answers to last week's blog

OK, its time for the answers to be revealed. If you got them all correct – then well done, you! If you got (even) one wrong then you failed.

 QUESTION 1

If you were offered cash – which option would you pick?

1. $500,000 or
2. $1 doubled 20 times (consecutively)
3. Depends on how much tax I will need to pay in each case
4. $1,000,000 on which you will need to pay tax at your marginal tax bracket.

 THE ANSWER: has to be B. I suspect you all should have got this one correct. For those that didn’t and you would like to know how to calculate it – this is what you do. Grab a calculator and press 1 X 2 then press X again and count ONCE. Then you press 2 then X and count TWICE and so on until you have counted TWENTY – the amount you should see on your calculator is 1,048,576.

QUESTION 2

Assume your tax bracket is in the 30% bracket and you have claimed $1,000 as a tax deduction. How much will this benefit you?

1. Full $1,000 because it 100% tax deductible
2. $300 because it is your tax margin
3. $315 you need to add the Medicare Levy
4. None really because I’ve already spent the $1,000 so how would I benefit anything?

THE ANSWER: option B, although option D is just as good in my books. I am surprised how many people would spend the money for that elusive tax deduction not realizing that tax deductions do not benefit you 100%.

QUESTION 3

Which one of the following is a greater benefit to you?

1. tax deduction of $1,000 or
2. tax rebate of $1,000

THE ANSWER: option B. This is because a tax deduction reduces your tax payable whereas a tax rebate directly reduces the amount of tax you pay.

Feel free to send me a feedback on whether you are enjoying my blog.

hot seat

This week’s blog will be based on the TV show “Hot Seat”. I will be Robert McGuire and you will be the contestant. Now remember! – it is the “Hot Seat” not “Who Wants to be a Millionaire” because you will not be able to call a friend – you will only have 20 seconds to pick the answer. Read the questions, think about the answers and pick the one that you think is correct. So, are you ready? Close the door, settle down, concentrate and let’s go:

QUESTION 1

If you were offered cash – which option would you pick?

1. $500,000 or
2. $1 doubled 20 times (consecutively)
3. Depends on how much tax I will need to pay in each case
4. $1,000,000 on which you will need to pay tax at your marginal tax bracket.

 THE ANSWER: next week

QUESTION 2

Assume your tax bracket is in the 30% bracket and you have claimed $1,000 as a tax deduction. How much will this benefit you?

1. Full $1,000 because it 100% tax deductible
2. $300 because it is your tax margin
3. $315 you need to add the Medicare Levy
4. None really because I’ve already spent the $1,000 so how would I benefit anything?

 THE ANSWER: next week

QUESTION 3

Which one of the following is a greater benefit to you?

1. tax deduction of $1,000 or
2. tax rebate of $1,000

 THE ANSWER: next week

Just tell me to “LOCK IT IN ROBERT”

children accounts

As a parent (and a financial planner) I always encourage parents of young children to think about setting up investments for them because I know (from experience) how important it is to have funds put aside for their education or even giving them a little start in life when they turn say 21. All three of my children benefited from the savings plans that I had set up when they were young. If I could turn the clock back I probably would have put aside even more but hindsight is a beautiful thing. 

If you have set up an account or you are planning to set up a fund for the kids it is important that you are aware of the tax implications because special “higher” rates apply to incomes for minors, known as “children’s tax”. If the income earned by minors is caught under the “children’s tax” that it can be a very expensive exercise – here are the rates:

Up to $416                         nil tax

$415 - $1,307                      66%

$1,307 onwards                45% of the total amount of income

The ides behind the “children’s tax” is to discourage parents from transferring funds into children’s accounts to simply reduce their own tax bill. Technically, setting up children’s bank account should not be done to avoid tax.

Children bank accounts generally are opened in the parents name with the child’s name added to the bank account or the parent may open the bank account in trust for the child. In either case the funds are seen to be owned by the parent and the interest must be declared in that parent’s tax return.

