Franking credits, CGT discounts and what is deductible? Charlie Viola answers your tax questions

HOSTS Alec Renehan & Bryce Leske|27 June, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Charlie Viola is a Partner at Pitcher Partners, providing financial advisory and wealth services to high net worth and ultra-high net worth individuals. Specialising in ongoing investment management and administrative services, Charlie’s personally responsible for over $1.5 billion of funds under management. Charlie has been recognised by Barrons as the #1 adviser in Australia in their 2018 Adviser Rankings, #4 in 2019.

For this episode we reached out to the Equity Mates community in our Facebook discussion group and asked for your questions when it comes to tax time, and Charlie has kindly agreed to come and help us out. Our working title for the episode was ‘Make Bryce excited about tax!’, did we succeed? If you want to let Alec or Bryce know what you think of an episode, contact them here

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Bryce: [00:00:16] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help you break down the barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you going? [00:00:31][14.7]

Alec: [00:00:31] I'm good. Bryce. It's that time of year again. Tax time. Yes. We actually called this episode when we were planning it. Make Bryce excited about tax and I love tax. So yeah, it's weird. I don't know why we call it that. Because this is actually your Christmas. It is my you receipts all year, tracked all your dividends in a spreadsheet and then this is a time where it all comes to fruition. [00:00:54][22.5]

Bryce: [00:00:54] Yes, but we're not here to do this ourselves. We are bringing in one of the experts who has joined us on the show before. It is our pleasure to welcome Charlie Viola from Pitcher Partners to the show. Charlie, welcome. [00:01:06][11.6]

Charlie: [00:01:07] Gents, How are we? [00:01:07][0.1]

Alec: [00:01:08] Good, good, good. Excited for tax time. [00:01:10][2.0]

Charlie: [00:01:10] I certainly like an accountant's Christmas study gene. So we had an accounting firm have a city gene party every year and we always call it our winter Christmas party. [00:01:19][8.6]

Alec: [00:01:19] So I know [00:01:20][0.7]

Charlie: [00:01:20] it allows all of the accounting guys to let their hair down and and have a heap of fun. So, you know, [00:01:25][5.0]

Alec: [00:01:26] we'll look every year we get asked to do a episode on Tax and Bryce and I by no means tax experts. Bryce is more of a tax enthusiast, we could say. So we're glad that you've joined us today, Charlie, to add a little bit of expertize to to this conversation and and answer some questions from the Equity Mates community. We've gone out to them, asked what they what questions they have, and will be throwing all the hard ones at you today. [00:01:51][24.8]

Bryce: [00:01:52] But if you haven't come across Charlie before, he's a partner at Pitcher Partners, providing financial advisory and wealth services to high net worth and ultra high net worth individuals specializing in ongoing investment management and administrative services. Charlie is personally responsible for over one point five billion of funds under management. He has been recognized by Barron's as the number one advisor in Australia in twenty eighteen and number four in twenty nineteen. And I think the rankings have just come out for twenty twenty one. How had we go, Charlie. Yeah, I got robbed number ten. [00:02:30][38.6]

Charlie: [00:02:31] Now look, in all seriousness, they were like fourteen thousand advisors in the country, right. So to be ranked among the top ten I guess is, you know, it's humbling and a bit of an honor and all of that sort of stuff. You know, it's good work from a marketing perspective. Yeah, yeah. [00:02:45][14.6]

Alec: [00:02:46] Yes. I feel if anyone from Barron's is listening, listen to this episode and then you need to rewrite Charlie for twenty twenty two. Yeah. [00:02:53][6.8]

Bryce: [00:02:53] And if you haven't listened to the episode that we did with Charlie, it was at the start of the year. Yeah. You must go and listen to that because he provides some pretty fascinating insight into how he thinks about portfolio construction and investing across different asset classes before we get stuck. In a disclaimer and disclosure, though, the hosts of Equity Mates here are not licensed professionals and Charlie is authorized to provide tax advice as it relates to financial advice and as a consequence of investments. None of us are aware of your personal financial circumstances and all comments will be general in nature. So if you have any questions, please say a licensed financial professional and get your own tax advice that takes into account your personal circumstances. Do not take financial advice from a podcast [00:03:38][44.9]

Alec: [00:03:39] and always remember that an accountant services to prepare your tax return are tax deductible. Yes. [00:03:46][6.7]

Charlie: [00:03:47] So yeah. And probably important to to think, look, I'm an investment guy. I like my job day to day is help people find the right assets, buy the right assets at the right time, put the right money into the right buckets. But it's very hard to do my job without sufficient tax knowledge. So, you know, so whenever we're talking to a client about taking value, moving money around their portfolio, changing ownership, all those things have tax consequences. So really, all of the questions that will probably address today are all some of those really quite kind of simple, you know, how are things taxed? House capital gains tax work, all things that as an investment person, you really need to know when you're advising clients so well, it's not the primary thing that we do. We have a good depth of knowledge around this stuff because it impacts outcomes over time. So. [00:04:38][50.5]

Bryce: [00:04:38] Well, let's get stuck into it, shall we? We'll start with the basics of tax, Charlie. Then we're going to talk a bit about dividend income and franking credits go a little bit deeper on capital gains. Think about overseas and then also look at some tax deductions stuff. Plenty to get through. And a lot of this is straight from the Equity Mates community. So let's start with the very basic question of how are investments taxed in Australia? [00:05:02][23.8]

Charlie: [00:05:04] So investments are taxed in Australia just like any other income or returns. So if an investment that you have generates income, whether it be by dividend. Distribution, then you pay tax on that income so that income gets added to your income for the year, and when you do tax return at the end of the year, you pay tax on it. If you make a capital gain on that investment, which simply means that if you buy something for a dollar and you sell it to two points, you've made a capital gain, you'll pay tax on that capital gain. And we'll talk about, I think, the specifics about how those gains get taxed. But while there will be some other complexities that go with that in terms of deferred income from various different trusts, et cetera, generally speaking, for the types of investments that most of the Equity Mates community are holding. So, you know, you know, sort of widely held ETFs, which is generating dividends and distributions, that income has to turn up into a tax return and you have to pay tax on it. [00:06:01][57.4]

Alec: [00:06:02] And speaking of investments that the Equity Mates community hold, we will be talking about crypto later in this episode. So I know a lot of people have questions on that. We will get to that. But if we stick with the basics, Izabel in the Equity Mates community asked are how is capital gains tax calculated? [00:06:20][18.9]

