
a) not unique
b) unique, but not the lowest unique bid
c) currently the lowest unique bid

In case a) you've obviously not won, but a lot of contestants would then proceed to place a higher bid (the email will tell you if the current winning unique bid is higher or lower than your bid). This will reduce the number of bids placed at low prices once the current "winning" bid has passed that price point.

In case b) you have to wait and see if all the lower, unique bids become "not unique" by the closing time of the auction.

In case c) you have to wait and see if anyone else bids this same amount before the auction closes.

The promoter states that if there are no unique bids when the auction closes the lowest price with two bids will be used to determine the winner - the person who placed the first bid at that price. However, with a price limit of $17,000 and $5 fee per 1c bid, this would mean that $8.5 worth of bid fees had been paid for a $350,000 prize! The promoter must be dreaming that this ends up being the case, but I doubt that that many entries will occur. In which case you'd get the best information and have the best chance of winning if you placed your bids close to the end of the auction. If I was going to enter this contest I'd contact the promoter to find out what the "stated date" for the auction to end actually is.

Assuming that the value of all bid fees ends up being around twice the prize value (like most lotteries), we can deduce that a bid of around $1,500.00 has a good chance of being unique. SO one strategy would be to enter an odd bid value around this number, say $1,384.73, and if you get notified that this is unique but no the winning bid you could enter a second bid for half this amount - say, $692.36. Assuming that all your bids came back as unique (but not the current "winning" bid) you would repeat this process until you bit a price that was not unique. If the current "winning" bid was less that this, you could then use of the remainder of the 20 bids you're allowed to place each week in small steps below this price, hoping to hit a unique value that had a good chance of winning the auction.

An alternate strategy would be to make a first bid at a much lower price point, say $236.57. The email notification would then tell you if the current winning bid is higher or lower than this price. If you made this initial bid too low there is a high probability that the bid won't be unique.

Although this contest is a bit more interesting than your run of the mill lottery, I don't think I'll enter this first auction. (I don't gamble much anyhow - and recently losing $3,000 on forex day trading has used up all my "play" money for the time being!). On the one hand no-one will know much about how many entries this auction will eventually attract, so you could be lucky and the contest doesn't attract many entries, boosting your chance of winning. On the other hand, in future auctions you could estimate from the previous contests winning bids what amount the winning bid is likely to be (say, $300-$400 or whatever), and roughly how many entries there were. If the number of contestants in future auctions doesn't increase, this extra info would help you target your bids at the prices most likely to win.

I may check back in a couple of months to see what the winning bids were for the first couple of auctions - assuming this contest is a success and the promoter stays in business.

ps. I doubt that the emails sent out to bidders will be encrypted. So a hacker that knew how to intercept emails could monitor the autoresponder emails for bids that have been entered, and therefore track what the current "winning" bid is, and ignore bid values above this price that have already been entered. Combine this info with the date the auction ends and the hacker would be in a good position to enter 20 bids that have a very high chance of winning, just before the contest closes...

I don't know how to do this sort of email hacking, but it's another reason I probably won't enter this contest - I'd hate to find out that the eventual winner was some pimply computer nerd

Enough Wealth

Credit Card Lowdown has me listed as #28 on their list of

the 100 most influential personal finance bloggers. Cool The list seems a pretty good starting point, with most of the listed blogs being ones that I've enjoyed reading. I'll have to go through the entire list carefully to check out any ones that I haven't visted before.

Enough Wealth

One of the changes made in the change to "Simper Super" went relatively unnoticed until now. All the media attention was around Retirement account withdrawals being tax free for retirees over 60 under the new rules, and the last minute opportunity to contribute up to $1 million into super before the new contribution limits come into effect on 1 July. It's only now that people have started to realise that under the new rules you will be hit with a 46% contribution tax rather than the usual 15% tax on pre-tax contributions if you haven't given your TFN details to your super fund manager. You also won't be able to make any undeducted contributions into a super fund after 1 July if you haven't given them your TFN - which would mean you can't get the co-contribution.

The media seems to have bought the government line that this change is all to do with making it easier to find the owners of "lost" super accounts. I think it has a lot more to do with clamping down on tax avoidance - the fact is that there have been a lot more tax file numbers issued to individuals than really exist in Australia. In the early days it was possible to open bank accounts under false names (no 100 point worth of ID was required back in the early 80s), and it was also fairly easy for someone to get multiple TFNs when they were first introduced (often by using a copy of a birth certificate obtained for a deceased person). These extra TFNs (under false names) were used to avoid tax. I'm sure there are still quite a few people working multiple jobs and using a different TFN for each, thereby getting the benefit of multiple tax free thresholds and low marginal tax rates. Up to now each of these jobs would have paid compulsory SGL amounts into a super account under those same false names. If the TFNs are provided for these super accounts the data matching used to find "lost" super accounts could help identify where one person appears to have multiple TFNs in use. If a TFN isn't provided for an account it could be a trigger for the ATO to check if the account appears to be legit. At the very least the lack of a TFN would mean any future contributions into the account would attract the top marginal tax rate.

I'm amazed that anyone in the media has swallowed the line that the requirement for TFNs will be used to reunite "lost" super accounts with their owner. After all, if the owner knows about the account and provides the TFN, it can't be "lost".

