Sunday, April 29, 2012

US Tax Code is Particularly Lopsided against Individuals and towards Corporations

The US has a particularly punitive tax regime on individuals. Not only are they taxed on their worldwide income but even if they move abroad they are still taxed. Even if you renounce your US citizenship there is a big expatriation tax to pay. They used to try to collect tax for another ten years...

By contrast, companies are only taxed on the profits they earn within the US and can employ all kinds of strategies to reduce tax by earning profits offshore. Though I am against double taxation of income (taxed at corporate and then again at individual level) this kind of lopsided tax regime is unfairly taxes different companies at different rates and makes the whole tax system look manifestly unfair.

Saturday, April 28, 2012

Government Wimps Out and Makes Super More Complicated

So the government will increase the superannuation contributions tax to 30% but only for people who earn more than $300k per year. This is said to reduce the budget deficit by $1 billion. But if there are only 128,000 people earning more than $300k per year the total is:

128,000*$25,000*.15 = $480 million

To get to $1 billion you either have to assume that they are all over 50 with less than $500k in super in their accounts, or use 30% by mistake in the calculation. So everyone from $180k to $300k per year in income will get a 30% concession and those of us earning between $80k and $180k will get a 23% concession. But those earning more than $300k only a 15% concession. Of course, this doesn't make a lot of sense and makes super more complex. It would make much more sense to abolish the concessional tax on contributions and if that is too severe an increase in tax also cut the rate on superannuation earnings a little. This would make the system much simpler by getting rid of the distinction between concessional and non-concessional contributions, salary sacrificing etc. Of course, Labor is still hoping that public servants and maybe some others earning between $80k and $300k a year will still vote for them. So they haven't raised their tax.

Saturday, April 21, 2012

Budget Cuts and Superannuation

Here in Australia we are now in the run-up to the annual federal government budget announcement. All kinds of ideas that might be in the budget are always floated in the run-up. One big one in the last few days is the idea of cutting superannuation tax concessions. Superannuation is the Australian retirement account system. It is very complex due to the nature of the tax regime. At the moment contributions are taxed at 15% rather than at people's marginal tax rate. Earnings of the funds are taxed at concessional rates and there is no tax when the money is withdrawn and once you are in the withdrawal phase there is no tax on earnings either. The latter two concessions were introduced by the previous Liberal government. So the most likely outcome is to remove the concessions for contributions. This will be a further step towards making our system like the US Roth IRA. But we will still be tax fund earnings which is the main contributor to complexity in the Australian system.

Even though obviously it is personally a bad thing for contributions to be taxed more, I think it is a sensible move. Why should high income earners get such a big concession and low income earners none? * It is the easiest way to push the budget towards surplus without raising tax rates or cutting welfare payments. All government departments in Canberra are already getting massive cuts to their operating budgets, but really there just aren't that many public servants in Canberra that this can make a really big difference, especially as in the short-term they are getting redundancy payments. I would be in favor of cutting some of the family welfare payments that the former Liberal government introduced and that Joe Hockey seems to regret, but I can't see Labor doing that.

* Of course you can flip this argument and say we should have a flat tax and super contributions are a good first step towards a flat tax. But that ain't happening any time soon...

Thursday, April 19, 2012

Houses, Google Rant...

We continue looking at houses... As we look more we gradually understand better what we are looking for. Houses vary a lot in location, age, style etc. Our ideal house now has a much smaller garden and is very new. This means it has windows already fitted with flyscreens for example - you can add them to houses from the 1950s and 1960s but they will be really ugly. Also it means that the bathroom will be much bigger and usually have a separate bath and shower. All the older houses in our price range have tiny bathrooms and it would be very hard to expand them. The whole house would need to be rebuilt and I don't think we want to do that. The houses in the new suburbs are typically on very small blocks (=parcel of land) of around 400 square metres. If the house is a single storey, little land is left over. We don't want to live in those suburbs anyway due to transport issues. We're looking now more at the 600 square metre block versus the 1200 square metre block shown in this post.

As far as finance goes we've had a deposit in a single account growing for the last 2 months now. The lender said the money needs to be there for 3 months before they can lend. It started at $71k and is now $88k. I aim to keep saving to at least $100k. I guess in a month we'll go back and see the lender again. In the meantime we can't really buy anything, and certainly not at an auction. Anyway, most houses do not sell at auctions though many are put up for auction.