The rule therefore is: because the parent owns the money – the parent must include the interest in their income tax return.

If you have already set up “children’s accounts” and you are not sure or concerned with how it will affect your tax position – feel free to call me or email me.

favourite joke

Do you have a favourite joke? You know the one – you are with new people, someone tells a joke and you just jump in with your joke and you just know you will get a laugh? I too had a favourite joke but last time I told it was back in 1984. Let me share what happened.

I was a 30 year old, our first son was 3 years of age and my wife was pregnant with our daughter. I had just changed my job from an assistant accountant in a small engineering firm to become the Regional Accounting Manager for a large company with a large increase in my salary, plus a car plus expenses. And from a job with no staff to a job overseeing over 30 employees. Those 30 people were represented by 6 heads of dept of which 4 were women and 2 blokes. So I am into my 3rd or 4th week into my new job and at our weekly meeting I decided to tell MY JOKE:

“Now I am not saying my wife is ugly, but last time she went to a beauty parlour she was there for 3 hours – and that's only to get a quote!” Funny yes? Of course it was funny because every time I told it I always got a laugh even when I told it in front of my wife.

The next Friday at about 4.15pm my boss’s secretary came into the office and tells me that Mr. Lee would like to see me in his office.  Something was wrong! I knew it. As I said I had only been with the company for 3 to 4 weeks and every time Mr. Lee wanted to talk to me he would come to my office. So with my guts feeling uneasy I strolled into his office and he tells me to close the door behind me. Now I really feel there is something wrong.

As I sat down he tells me: “We have a problem with you young man! None of the staff out there want to work with you. Apparently you have been telling sexist jokes demeaning women. All the women don’t want to work with you and the blokes say you are arrogant”. Wow! What the hell happened here? All of sudden I didn’t feel well at all. I sat there looking at him not knowing what to say. I felt so lonely and all I could think of was my pregnant wife, our mortgage and what will I do next. It felt like I was there for hours. Didn’t know what to say or what to do. He looked at me and before I could say anything he asked me “What are you going to do?” Well, what can I do? – I stuffed up and the only thing I could do was to offer my resignation. I was just about to do it when he followed up with: “I will tell you what you are going to do! I got you here because you are one of the best “numbers man” I have worked with and I need you on board. You have 3 months to get rid of all of them and get your own people on board. We have a job to do here and we are going to do it with the right people”.

The story goes on and becomes more interesting as to what happened in the next 12 months but that’s for another blog (may be).

Has YOUR favourite joke ever caused you any problems in the past?

south morang

Back in 1974 I was doing my second year of my Diploma of Accounting and one of my lecturers was a man called Ken Hopper. At the time, to me he was an “old guy” but looking back he was probably in his late 40’s or early 50’s.  Many times he would give us advice and he would say: “Boys! If you want to be smart you should be thinking of buying land in South Morang because of you look at the demographics shifts in Melbourne you will see that this will be a great area to invest in for the future!”

At the time, I was a 19-20 year old with no real sense of investing or even thinking about investing. All I wanted to do is either get out of the lecture and go out or even just hoping to finish my Diploma so I can get a job and but myself a car. I thought what a crazy thing to say because who would want to buy in South Morang? Are you crazy? It was “the bush” so far away from everything.

I have told this story many a times to clients that come into my Bundoora office because it is not far from where I did my accounting but also to prove that (the old guy) Ken Hopper was right in what he was saying because the traffic streaming past my office window was the proof. But now I have more proof.

Statistics have been released to show that the suburb is growing at it’s fastest pace. In 2001 South Morang had 6,667 people and in 2011 that number grew to 38,895. It seems that in one decade it grew by the entire population of Carlton, Fitzroy and Collingwood.

Mr. Hopper! Why didn’t I pay more attention to you?

Does anyone reading this know of Mr. Hopper? I would love to meet with him and tell him what I remember about him most.

Do you have a story of “missed opportunity”? If yes, please let me know it may be a good yarn for my next blog.

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.