Charlie: [00:06:22] So if you sell an asset for more than you bought it, then you have a capital gain. So look, really simple math and we'll do the math, for example. So if you bought something for, say, five dollars and you sold it for 15 dollars, then you've made a ten dollar capital gain, that 10 dollars of capital gain is effectively taxable. So it's taxable income. So now probably the right time to say this, that 10 dollars will turn up in your tax return. Now, whether it's all of the ten dollars it turns up in your tax return or half of it, it turns up depends on how long you've held the asset for. So where you've held the asset for more than 12 months, you get a 50 per cent discount. So, again, simply if we buy an asset for five, we sell it for 15. We make a ten dollar capital gain. If you've done that within a 12 month period, the ten dollars gets added to your income for the year and gets taxed as part of your normal income. When you do your tax return at the end of the year, if you've held the asset for more than 12 months, then you get a 50 percent discount. So that ten dollar gain that you made only five points added to your tax return at the end of the year. And that ignores any of the the loss provisions where you've made a capital loss. Previously on Another Asset. [00:07:36][74.3]

Alec: [00:07:37] Let's put a pin in that and get to that later. Let's stick with the basics for now. I think that capital gains discount point is important, though. It's not like that. Your tax rate changes is just the amount of the game that is tax changes. [00:07:50][13.1]

Charlie: [00:07:51] If you think about tax in the really simplest fashion, all that happens at the end of the year is the tax office just seeks to add up all of the income that event. So if you think about it in like Bryce a spreadsheet, all you're doing is small. So all you're doing is adding your employment income to your dividend income, to your distributions, to the income from your gardening and your cleaning job. And then the income that you get added to that from a capital gain is is either the whole amount or half the amount, depending upon how long you held the asset for. And then you get a sum total at the end of what your taxable income is. It's that taxable income number that determines what your marginal tax rate is. Yeah. So some people will go, oh, capital gains tax. If I a holder for more than 12 months, my tax rates. Twenty three and a half per cent or it's twenty four per cent. It's not that simply by virtue, if you're on the top marginal tax rate that people are just assuming that it's 50 per cent simply you add the 50 per cent to your income to [00:08:53][62.1]

Bryce: [00:08:54] be nice if you cut your taxes. And just on that capital gains tax discount, is that applied to all asset classes, all asset classes? Not discriminatory. It's just not [00:09:05][10.9]

Charlie: [00:09:05] discriminatory on the basis that the asset is considered for want of a better term property. Yeah. So shares are in that in that same bucket and we'll get to it. Crypto is in that same bucket. It's treated like property. So whether it's whether you've bought shares for a dollar and sold them for five, you've made a capital gain. Yeah. So the four Dollars of gain gets added to your taxable income unless you've heard of more than 12 months at which two Dollars would. Same with crypto, same with property, and really same with virtually every asset class. The only one that's not is foreign currency. It's the only one that's not as foreign currency. Foreign currencies basically treated as income. So if you buy a foreign currency for one thing and you sell it for another, it's that's traded as income. [00:09:50][45.0]

Alec: [00:09:51] You don't don't trade foreign currency. So I've never even had to think about that. The next question we had was, is dividend income treated differently to income from your job? And you have sort of answered that before, that you take all the different pockets of income in different ways. You make money and it all rolls up into your total amount. [00:10:08][16.9]

Charlie: [00:10:08] Yeah, that's right. So so the answer is no, not really. You just add up all of your income at the end of the year and then you'll end up with a tax. Well, a taxable income amount and remembering your taxable income is simply a product of at all of your incomes together, put them all in the spreadsheet and add some all add them all together, and then you get the bottom number and then you let your deductions. So where you've got deductions for education expenses or interest expense or know work related expenses, and then you have your taxable income number and you pay tax on that taxable income number, and that determines what marginal tax rate you're in, depending upon which band you sit with him. So for those people who are lucky enough to be earning over one hundred eighty thousand, obviously their marginal tax rate over that amount is the forty nine cents in the dollar. Yeah. [00:10:53][45.3]

Alec: [00:10:55] Now, Charlie Bryce and his girlfriend Harriott may need to file a joint tax return for the first time ever this year. Big, big step for Bryce. And he's hoping that area is as as enthusiastic about taxes. He is. What do they need to know? Does anything change from filing as a single person to filing as a couple? [00:11:14][19.9]

Charlie: [00:11:15] Yeah, there's no such thing as a joint tax return. So there's no such thing as a job. [00:11:18][3.5]

Alec: [00:11:19] That's all you're telling everybody. [00:11:21][2.7]

Charlie: [00:11:22] Everybody does their own individual tax returns. So the only the only reason why you put spousal income on each other's tax return generally is for like Centrelink, for selling purposes and for some Medicare benefits and those types of things. But no, Harriet and Bryce have to do their own individual tax returns. If, for instance, they've now got a joint bank account and, you know, they're stashing all of their millions of dollars in a joint bank account at point one per cent, the point one per cent of income, because it's a joint bank account, they effectively get half of it each and half of it goes into their individual tax rates. [00:11:54][31.9]

Bryce: [00:11:54] So that would be the same for like the same name. Yeah, dividend income or anything that assets are held jointly. Yeah. You split that. That's exactly right. Do you have to split it. Yes. Right. So I don't [00:12:06][12.4]

Charlie: [00:12:07] know. So you both are you both on title. So or you both owned that assets. So you're getting half of the income each. [00:12:13][5.5]

Bryce: [00:12:13] Well I'm glad we're doing so at the moment because I want to say I don't want her to see my crypto trading. [00:12:17][4.1]

Alec: [00:12:20] And does the same apply for deductions as well, like if they got a joint bank account, the spending on things together, do you just split it down the middle? [00:12:27][7.3]

Charlie: [00:12:27] Yep, it's exactly the same. So if you own again, fit, for the example, if you own an investment property together and you know you've got the simple investment property which is negatively geared, you're effectively getting half of that negative gearing benefit each in that you're claiming half of the deduction each. But now everybody has to do their own tax return. All right. [00:12:49][22.0]

Bryce: [00:12:50] So we've got a couple here just to quickly close out. This one's from John and Tom. And I think we have answered but answered it. But it's is there a different tax treatment between trading and investing? How do you determine which is which? And I would assume that that just comes down to your time frame between if you've sold within 12 months or not. [00:13:06][16.1]