When I tried to log on to Blogger today I found myself in the "new" interface. Somewhere, there was a button for the old one and I got back to my familiar world. This button is no longer available though on Google Analytics. I think the new Gogole interfaces are worse than their predecessors. What I don't understand is why when more and more people are using laptops, phones, and tablets to access the web Google is going to interfaces with heaps of white space which can only be really seen properly on a huge desktop screen? At least Reader allows you to get rid of some of the white space and was tolerable after that. But it doesn't look like the Blogger interface has that option. Please let me know if you find it. I also hate Microsoft Office's post 2004 versions - Word 2008 is OK but Excel was horrible and what I've seen of the even newer versions on PCs is no better. So I use Word 2008, Entourage 2008, and Excel 2004. I try to avoid Powerpoint. But when I use it I switch between 2004 and 2008. It's particularly annoying that when you open 2004 Excel graphs in 2008 they are completely reformatted and a total mess in many cases... And 2004 Powerpoint slides don't always look right in 2008 either...

Tuesday, April 03, 2012

Platinum Capital Launches Share Buyback

A lot of Australian closed end funds - known as listed investment companies in Australian jargon - have been trading well below net asset value since the Global Financial Crisis. Some like Platinum Capital (PMC.AX) used to trade at a premium to NAV probably because of accumulated undistributed franking credits.* Some funds have introduced capital management plans to try to boost their share prices. PMC recently announced that it was implementing a share buyback and also it is now posting the daily NAV on its website. I have about 20,000 PMC shares...

* Franking credits are credits for Australian corporation tax paid that are distributed with dividends in Australia. These can be used to reduce investors' personal tax bills. If distributed dividends are less than profits, undistributed franking credits will accumulate. This is what drives the relatively high dividend yield of Australian stocks. They are not included in stated net asset value.

Monday, April 02, 2012

Moominvalley March 2012 Report

As usual, everything is expressed in US Dollars unless indicated:

Spending this month included a hotel bill that has since been refunded. Without that we spent $4622 despite traveling overseas for 10 days. Because the Australian Dollar fell, investment income in USD terms was negative, but adjusting for the changes in exchange rates we would have made $13,129. Net worth increased by $3,786. But in Australian Dollar terms net worth rose by $A26k to a record $A605k.

Investment returns were -1.10% in USD terms compared to 0.71% for the MSCI World Index and 3.29% for the S&P 500. The Australian stock market languished in relative terms even in local currency terms. In AUD terms we made 2.80%. Our cash allocation is now 15.51% of net worth. Up from 14.78% in February.

For a few more details you can check me out on NetWorthIQ.

Sunday, April 01, 2012

Preliminary Monthly Report

Doing the accounts for March this morning... Looks like we hit a net worth of $A600k for the first time, partly because of the fall in the Australian Dollar to $US1.03 this month. But I'm noticing that quite a lot of our investments are hitting all time highs in terms of the profit we have made on them. These are:

CFS Developing Companies Fund
CFS Diversified Fund
PSS(AP) (Snork Maiden's superannuation fund)
Celeste Australian Small Companies
Acadian Global Equity Long-Short
Argo Investments
CFS Geared Global Share Fund

Some others are also quite close to peak profit levels. Of course a lot of other investments are still way down from their peak profit level or are underwater... Two common themes among the winners are small cap stock funds and recent investments. Small caps have been doing very well - they usually do at the beginning of the business cycle, which is why we have invested in them quite heavily. Recent investments haven't yet had a chance to lose money :)

Our house-buying fund has reached $A82,973 from $A77,386 last month. The goal is to reach around $A100k.

Apart from computing rates of return, I use the monthly accounting to check up on whether all our retirement contributions have been properly made by our employers, whether the fees we are being charged are correct, and whether we have been paid money we are owed. I found that my superannuation provider has been charging around $A100 a month for "inbuilt benefits" since I cut my member contribution to zero in September. This makes no sense to me as there is nothing in the prospectus (PDS) about increased fees if you cut your contributions. It does say that you can't get optional life insurance etc. and in fact the fund refused me the coverage, which I tried to get. So I think they are now charging me for coverage that I don't have. I sent them an e-mail querying this...

Anyway this is how our Australian superannuation accounts are doing:

The green line is Snork Maiden's account and the blue line my current account, both of which we are contributing to. The red is my account from when I worked in Australia previously. I rolled it over into a commercial fund manager and it is invested rather riskily. Hence the big fluctuations. We have now managed to save $100k in our new super accounts.

I'm also still owed money for travel to a conference back last November, and for consulting over the last six months. In the latter case, government budget cuts and local circumstances look like I lost the gig now (right after my security clearance was finally approved at the end of February, but it would be nice to get paid for what I already did! The conference money is also owed by another university. My own employer is actually great at reimbursing money. I submitted a bill for our recent overseas trip this Tuesday and already the money was in my account on Friday!