Australian Unity Merger Terminated

Australian Unity Office Fund (AOF.AX) announced that the merger with the Australian Unity Diversified Fund has been cancelled. It's odd that it is large shareholders of the listed fund who scuppered the deal when I thought the merger was disadvantageous to the unlisted fund members.

Second Australian Unity Merger Plan Scuttled

Australian Unity and Cromwell announce that their fund merger plan is cancelled. I wasn't very enthusiastic about the merger and so am happy it has been called off. Cromwell's fund only included offices, so while the deal was diversifying for Cromwell unitholders it was not so for Australian Unity unitholders. I invested in the fund to get diversified property exposure, not just offices.

Corporate Actions

Two current "corporate actions". Regal Funds (RF1.AX) announced a 1 for 3 rights issue at the net asset value of AUD 3.79 per share. Price prior to the announcement was AUD 4.47 per share. I plan to fully take up the entitlement. The question is what do I sell in our SMSF to take up the offer as I only have AUD 27k in cash and will also need to pay taxes etc some time... The rights issue will cost AUD 55k.

Australian Unity Diversified Property Fund announced that they plan to merge with the ASX listed Australian Unity Office Fund (AOF.AX). The joint fund will continue to be listed on the ASX. There are four reasons I will vote against this merger:

1. The reason I invested in an unlisted property fund is to not be exposed to stock market fluctuations in the value of the fund.

2. We will receive shares in AOF according to the current NAV of that fund. Its price on the ASX is much below that. That means that the market value of our shares will instantly fall.

3. I invested in a diversified fund because I didn't want to just be exposed to office property. The new fund will be dominated by offices.

4. The reason for the merger is supposedly to allow easier capital raising for the development pipeline while not increasing the gearing of the fund. The gearing will actually fall. I wanted to be in a geared fund.

P.S. 28Oct21

I just read the AOF annual report. It is much less profitable than Australian Unity Diversified Property Fund despite not charging performance fees. Or maybe because of that? It's surprising that they are looking to give up those fees! That is a fifth reason to vote no. I will withdraw our investment prior to listing if the merger is approved. According to the fund we get six days to withdraw after the meeting. Two of them are a weekend. But usually they only allow a maximum of 2.5% of the fund to be withdrawn per quarter. So, now I am seeking clarification on that. The merger document is a bit vague on how much withdrawals will be allowed.

April 2021 Report

This month we completed the initial investments in our self-managed superannuation fund (SMSF). I stopped systematic trading for the moment. We also reached a big round net worth number in  Australian Dollar terms. But once I raised the value of our house to reflect a recent sale in our neighborhood, I realised we would have actually reached that number in February.

The Australian Dollar rose from USD 0.7612 to USD 0.7725. It was another month of increases in world stock markets. The MSCI World Index rose 4.41%, the S&P 500 by 5.34%, and the ASX 200 rose 3.48%. All these are total returns including dividends. We gained 2.54% in Australian Dollar terms or 4.06% in US Dollar terms. The target portfolio is expected to have gained 1.76% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.07% in US Dollar terms. So, we outperformed these benchmarks and did OK vs. the MSCI. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and only Australian small cap had a negative return. Things that worked well this month:

• Tribeca Global Resources was the largest contributor in dollar terms contributing AUD 21k. Gold bounced back, contributing AUD 15k. Unisuper, Cadence Capital, and Pershing Square Holdings all also contributed more than AUD 10k. Other notable strong performers were URF.AX (NY/NJ residential real estate), 3i (UK private equity), and soybeans.
  

What really didn't work:

• The worst performers were Hearts and Minds (HM1.AX) and Domacom (DCL.AX).
  

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We show the desired asymmetric capture and positive alpha against the ASX200 index. Against the MSCI World Index we could be doing better and we are doing a little worse than the median hedge fund levered 1.6 times.

We moved decisively towards our desired long-run asset allocation again as I implemented our SMSF investments. In October 2018, when we received the inheritance we were 48 percentage points away from our target allocation at the time. Now we are less than 6 percentage points away. We compute this by calculating the Euclidean distance between the target and actual allocation vectors. This is the square root of the sum of squared differences between the actual and target allocations for each asset.  Real assets is the asset class that is now furthest from its target allocation (4.6% of total assets too little):

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. This was a very busy month. I'm only recording net changes here:

• Australian large cap: I invested in Argo Investments again.
  