Charlie: [00:13:06] Am I right? Yeah, no, not quite, actually. That's a really good question. They're trying to answer the question. So that's actually a really good question from John and Tom. And it's quite specific said generally for most of us, we will will be treated as it'll be treated as investing. Yeah. So where if you buy something and then sell it, it'll be traded in the capital gains tax net or effectively on what's considered on capital account, where you move from doing things from an investment perspective to operating a business that is trading at that point. You're then going to have everything on revenue account, which is treated as treated as income. So where it's your business to buy and sell things. So where your business to buy and sell things, that's considered as that's effectively considered as trading stock and that then everything, including your gains, will simply be treated as as income where you're investing and you're not running a business which is trading things then because remembering that let's say you make a capital gain, but then you make and you make that within 12 months it's taxed, that the whole amount is added to your tax return, effectively taxed at your own marginal tax rate. But don't forget, if you make a loss, you're offsetting that loss against the gain. So there is a difference being treated as effectively investing versus trading. And where this all came from was, you know, I think, you know, when the Tax Office came up with their rules a thousand years ago, it was for farmers because they were trading sheep and cows and whatever else effectively as trading stock. But it works exactly the same way for property developers, for instance, when they go and they put up a great big, you know, tonne of units somewhere and they sell those they're selling those on income account, not on capital account. So if you're running a business here to be really if if you're running a business that is the trading, it's all treated as income tax revenue of that business. If you are simply investing and it becomes a little bit of a gray line, you can probably get away with having. Things done as an investor for a while, but if you start to create a real pattern of this, then the ATO will get wise to it sooner or later. [00:15:23][136.2]

Alec: [00:15:23] So so there are some examples where this is obvious. You know, like if you're not working a nine to five job and you're trading and that trading is your sole source of income, like that's that's a business. [00:15:34][11.2]

Charlie: [00:15:35] Yeah. Yeah, that would be a business. Lots of people weren't treated that way for a year or two. And it's sooner or sooner or later, you know, that person's accountant will kind of go, we need to show this is trading income because remembering that those people are still getting a little bit of a free kick by reducing their taxable income because of any losses that they would have seen throughout the time. [00:15:55][19.9]

Alec: [00:15:55] But so what if you are working a nine to five? Are there any ways that that would then have to be traded not as investment that would have to be treated as trading like if you make more money as a trader than you do from your 9:00 to 5:00, or if you do a certain number of trades a year or anything like that? [00:16:09][13.5]

Charlie: [00:16:09] No, all those things are irrelevant. It's just are you carrying on a business that is that in the business of trading that stock, whatever that stock might be, whether it's shares, whether it's property, whether it's you don't whether it's sheep and cows, if you're running a business that is that is effectively doing that, then you're said to be running a business and therefore it's all on income account. [00:16:28][19.1]

Bryce: [00:16:29] So if I set up a holding company and just did all my investments through that, that's what would be the [00:16:35][5.1]

Charlie: [00:16:35] case, especially. No, it's only if, again, if you're running a business doing that and if you create a pattern where you're buying things in the morning and selling them in the afternoon and you're total, that company's only ability to generate revenue is the buying and selling of things, then it would be argued that that's that's trading stock as opposed to making investments where remembering that making investments sometimes just as a result of that, you're going to make capital gains and you're going to make capital losses again. In the real world. What happens is everybody starts with the investment mindset, and it's only after doing it for a period of time that the accountant or the ATO kind of go, you've had too many transactions, you're doing this is a business and you're seeking to generate profit as a business doing this. Gotcha. [00:17:23][48.1]

Alec: [00:17:23] So if we move to a question from, you know, from our Facebook group, what happens if you do or you don't provide a tax file number to your share registry? [00:17:32][8.6]

Charlie: [00:17:33] So if you don't provide the taxable number to the share registry, they'll simply withhold the top marginal tax rate of the dividend. If you do provide it, they'll just pass it all through. So and then and then it'll be up to you as to how you declare that income in your in your tax return. So provide a tax on that because it's a it's a it's a tannish otherwise. [00:17:49][16.1]

Alec: [00:17:50] Yeah, yeah, yeah. [00:17:50][0.7]

Bryce: [00:17:51] So let's move on to dividend income and franking credits, let's say at the top again, let's define franking credits. What are they. [00:17:59][7.9]

Charlie: [00:18:00] Yeah. So simply it's the tax that's already been paid by the company. So if you hold especially a big Australian company like a company CBA, it makes profit, it pays tax on its profit. But you as a shareholder receive a dividend from that company. When it pays you that dividend, it'll generally pay you that dividend in two pieces. It'll give you cash and it'll give you a credit for the tax that they've already paid on your behalf. So the franking credit is the credit of the tax that they've already paid on that dividend on your behalf. So makes sense. Yeah, which [00:18:35][35.5]

Bryce: [00:18:36] means you don't cop it on your end. [00:18:37][1.3]

Charlie: [00:18:39] No. So what happens in reality? Sorry, this is what happens in reality. Again, let's just use CBA as an example. If CBA pay you a hundred dollars of dividend and that's the grossed up amount. So that's the total, that's the total dividend they will give it to you is seventy dollars of cash and thirty point franking credits. So you get you physically get seventy dollars of cash and you get a credit for the thirty cents to thirty dollars that they've that they've paid. Yeah. But what you put on your tax return or goes into your tax return is one hundred dollars because you've actually got a hundred dollars of taxable income. It's just that they've paid thirty dollars of that for you. So if at the end of the year just using that one dividend and that that one simple example, if at the end of the year your marginal tax rate is less than 30 cents in the dollar or less than 30 per cent, you get a refund of your franking credits because you've paid more tax than you should have. If your marginal tax rate is higher than 30, then you pay the top up tax because you've only paid thirty over the forty nine that you should have. If we go back to the last federal election, remember, and where Shorten and Bowen lost the election effectively because they were trying to take away the excess franking credits, what they were effectively seeking to do for all those people who had excess franking credits, where at the end of the year, when you add it all up, the individuals marginal tax rate was lower than 30 cents in the dollar and therefore they got a refund shorten about trying to take that and there'd be no refund. So you can use the credit, but you wouldn't get a refund of the excess of the credit. And that's why there was this thing about are you really on? You know, taxing little old ladies with their Seeb, their sebaceous, because that's who it mainly affected, it mainly affected self-funded people who are who are maybe generating seventy or eighty thousand dollars a year of investment income. They've probably got too much money to have an age pension. It was their sole source of income. But they but once you average it out, their marginal tax rate was less than 30 cents in the dollar. So they were getting a refund of those excess franking credits to bring them back down to their normal marginal tax rate. So it affected them and it affected super because especially self managed super funds, because self managed super funds have, you know, sorry, all super funds have got a maximum tax rate of 15 per cent, which means that if the franking credits it is at 30, then there was lots of those excess franking credits coming back. And that's what Shorten and Bowen were seeking to be able to add to their revenue account, that they were seeking to take that excess away. [00:21:07][148.8]

Bryce: [00:21:08] Nice. That makes complete [00:21:09][0.8]

Alec: [00:21:10] sense. So that's what a franking credit is. And I guess the big question that comes out of that is, as a retail investor, how do you find out, one, if you earned any franking credits? And then two, if you do that? And how do you actually claim them? [00:21:25][15.0]