Enough Wealth

I'd arranged to take a day of annual leave today, as DW is now working on Mondays and Tuesdays and we had made an appointment for DS1 to go to the Children's hospital today for a "Soy challenge" (he has quite a few severe allergies, but the latest skin-prick test indicated that he may have grown out of his allergy to soy). We had to get up earlier than usual as we were due to check in at 9am and the hospital is 1.5 hrs drive from home in peak hour. We've all had a bit of a chest "bug" for the past week, and this morning DS1 didn't have much appetite and had a slight temperature. When we arrived at the hospital they first checked his weight and temperature and found that his temp was a little bit high. After checking his breathing the Doctor said he had a bit of a wheeze, so it wasn't good to do the Soy challenge when he wasn't very well - just in case he did have a bad allergic reaction to the soy. Oh well - a three hour round trip wasted. At least they booked him into the next session at the end of July.

We stopped off at the tax office on the way home as I wanted to apply for a TFN (tax file number) for DS2. I thought that I had all the required documentation with me, but it turned out I also needed my Citizenship Certificate which was at home. As I already have a TFN and had my driver's licence with me as ID, I don't quite understand why the ATO needed to sight that extra documentation, but with the tax office rules are rules.

I intended to drop DS1 off at my parent's house for the afternoon so I could sort out some of my tax paperwork with everyone out of the house for a couple of hours. But when DS1 and I arrived my parents were concerned that DS2 (whom they'd been baby-sitting) had a temperature and was crying when he coughed. I booked a visit to our GP for later in the afternoon and went home to get the missing TFN documentation and then went back to the tax office to apply for DS2's TFN.

Then back to my parents place to collect DS2 and take him to the doctor, where he got prescribed some antibiotics (what we all have caught is probably just a virus, but after coughing for a week DS2 is quite congested and may have developed a secondary infection - his temperature was quite high).

So, I didn't get much done on my "day off", although I managed to spend around 5 hours driving over 150km to and fro all day. At least DS1 and DS2 seem a bit better tonight and are resting comfortably.

At least the day didn't cost too much. The hospital visit is covered by medicare and my hospital insurance, so it didn't cost anything out of my pocket. The doctor's visit cost $50 but I got about $35 refunded by medicare (the refund gets automatically paid into my bank account electronically the next day), and the antibiotics are on the PBS so they only cost $17.50

Enough Wealth

Interest and Dividends are simple income items to calculate, with the only wrinkle being where a bank account is in joint names with DW I have to count half the interest earned on my tax return. This year I'll have earned more interest than usual, due to having a sizeable amount of 0% APR money invested from balance transfer offers. I usually don't leave too much cash sitting in interest bearing accounts as it is more tax effective to invest the money in high yield shares that pay fully franked dividends. With franking credits you have to declare the value of both the dividend received and the company tax paid, but you get a tax credit for the company tax that was paid. If your marginal income tax rate is less than the 30% company tax rate you will end up getting the surplus franking credit refunded.

For dividend income I keep all the dividend statements in one folder as they come in during the year, and also record the amounts into a spreadsheet. This makes it easy to spot if a dividend statement has gone missing, as there won't be the usual two dividends paid during the year. I've tended to less participation in dividend reinvestment schemes over the years - a combination of the extra paperwork required to keep track of the individual lots issued and the resultant complications in eventually calculating the capital gains when the stock is sold, and the phasing out of dividend reinvestment discounts by companies. Back in the 80s and 90s it wasn't unusual for DRPs to offer a discount of 5% or more of the average share price when issuing stocks under a DRP. These days most companies don't offer any price discount, so the only saving is the lack of any brokerage fee (but this is also not worth much now that online brokerage fees are so low). I still participate in a few DRPs where the number of shares issued is rounded up to a whole number. With small holdings the difference between getting 4.2 and 5 shares issued can significantly boost the dividend yield.

I also get all my dividends paid electronically into the one savings account, so it is easy to reconcile the dividend payments on my bank statement with my dividend spreadsheet. If any dividend statement has gone missing it will still appear on my bank statement, although I'll then have to do some research to check if the dividend was fully franked so I can compute the franked and unfranked components of the dividend payment and the corresponding franking credit.

If everything reconciles I can simply copy the spreadsheet totals of franked dividend, unfranked dividend, and franking credit into my eTax return. I also print a copy of the spreadsheet and store it and my dividend statements in the Tax Pack in case I eventually get a tax audit.

If I didn't manage my finances in a tax effective manner my salary income and my dividend income would combine to push me into the 42% tax bracket. As it is, using salary sacrifice and margin lending I end up with a total taxable income significantly less than my salary income alone would be. This means that my marginal tax rate is 30% (which applies to interest etc) and capital gains (held over 12 months) are taxed at only 15%.

Next - "Other" income in the Tax Pack Supplement

Enough Wealth

A lot of people are careful to hold onto their receipts in case they decide to return or exchange an item. But once you have your impulse shopping under control, you still need to retain your receipts in case an item breaks while under warranty and needs to be repaired or replaced. Yesterday our toaster gave up the ghost - despite being set for a light golden brown finish, the second slice of toast came out blackened. And when DW tried a third time, flames shot out of the toaster before it shorted out. Luckily I keep all the receipts for our electrical items with the user manuals in one drawer in the kitchen, so it was easy to take the loaster back to the store we bought it from last November. I got a credit note for the full purchase price and used this (plus an extra 75c) to buy a brand new toaster with a two year warranty. If all our future toasters decide to self-destruct while they're still covered by the warranty we may never have to pay for another toaster ever again.

There's nothing worse than having something break that you know is still covered by the warranty, but not being able to find the store receipt.

Enough Wealth