advice to children

If you are a parent you will probably understand how hard we try to teach our children about many things in life. So this week I will pass on to you 10 advices that I have built up over the years

1. Tattoos are not cool – in time to come they will agree you.
2. That mate that borrows money from you – will not give it back. He may the initial one but sooner or later you will be left with a debt and a mate that you no longer speak to.
3. Listen to old people - it is so much easier to learn from someone’s mistakes than keep making your own.
4. Bad credit will come back and bite you. Pay your accounts on time – if you cant afford it – don’t ignore it. Young people usually have problems with their mobile phone bills and older people usually get themselves into trouble with debts and bang! Bankruptcy. Don’t think that going bankrupt is the easy solution – it is not.
5. The Joneses next door are possible broke.
6. In your 20s you learn and in your 30s you earn. How many times have I told our oldest not to let the good times continue in your 30s.
7. Buy the cheapest car your ego can afford – if you are concerned about impressing girls you will be better off using the money for a nice home then a nice car. Girls like cars – women like homes.
8. Be a good person inside - more important than a nice looking car or nice fitting clothes.
9. And finally – be good to your parents. You don’t want to give them a reason to bequest their whole estate to the “lost dogs home”
10. Move out of Home – I am only joking about this one – but not a bad thought. Eh?

I am happy to hear any other advices that YOU may have given your children that it is not on this list.

one good share

About 10 minutes before I started to write this blog I looked up an update on the number of shares that I monitor regularly and it reminded me about a client that I advised to invest in one of the shares on the list because at the time he had some spare cash. The date was 20.06.11 (13 months ago) when this particular share was valued at $49.52 and his $260,000 at the time would have purchased him 5,250 shares.

Yesterday’s share price was $55.90, which would have made his investment valued at $293,475 a growth of $33,475 and this does not take into account the fact that the client along the 13 months would have picked up couple of dividends valued approx. $18,000. The overall result would have been 19.8%.

What an excellent result that would have been for him. But of course like most people investing $260,000 in the sharemarket is not an easy decision and I can understand why he would be reluctant because the sharemarket can be a cruel friend.

What is interesting to me about case me is that I can use it as a learning tool for future to educate clients to understand and follow some simple rules of investing:

1. Investing is not a SECRET. It is a by-product of knowledge and experience.

2. Buy low and sell high.

3. Don’t get caught up with people telling you the good result stories. This is why people get “sucked in” with investments because they follow good news. Just imagine if this story is told by a work mate in the lunch room. I have no doubt someone listening to it would simply find out which share and buy into it, without thinking.

4. Investors need to be patient with investments. There is no such thing as quick money.

If you have specific tax and/or investment questions, feel free to contact me.

rich taxpayers

Every “tax time” brings the same old questions and arguments about how much tax we all pay and how the tax system favours the “rich” who should be made to pay more – because the perception is “the rich people don’t pay as much tax”. This brings me to my favourite story that may explain why the rich or richer taxpayers should be left alone:

“Once a month 10 men go out to dinner together and the bill for all 10 comes to $300.00. If they paid the bill the way we pay our taxes - it would be paid as follows:

• the first 4 men (the poorest) would pay nothing
• the 5^th would pay $3 
• the 6^th would pay $9
• the 7^th would pay $21
• the 8^th would pay $36 
• the 9^th would pay $54 and
• the 10^th (being the richest) would pay $177

The 10 men ate dinner in the restaurant every month and seemed quite happy with the payment arrangement until one day the restaurant owner gave them an unexpected benefit. He said to them "Since you are all such good customers I am going to reduce the combined cost of your meal by $60.

So now the dinner for the 10 men only cost $240.00 and the group still wanted to pay the bill the way we pay our taxes. So the first 4 men continued to eat free - but what about the other six?

The six remaining men realised that the $60.00 discount divided by six was $10 but if they subtracted that from everyone's share then the 5^th and 6^th men would end up being paid to eat their meal.  The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount and the result was:

• the 5^th man now paid nothing
• the 6^th man now paid $6
• the 7^th man now paid $15
• the 8^th man now paid $27
• the 9^th man now paid $36 and
• the 10^th man now pays $156 instead of $177.

Each of the six men that contributed to the bill were better off BUT once outside the restaurant however they began to compare the savings:

 "I only got $3 out of the $60" declared the 6^th man pointing to the 10^th man who he got $21.”

“That's right," said the 5^th man” I only got $3 too. It’s unfair that he got seven times more than us."

“That's true said the 7^th man "Why should he get back $21 when I only got back $6?" The wealthy get all the benefits" - he declared.

"Wait a minute," yelled the first four men "we didn't get anything at all. The system exploits the poor".

So the nine men surrounded the 10^th man and beat him up. 

No surprise to find that he did show up at the next month's dinner. So the nine men sat down for dinner and ate without him. When it came time to pay the bill, they discovered too late what was very important - they were $156 short of paying the bill.

So here is the moral of the story: We all hate those rich people BUT the fact is they do contribute the most to the Tax System. And this is what worries me about the new “carbon tax” – it is designed to make the richer pay more but the end result will be higher prices leaving the poorer to pay more. Funny how the tax system works, eh!!!

If you have specific tax questions, feel free to contact me.

tax - july 12

This is it – TAX TIME…. Have you started thinking about getting all your things ready for the tax return? The chances are you are not - because from experience not too many people are that well organized. My advice is – if you are expecting a tax refund then I suggest you get your tax return done as soon as possible – money in your bank account is better than sitting with the tax office.

 Due dates for tax returns:

If you are lodging your own tax return direct with the tax office – you have until 31^st August. If you are using a tax agent to lodge it on your behalf then we (tax agents) have an automatic extension until end of October and possibly even longer, depending what our own lodgement programs is. But you must be added on the tax agents’ client data base.

Personally, I believe that all individual tax returns should be done as soon as possible. There is no need to delay the inevitable. Once you have done it – you will know it’s done and over for the next 12 months. Some people think of the tax return like going to a dental appointment – not true – the dentist charges more.

What information do you need:

The most important item is the income for the year. This includes all group certificates (including Centrelink payments), bank interest, dividends, rental income etc. The tax office now has the ability to track down most of the incomes earned by taxpayers such as bank interest, dividends, sale of property etc so make sure you include it. If you don’t; then you may be charged with both hefty penalties and interest charges.

What do you need to know about deductions:

When it comes to claiming expenses then there are three things you need to be aware before it can be allowed as a deduction:

1. actually incurred – unless you have spent the money then you can not claim a tax deduction. So you can not ask your tax agent “what can I claim?” You need to ask “which one of these items that I have spent can I claim?”

2. meets the deductibility test – you must be able to show that the expense was incurred in the course of gaining or producing assessable income.

3. satisfies the substantiation rules – you must have a written evidence to prove their deduction.

The three most commonly misunderstood expenses by clients are: motor vehicle, mobile telephone and home office.

Final note: this year new and lower tax rates will apply.

If you have specific tax questions, feel free to contact me.