Charlie: [00:21:25] Yeah, so you know that you've got them. You're going to get a dividend statement and it'll tell you on the basis that you're providing your tax file number to the registry, remember all of your dividend income and all of your franking credit information actually flows directly into what we call your prefill. So you prefilled tax return, it's already there, really. You just got to go into the prefill. You just got to go to the tax site or tell your accountant to check that it's all been there and it's all flowed through properly. So in effect, what tends to happen is someone will quote something as being, oh, I've got 100 dollars a fully franked dividend. Yeah. So just important on the terminology, the example I used before where CBA have made a hundred dollars a profit, they've paid thirty, thirty dollars on that profit. They've given you 70. The terminology there was would be that you got a 70 dollar fully franked dividend because you then need to gross it up. And there is a really simple mathematical equation where you simply take the dividend times about 30 divided by 70 and it'll give you the franking credit number and you add the two together and that's taxable. That's your taxable income. So that makes sense. So if I simply went 70, Dollars times 30 divided by 70, it gives me 30, 30 plus 70 is my Dollars dollars of taxable income. So with any individual at the end of the year, when they see all of their income, they'll see their investment income as being, I don't know, twenty five thousand dollars, that twenty five thousand will then have the franking credit attached to it. So there might be five thousand or four thousand dollars of franking credits. All that happens is, is that when they add the if it's twenty five thousand of income and four thousand a franking credits, when they add the twenty nine thousand dollars to their tax return as income, they will have already paid four thousand dollars of tax. So they're not getting taxed on that again. So again, remember we said before that tax in Australia is really simple. Just add up all the roads and you get to the bit that you get to the bit at the bottom. One of the rows is the franking credits. Yeah. And then you get to the bottom and you say, okay, well, now I've got my taxable income. No, I pay tax on that. So if you've made one hundred thousand point of income, you're going to pay for easy math, say twenty four thousand dollars of tax on that. One hundred thousand of income. But on that twenty four thousand dollars of tax, we've got to pay how much you've already paid, but you've already paid the franking credit amount. Yeah, because it's already been withheld. It's already been paid to the tax office by the company. Does that make sense. Yeah, makes sense. So and then I think the next question was what happens if someone isn't paying where it's partially [00:24:02][157.5]

Alec: [00:24:04] you've nailed it [00:24:04][0.6]

Charlie: [00:24:05] partially franked. All that means is, is that not all of the distribution that's been paid to you has already had tax paid on it. So that same simple equation that I used before, which was take your dividend amount that you've received in cash times by 30, divided by 70, you then times it by the by the percentage of that dividend that is franked. So if it is 100 percent franked, it's just 70 times 30, divided by 70 times one because the whole thing. But if it's only 50 per cent franked, then they've only they've only withheld a portion of the tax on that on that dividend. So you simply go 70 times, 30 to about 70 times whatever percentage the franking was. This is often easier done with the whiteboard. [00:24:52][46.7]

Bryce: [00:24:53] Maybe we'll get Charlie that we just bought a new whiteboard. So you're in [00:24:57][3.5]

Charlie: [00:24:57] front of the way. I must say, this is a much more fancy than the last place. [00:25:00][2.9]

Alec: [00:25:01] I will live it up on the outside. [00:25:02][1.1]

Bryce: [00:25:03] So actually, so that's some dividends in cash for a lot of our community. Dividends will be part of dividend reinvestment plan. How do you treat that when it comes to tax time? [00:25:14][10.9]

Charlie: [00:25:15] No different, just because what you've done is is used that cash to go and buy more shares, you still got to pay tax on the income so that because that's all that's happening, you're just making an election to take your cash and go back and buy more shares. You've still got to pay tax on that income because you've still physically received the income. You've just used it for another purpose. And instead of buying bread and milk and rice and racecars or whatever it is that people do what they decided to buy more shares [00:25:41][26.4]

Bryce: [00:25:42] than real growth [00:25:42][0.3]

Alec: [00:25:43] rates. That's something. So I'm not you're explaining how with the CBA example, you get. Seventy seven billion in cash, thirty dollars in franking credits with the dividend reinvestment. Are they reinvesting the 400 or are they reinvesting just the 70? [00:26:00][17.3]

Charlie: [00:26:01] Just the 70. [00:26:01][0.4]

Alec: [00:26:02] And so does that mean you can still claim even if you're reinvesting the dividends, you can still claim the franking credits? Of course, yeah. [00:26:07][5.7]

Charlie: [00:26:08] Because it's still taxable income, but there is only seventy dollars a physical cash for them to be able to go and buy shares. So makes sense because the rest of it, they've already paid to the tax office, so they don't physically have that anymore. It's a credit in the tax system. Yeah. [00:26:22][14.3]

Alec: [00:26:23] Now Charlie, we could talk franking credits and income all day, but let's move to capital gains. And a really common question we saw in the Facebook group was around the practice of dollar cost averaging, where you buy over time at different prices, potentially over years. And then you sell something and or you sell all of it. And how the hell do you trade that for for tax purposes? So let's let's separate selling some and selling all and start with selling all because I imagine that's going to be simpler if you know Bryce Anirban dollar cost averaging over a number of years into an ETF and then we sell it all in this financial year. How do we think about that for tax? [00:27:04][41.3]

Charlie: [00:27:05] It's just simply your blended or your average, your average cost base over that time. So if you've continued to buy shares that continued to go up and sometimes they go down and whatever, it'll just be whatever the blended or average cost base over the whole time frame is. So which means that you do need to either have a good broker that can show you the line by line tax lot so you can average it out often with most of the broking accounts. Now it actually shows you your average. [00:27:31][26.3]

Alec: [00:27:32] I was going to say [00:27:32][0.4]

Charlie: [00:27:33] so that one's really easy. So, you know, whatever that average, your blended prices with partial. Yeah, it's kind of the same, but just slightly more complex in that each of those purchases that you've made month by month, year by year, whatever it is, is effectively a different tax lot. So each of those tax lots for want of a better word are basically treated separately from a capital gains tax perspective. So when you go to sell some of the shares, all that you need to do is either do one of two things. You either elect which tax lots you physically selling so you can pick and choose. And we do this all the time, right? We pick and choose because we want the optimum tax outcome at that point in time. So if we're offsetting capital gains, then we'll go to the ones where we're making losses and we'll sell those first. Yeah. If we've got other losses and we want to clear out a bit of stuff now, then we'll go and get the will go and get the ones with the biggest gains because we know we've got some other losses to offset against it. But yes, the answer is you can pick and choose which tax loss if you don't make an election, which tax loss, the ATO will simply do what's called FIFO first in, first out. So it'll simply take the oldest ones and assume that they're the ones that you're selling. [00:28:46][72.4]

Alec: [00:28:47] And when you say if you don't make an election, like, how do you actually make that election? [00:28:50][3.7]

Charlie: [00:28:51] Tell your accountant when you're doing your tax return, because when you do your tax return, when you make a capital gain, you actually have to input the cost base. So if there's no cost base that's been input, then effectively the Priefer will just pick up your first the first ones that you've done so far. It doesn't seem to fly in, fly out its first in cash in in this scenario. There is a piece around this about record keeping just because people tend to forget a little bit and what's probably happened in the past where people have forgotten they've just ended up blending through any parshall's the whole of it over time, which the tax office tend to be reasonably relaxed about, that they don't really care too much as long as at the end, once they're all sold, that's kind of the same outcome. But the best way to maximize your outcomes is to know what your tax thoughts are, to know what you bought in it, and and maintain a record of those, [00:29:45][54.4]

Bryce: [00:29:46] which is really just how. When when did you buy it? At what price? How many. Yeah. And that's that's it. Yeah. [00:29:51][5.3]

Charlie: [00:29:52] Which the brokerage account will tell you. [00:29:54][1.2]

Bryce: [00:29:54] Yeah. So yeah. So this is from Brendan. What is capital gains tax offsetting and how does it work. [00:29:59][5.4]

Charlie: [00:30:00] Yeah. So when you make a when you make a capital loss you can offset that loss against future capital gains. So again, if you just go back to that very early example, I bought something for five of the fifteen. I made a ten dollar capital. Mean, before I apply the discounting to that 10 points or whether I've held it for 12 months or not, I work out whether or not I've got any carryforward capital losses where I've sold something for a loss and and I offset that capital gain with the loss that I've made. So if in another transaction I bought something for 10 and sold it for three because it was terrible, then I've made a seven dollar capital loss. So I take my ten dollar gain. I reduce that by the seven point of loss that I made of. Now I only got three dollars of capital gain and I then discount that three point. [00:30:48][48.0]

Alec: [00:30:49] I think that's an important point, that you apply the discount, the vast majority to the offsetting. [00:30:53][4.1]

Charlie: [00:30:53] So so you apply the discount after that. So you do the offsetting of the capital gain first and then the discount. [00:30:59][5.2]

Alec: [00:31:00] So Charlie, you were just explaining how you offset the order in which you offset compared to the 50 percent capital gains discount. I guess the final part of this is, are there any rules around like how long you can hold on to offsets or does it have to be the same tax year or anything like that? [00:31:17][17.4]

Charlie: [00:31:17] Yes, a capital gains that you made, you always pay the capital gains tax in the year that you made the gain with losses. You carry forward those losses indefinitely until you use them and those losses you carry forward and they just simply die with you. So if you're unlucky enough in your crappy investor and all you've ever made, then you'll die with lots of capital. [00:31:35][17.2]

Alec: [00:31:35] You can't put them in your will that [00:31:36][1.3]

Charlie: [00:31:38] they die with you, which is actually a really good point right from estate planning point of view. If you've got these whopping big share portfolio with these whopping big capital gain because you bought CBA shares at nine point fifty and CSL a dollar fifty and whatever else. But all the way along you've accumulated these these these losses. When somebody goes to inherit those shares, they inherit all of your cost basis. But but the capital losses that you might have accumulated and carried forward forever and ever die with you on the. [00:32:08][29.6]

Alec: [00:32:10] So when you have you lose if you inherit the cost base and then you sell as soon as you inherit the shares, you then claim that capital loss. [00:32:19][8.9]

Bryce: [00:32:19] No, no, no, no. You have to pay the capital gains. [00:32:21][2.4]

Charlie: [00:32:22] You've got to pay the capital gain at that point. But the loss is gone. [00:32:24][2.0]

Alec: [00:32:24] Oh, OK. [00:32:25][0.5]

Charlie: [00:32:25] So the losses die. So carryforward losses die with the individual that had those losses. Right. And everybody will always know what they carry forward. Capital loss position is because there's a line item in your tax return that actually shows you what your prior year carryforward losses are. And then if you if you're accumulating them, then that number will continue to accumulate over time. And it's a really important piece from a planning point of view. So if you want to take value on some investments and stuff, often a good time to do that is where you've cleaned out a bit of the crappy part of your portfolio that you didn't like. And you've made some losses. Use those losses to offset the good parts of your portfolio where you are taking a bit of value or taking a bit of money off the top to, you know, buy bread and milk and rice in most countries. [00:33:08][42.7]

Bryce: [00:33:08] Covid. [00:33:08][0.0]

Alec: [00:33:09] Yeah, yeah. So people if people are unsure of like what we mean here, like the very practical example is I lost a hell of a lot of money on my first investment, Slater and Gordon, if I had never lost any money on an investment after that, and I had claimed my loss on Slater and Gordon back in like twenty thirteen or whatever it was, I could still have that on my tax return. [00:33:32][23.1]

Charlie: [00:33:33] If you haven't used it, you haven't used it up yet. It's still in your tax return. Yeah. So that you know the twenty thousand dollars that you lost on, on that, not that much struggling units. [00:33:44][10.6]

Alec: [00:33:44] You can't afford racecars but yeah. [00:33:46][1.8]

Charlie: [00:33:47] Yes. You carry that loss forward until you use it. Until you use it. So given how good you guys are at this, I'm sure you've used it. You've also got to get back to life. [00:33:57][9.9]

Alec: [00:33:58] And do you have do you have to use it when you get capital gains or can you choose not to and like hold it in reserve you [00:34:04][6.0]

Charlie: [00:34:04] have to use. Yeah. So it's an automatic it's an automatic process in your tax return. Remember, the tax return process in Australia is really simple. It's all very automated. It'll automatically work out what your capital gains tax is and it automatically picks up those carryforward losses. [00:34:16][12.5]

Bryce: [00:34:17] Can you retrospectively claim a loss? Like if I if Ren didn't claim that Slater and Gordon lost from six years ago, can he put it on his tax return for this year? No. OK, so you've got to do it that year. [00:34:30][12.6]

Charlie: [00:34:30] So the only time that you can do that and there's some there's some good tax precedent in this is if you you weren't aware you didn't know that you need to go to the tax office and get a private ruling. So you need to hire a really good stuff and go and get a private ruling. So he would have to be substantial. And, you know, property developers and those types of people do that sort of stuff all the time because it's substantial. I probably wouldn't do it for the nine point twenty. [00:34:54][24.5]

Alec: [00:34:56] Look, it was more than nine dollars twenty, but I'm not going to be. [00:34:59][2.6]

Bryce: [00:35:01] So to close this section out on capital gains, this is a combined question from INAT and Gary, what is a wash sale and how does the ATO determine the wash sale of a selling to minimize your. And then buying back in. [00:35:15][14.7]

Charlie: [00:35:16] Yes, or wassail is where you where you sell and buy the same thing effectively at the same time to create a capital loss or to offset other gains that you've got. So, again, really simple example. Let's assume that inner or Gary have sold their CSL shares. They've made a whopping began on and they're now holding a different share. That's sitting at a loss position. But they really like it, right? They want to hold it for the long term. So what they would do is they would sell the stock that they like and that they want to hold, but is sitting at a loss to create a capital loss to offset the capital gain on on CSL. But then they would just buy that share back again at the lower cost base. Yeah. So they're effectively washing that share, so they're washing their new shares or whatever it might be that they're now sitting on a big loss on and they rebuying it reduces it effectively reduces their cost base in they using that loss against the other guy in the tax office take a very dim view. And it's what's considered Part 4A, which is the part of the Tax Act, which is tax avoidance. So you are allowed to minimize your tax. You are not allowed to avoid paying. Tax washing is considered tax avoidance. What's the difference? It's timing. It's how quickly you do it, to be fair. So do people do it? Absolutely. Should you do it? Absolutely not. [00:36:45][89.5]

Alec: [00:36:46] Yeah. When you say it's timing, are there any hard and fast rules around timing or is it more a vibe of the thing? The ATO will assess it [00:36:54][8.1]

Charlie: [00:36:54] like same day. Is that the same same same day is not the right way to do it? Yeah, yeah. We need to be really careful here in terms of telling people, you know, give it two weeks and redo it because it's still a wash at that point. [00:37:08][14.2]

Alec: [00:37:09] I'm not saying if this is like an opinion, I'm all ears that the ATO have. Are there any legislative rules? If not, then let's [00:37:14][5.9]

Charlie: [00:37:15] say that the rules that the rules are pretty simple here. If you're doing it for the purposes of avoiding tax on something else, then it's a wash regardless of when you do it. OK, you know, is it standard practice to do it with a bit of a gap in between? Probably. But it's still if you're doing it for the purposes of avoiding tax on something else, then it's a wash sale and it's and and it's using those avoidance measures which aren't allowed. Yeah. [00:37:39][24.2]

Bryce: [00:37:40] So before we move on shortly, we'll just take a quick break to hear from our sponsors. Now, as investing gets global, we're obviously moving some cash overseas and investing directly in other markets. So this one's from Tom and Khush. Overseas investments treated differently to Australian investments for Australian taxpayers, particularly around overseas capital gains and losses and dividend income. [00:38:02][22.0]

Charlie: [00:38:03] You know, not really. So remembering as a as an Australian resident, for tax purposes, you're taxed on your worldwide income. That includes your investment income. So whatever income that investment produces just will fall into your tax return as normal. So for for most of us who hold shares in, I don't know, Platinum or Magellan or whoever. When you when you buy those investments on day one, you actually complete a tax withholding form called the W4 or Ben. The Ben is effectively the US withholding form. In effect, that allows the. That allows the IRS or the other tax jurisdiction to withhold a portion of of your tax. But because we have a double tax agreement, you actually get a credit for the foreign tax that's been paid. [00:38:51][48.7]

Alec: [00:38:52] All right. Okay. And how do how do we see that credit and claim that credit it flows through? [00:38:58][6.0]

Charlie: [00:38:58] So you get a tax statement from Platinum or Vanguard or Magellan or whoever, and it flows through into your tax return. OK. So and it works. It's kind of it works a little bit the same as what franking credits do. So you get a foreign tax credit. But the simplest answer to that is if you make income or capital gains on foreign assets, they are treated just like they were they would be if they were here. [00:39:20][21.7]

Alec: [00:39:21] And so there are some countries like the states where we have a tax treaty with and we fill out that form W8 then. Yeah, yeah. Well, I assume we don't have a tax treaty with every country. Are there countries where if we hold investments there, we have to pay overseas tax? [00:39:39][18.2]

Charlie: [00:39:40] It depends on what the asset is. Most widely bought ETFs and managed funds and stuff that you buy through Australia have actually got an Australian tax jurisdiction, which means that they're kind of doing all of that for you and you treat it as an estate and tax resident. The yes. And most of you know, if you again, if you're holding a Vanguard ETF or Platinum or Magellan, they've all they've all effectively got an Australian underlying tax unit trust, which all it's doing is flying the income through to you if you've gone and bought. Guatemalan coal mine or something that you may [00:40:13][32.9]

Bryce: [00:40:13] think is on the planet [00:40:14][0.7]

Charlie: [00:40:16] or you bought a Ukrainian tollroad or something and you make a gain in that country where we don't have a double tax agreement, you know, you may well pay tax in both jurisdictions. You may well pay tax in that jurisdiction as a nonresident for tax purposes, and then you'll pay tax in Australia without getting a credit. But for the Equity Mates community, for the assets that they're holding, most of them will have those Australian tax jurisdictions style rules where it's just a flow through and you just add it to your tax return. And it's all pretty simple. [00:40:43][27.4]

Alec: [00:40:44] Until Equity Mates pivots to equity mines, I think quarter mile and coal mines are off the cards. And obviously, if we are buying a Guatemalan coal mine, we will get professional financial advice before we do such. [00:40:57][13.3]

Charlie: [00:40:59] And look, foreign foreign tax jurisdictions is a really specific part of tax advice, not something that I do. I'm not I'm not authorized to provide foreign tax advice. There are lots of really good accountants out there. So if you are you know, you're especially if you're a US citizen living in Australia, where you still carrying a US green card. Heaps of really punishing rules around that. Go and get some advice. Same with the UK, you know, which we seem to have obviously lots of people coming and going from the US in the UK and investing here and still got assets there. It's the sort of thing where you need to go and get really specific advice around that. We're never going to cover it in a podcast like this. It's, you know, this sort of stuff for those widely held, you know, managed funds and ETFs, it's pretty simple because it's just a flow through. [00:41:46][47.3]

Alec: [00:41:47] Yeah. And I assume that, you know, we're truly global here, Charlie, not just an Australian audience. And there's a lot of Australians who are living overseas who still hold like ASX listed investments. But I assume the answer is similar there, that if you're an Australian living overseas, holding Australian investments, wondering what the tax treatment is, get professional advice, [00:42:04][17.6]

Charlie: [00:42:05] get professional advice, fairly simple. In Australia, we you are always assumed to be a tax resident of Australia until you declare that you're not. So where you are accepted as not being a resident for tax purposes, then you are treated as a nonresident and the nonresident tax rates are slightly different to the resident tax rates. You lose the tax free threshold and you lose the benefit of the franking credits. All right. So again, you get advice, but you are always considered to be a resident for tax purposes unless you're not, which is really important. But if you're not, so if you're sitting there listening to this while watching, you know, euro twenty, twenty or something in France, and you've been there for a whole stack of time and you're still holding all your Australian shares, then you're going to be taxed as a nonresident for tax purposes and you lose the benefit of the franking credits, which is the big one. Yeah. [00:42:58][53.3]

Bryce: [00:42:59] So let's move on to deductions. Do you claim tax deductions from capital gains as well as from income? [00:43:06][6.3]

Charlie: [00:43:07] No. No. So so deductions in deductions, you know, just to find the right words, he being costs. Yeah, they're tax deductible to income where you've got deductions from capital gains, it's because of capital cost. So where your cost base changes. And that will generally only occur for things like, you know, an investment property where what you're doing is not maintenance, but it's upgrade. Your cost of that asset is actually going up, which means your cost base has gone up, which means that your future capital gains come down. Yeah, there was a question in there about brokerage brokerage adds to your cost base. It's not tax deductible. It had to last year. So if you've bought ten thousand dollars worth of CBA shares, but it's cost you ten thousand and forty four dollars because you got forty four dollars a brokerage, your cost base on those shares is ten thousand and forty four. [00:43:58][50.5]

Alec: [00:43:58] Yeah, yeah. I think that's an important clarification and one that we've heard a few times get wrong. Not in the Equity Mates community. They, they wouldn't get that wrong, but just around the traps. So I think that's an important clarification. [00:44:10][11.6]

Charlie: [00:44:11] It's a capital cost because it's a capital transaction cost for the purchase of that asset. It's not a cost of maintaining that asset, a cost of maintaining it. If you've got a broker admin fee where they charge you five bucks a month for access to their platform or something, that's a deductible expense because it's just an ongoing fee that you're paying to have the platform available to you. [00:44:33][22.8]

Alec: [00:44:34] I think that's a great example. IJI, which is a online broker that I use, have a fifty dollar like inactivity fee if you don't do three trades a quarter or something. So that would be tax deductible. [00:44:45][10.7]

Charlie: [00:44:45] Yeah. Yeah, that's tax deductible because that's the cost of maintaining, that's the cost of maintaining an account which is otherwise there for the production of income. [00:44:52][7.3]

Alec: [00:44:53] That's great to know. Yeah. You've saved me fifty dollars [00:44:55][2.5]

Charlie: [00:44:57] so then I just make more trades. [00:44:58][0.9]

Bryce: [00:45:00] Another one from the community in interest repayments on investment loans. Is that a cost or a deduction. [00:45:07][7.1]

Charlie: [00:45:09] It's both because you're paying the interest, you're paying the interest expense and it's tax deductible. So where you've where you've borrowed money for the purposes of generating income, so where you've borrowed money for the purposes of investment, the interest expense on that loan is tax deductible, [00:45:23][14.0]

Bryce: [00:45:23] but not the principal. But not that would be nice. [00:45:26][2.4]

Charlie: [00:45:27] So if you if you start to pay off the principal and you punch potholes out potholes into the debt itself, those capital repayments clearly are not tax deductible, only the interest expense. [00:45:38][10.7]

Alec: [00:45:39] So and I assume that the interest on investment loans is similar to interest on other types of loans as well as like interest, interest or the different buckets of interest [00:45:51][11.9]

Charlie: [00:45:51] and interest as interest, as long as the purpose of the borrowings was for the purposes of investment or generating income. Yes. So you've got a [00:45:59][7.3]

Alec: [00:45:59] lot of interest is not the same. [00:46:00][0.9]

Charlie: [00:46:01] You've got to have you've got to have the left in the right hands so that if the purposes of the debt is to produce income, so therefore the is going to get some taxable income from you, then you get a deduction for the cost associated with producing that income. That's how it works. You've got to have you've got to have both sides of the equation, if that makes sense. Yeah. So you're only getting a tax deduction because you've gone out and borrowed money and you're spending money trying to drive income, which is going to drive revenue to the taxman. [00:46:27][26.1]

Alec: [00:46:27] Yeah, yeah, yeah, yeah. So Bryce travel holiday loan is not the interest on that is not tax deductible. [00:46:33][6.1]

Bryce: [00:46:35] I do not have a holiday [00:46:36][0.7]

Charlie: [00:46:39] and you know, I don't know, there's probably some quirky thing there that someone would find a deduction there somewhere because you've gone off to do research in other jurisdictions on [00:46:45][6.6]

Bryce: [00:46:46] Equity Mates through [00:46:46][0.5]

Charlie: [00:46:47] for the London Stock Exchange. Doesn't matter if it happens to be at the same time as your honeymoon. You know, with Harry at the time, you're probably sailing close to the truth. [00:46:58][10.6]

Alec: [00:47:01] So speaking of deductions, you know, there's a lot of different financial platforms and subscriptions that people can get, everything from data providers to things like share site, which help you track investments to even things like, I guess, the Australian Financial Review or any of these subscriptions tax deductible. And are there any factors or criteria when determining what is tax deductible? [00:47:25][24.1]

Charlie: [00:47:26] Yeah. So the tax deduction still comes back to are you meeting that costs or are you paying that cost to help you with the provision of the production of of taxable income? So if you are a race car driver and nothing of what you do or how you generate income is from financial markets, yet you pay a subscription fee to the IFR, then that's not tax deductible. If you work in financial markets, then there's an argument to say that you're doing research and you're getting information and therefore it is tax deductible, it's tax deductible to the business. So the criteria is still consistently linking it back to the relevance of that deduction versus the production of income. So makes sense. [00:48:10][44.4]

Bryce: [00:48:11] Yeah. So just to you know, plenty of people in the Equity Mates community have a nine to five job in a nonrelated financial services, yet they're generating some small dividend income through their investment portfolio. [00:48:21][10.6]

Charlie: [00:48:22] Sachem a share platform costs like the cost. That'll be tax deductible because the only reason that you've got the platform is to is to hold shares to produce income. So, yes, that's a that's a relevant expense. That would be absolutely deductible. [00:48:36][13.8]

Bryce: [00:48:37] All right. So let's move across to a few sort of general capsule's, and one of them is around cryptocurrency from Browdy. Now, I know you're doing a bit of work on this at the moment, pitcher partners, which is really handy because it is a very great well, I'm sure it's not. But a lot of people who are trading, it might say to me it's a new area. What are the tax rules around crypto at the moment due to capital gains tax discount apply, you know? Yeah. [00:49:03][26.5]

Charlie: [00:49:04] Just so unlike foreign currency, until such time as someone changes the class of what how the ATO see crypto, it's treated as property. So it's a it's a taxable asset from a from a property point of view. So if you buy your crypto cryptocurrency, if you bought your Bitcoin at 30 and you sold it at fifty thousand dollars, then you've made a capital gain. And it's simple as that. And, you know, you've got the cash that you've got. You've got capital gains tax to pay. If you've held it for less than 12 months, you'll have all of that gain added to your tax return for that year. So we're going to do a paper that will share with the Equity Mates community that covers all of the rules around cryptocurrency, but also the monitoring that the ATO are now starting to do around cryptocurrency because it is so fast paced and it is so hard to prove that the ATO have really beefed up their ability to kind of find what people are doing and how much they're using it for trading purposes as opposed to for, you know, pure kind of. Hold and keep and then sell it again later on. [00:50:11][67.0]

Alec: [00:50:12] And for all of those people who think crypto is anonymous and decentralized and can't be traced, you're most likely buying it through a heavily regulated broker. So they report to the taxman. [00:50:25][12.9]

Charlie: [00:50:25] So if you're using any of the normal broker accounts, you know, what are you guys you've been to? Right. Swift bamboo takes bamboo, independent reserve. All those guys have got tax reporting obligations. You'll actually see on the website that it says, you know, powered by KPMG tax or whatever it is, they will produce a year end tax report that comes to you as the investor because you've provided the tax file number. It will also flow directly into your tax returns. Yeah. [00:50:53][27.9]

Bryce: [00:50:53] So there's no getting around it. No. [00:50:55][1.8]

Charlie: [00:50:56] No gain on something you've got to pay tax on. [00:50:58][2.3]

Bryce: [00:50:58] Yeah. And it's you should be happy with that. You've made a game. Yeah. Yeah. And this is just another one from Jonathan. Another General. If you move shares from a single to a joint name, do you have to pay capital gains tax or any considerations there? [00:51:14][15.8]

Charlie: [00:51:14] Yeah, you do. So if you're moving it from so Bryce with all your shares, if you own them and you decided now that you're so in love that you want Harry and, you know, joint owner, then you're effectively disposing of half of your interest. So you so you're disposing of half of it. So you're going to pay effectively capital gains tax on a half of the fact that you might [00:51:33][18.3]

Bryce: [00:51:33] lose half my net worth. [00:51:34][0.8]

Charlie: [00:51:34] Yeah, Tik-tok. So when you say [00:51:36][1.7]

Alec: [00:51:36] dispose of it, you basically like so you don't necessarily have to hurry. It is that kind of how you can [00:51:41][5.3]

Charlie: [00:51:41] because you've gone from being 100 percent owner to effectively only a 50 per cent owner. You've now got an event where you've sold half of it because remember, now half of the income is going to go into somebody else's tax return, half the future capital gains. So, yeah, it is a CGT event, but it's only a 50 per cent it's only a half an event because you've only got rid of half of it. If you give all of it to somebody else, then it's then it is. That is a full CGT event. So it's 100 per cent where you've effectively sold or disposed of that asset. And it's no different to if me is as an individual, decide to sell an asset or move an asset into my family trust or into my super fund as a contribution, I'm disposing of that asset. So I have a capital gains tax event when that occurs. [00:52:29][47.2]

Alec: [00:52:29] So that's the key question is Bryce gives half to Harriott but doesn't get anything in return. Is the price that he's selling it at zero because he got nothing or is at the market price [00:52:41][11.9]

Charlie: [00:52:42] prevailing market price at that time [00:52:43][1.2]

Alec: [00:52:43] so you can't get away with it. [00:52:45][1.2]

Bryce: [00:52:45] The sell really high [00:52:46][1.3]

Charlie: [00:52:48] rumoring from an ownership point of view without getting too technical. There are there are really there are kind of three ways to own things. You can own things by yourself. You can own things jointly, which is often known as joint tenants, or you can own things tenancy in common. Yeah. So the difference between joint tenants and tenants in common, joint tenancies, we just simply own them together. Tenants in common is there is effectively two names in the register which fifty per cent really specifically belongs to Bryce and the other fifty per cent really specifically belongs to to Haria or to whoever. So in that scenario you would only do the tenancy in common if you're worried from an estate planning point of view, asset protection and family law, or you actually do want someone to pay you for it because then you would be holding them in that way where you just holding it jointly. It's just assumed that it's effectively a gift, because then if one of you if one of you die, the other one just automatically owns the rest of it. Whereas with tenancy in common, if one of you die, the other 50 per cent actually goes into their estate. [00:53:57][68.8]

Alec: [00:53:57] Oh, okay. And then it follows their will and all of that. Yeah. Let's talk about past the moment. So, Charlie, we want to thank you for taking the time today. We do have a couple more, one from Craig, which I'm going to hope was meant in jest. Oh. How does the ATO identify targets? [00:54:16][19.1]

Charlie: [00:54:19] I don't always know, to be honest. I think there are certainly some high risk individuals. And, you know, I would think that most of the time it's with people with really large taxable incomes or people that have done, you know, kind of really big transactions or there's significant changes in somebody's tax return is often how the ATO will identify them. I think I don't always know. I think high risk individuals tend to be people with big, complex structures where, you know, where assets seem to outstrip income. You know, I would think that most of the people in the Equity Mates community are low risk from ATO scrutiny point of view. But equally, you know, the systems are pretty powerful. You know, you're getting dividend statements, put the stuff in your tax. Pay your tax and [00:55:09][49.4]

Alec: [00:55:09] yeah, and just don't be stupid with deductions as well, like it's not worth getting done by the ATO to save a few dollars on tax. Yeah. And then final question, as we mentioned at the start of the interview, getting a financial professional to help you prepare your tax is tax deductible, which is great. What advice would you have on finding a good accountant or tax professional? And similarly, are there any red flags or people or companies to avoid if you really want to get personal and name and shame? [00:55:43][33.6]

Charlie: [00:55:45] No, not really. I mean, the Australian tax system is pretty simple. You know, the Prefill arrangements means that, you know, most of the information gets captured anyway as a result of tax file number being on those those investments. Look, I'm a big one for using professional services like, you know, a partner professional. So if you said otherwise and, you know, I think it's like anything like if you're smarter than the person sitting across the other side of the table and don't use them, if I can add value to make sure you're talking to people that can add value and have good conversations with you around this stuff, but you're going to get advice, get your tax done by a good accountant, make sure you're maximizing what you can do and make sure you're getting all the instructions exactly right. And yeah, just to be really clear, all of this stuff today has been general in nature. And as it relates to investments, I'm not allowed to give actual tax advice over these types of things, and I'm not actually allowed to give tax advice, you know, where it doesn't relate to planning and where it doesn't relate to investments. [00:56:44][58.9]

Alec: [00:56:46] Yeah, I think that's an important point to end on. None of us know anyone's personal circumstances, Bryce and I don't know anything at all. [00:56:51][5.6]

Charlie: [00:56:53] So we work that out later. [00:56:54][1.2]

Alec: [00:56:57] But look, Charlie, we want to thank you for coming in and helping us understand this this whole world of tax a little bit better, I can think. We safely say we got Bryce excited about tax. [00:57:08][11.0]

Bryce: [00:57:08] Yeah, certainly cleared up a lot there, Charlie. So thank you very much. [00:57:12][3.7]

Charlie: [00:57:13] Thank you. It's always, always a pleasure. [00:57:13][0.0]


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