• Hearts and Minds (HM1.AX): I bought back 20k shares I had sold a while ago at higher prices. This is a long only global equities fund.
  
• Hedge funds: I increased our holding of Regal Funds (RF1.AX). This wasn't intentional, but I didn't get the price I wanted in exiting part of our holding in a regular brokerage account while also establishing a position in the SMSF.
  
• Private equity: I increased our holding of the Pengana private equity fund (PE1.AX).
  
• Bonds: Our Medallion Financial baby bond matured and we bought shares in Scorpio Tankers,  Star Bulk Carriers, and Ready Capital baby bonds, increasing our net holdings of US corporate bonds by USD 50k. We also bought shares in the Australian MCP Income Opportunities Trust (MOT.AX).
  
• Art: I invested in another painting at Masterworks.
  
• Real estate: I invested in the Domacom and Australian Unity Diversified Funds. I also doubled our holding of URF.AX (NY/NJ residential property).
  
• Futures: I successfully closed a calendar spread trade in soybeans and stopped systematic trading of ASX futures.
  

April 2022 Report

World markets fell sharply with the MSCI World Index (USD gross) falling by 7.97%, the S&P 500 falling 8.72%, and the ASX 200 falling 0.85%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7494 to USD 0.7114 increasing Australian Dollar returns and reducing USD returns. We lost only 0.16% in Australian Dollar terms but lost 5.23% in US Dollar terms. The target portfolio lost by 2.34% in Australian Dollar terms and the HFRI hedge fund index is lost 0.93% in US Dollar terms. So, we out-performed all benchmarks apart from the HFRI index. I felt like I was losing a lot of money, but in Australian Dollar terms it wasn't that bad.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

In a reversal of last month real assets, gold, and futures gained money, while other asset classes lost. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold rose in Australian Dollar terms, though the USD price fell. US stocks performed worst and detracted from performance most, while gold performed best and contributed most to performance.

Things that worked well this month:

• Gold gained AUD 21k, Winton Global Alpha 10k, Tribeca Global Resources (TGF.AX) 11k, and Aspect Diversified Futures 8k.
  

What really didn't work:

• Pershing Square Holdings (-22k), Australian Dollar Futures (-17k), and Hearts and Minds (HM1.AX, -11k) all lost more than AUD 10k.

Our SMSF continues to perform quite well compared to our employer superannuation funds:

They're all indexed to 1000 in April 2021.

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are basically performing a bit worse than the average hedge fund levered 1.67 times. Hedge funds have been doing well recently.

I adjusted the leverage on the URF.AX investment  to roughly 3:1 in our gross asset allocation as there still seems some possibility that the wind-up deal will be voted down by the shareholders.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I invested in the Unpopular Ventures rolling fund on the AngelList platform. The initial investment is USD 10k and then the same amount each quarter for eight quarters.
• Our listed investments trusts are now all in a CommSec account within the SMSF, which means I get accurate tax reporting and can subscribe to dividend reinvestment, which I did.
  
• I sold 10k shares in Pengana Private Equity (PE1.AX). These were shares in my name that I held to get accurate tax reporting, which I don't need any more. I sold at AUD 1.69 and the price is now AUD 1.49. So, that was a good move.
• I sold AUD 30k for USD and bought one more AUD futures contract, increasing AUD exposure by about 100k, which was a mistake.
  
• I withdrew AUD 25k from Domacom Investments after two crowdfunding campaigns just vaporized. 
• But I started accumulating units in another property at Domacom. It is a market garden property near the planned Badgery's Creek Airport. 60 Devonshire Road, Rossmore.
  
• I bought 12.5k WAM Leaders shares (WLE.AX).
• I invested AUD 10k in the Winton Global Alpha Fund, which has been doing well recently, for a change as I predicted. Seems futures work well in inflationary environments but not in low inflation environments. I based this opinion on this research.
• I invested AUD 10k in the Australian Unity Diversified Property Fund.
  
• I bought AUD 7k shares in Pendal as a merger arbitrage play.
• I invested in a new painting at Masterworks: "No Hopeless". I felt this might be over-valued but took the plunge anyway.
  

Australian Investment/Insurance Bonds

Investment/insurance bonds are an Australian investment vehicle, which is a bit like a superannuation fund but actually is formally a type of life insurance. You make an investment like in a super fund, but instead of earnings being taxed at 15% they are taxed at the corporate income tax rate, which is 30% currently. If you withdraw the money after 10 years, no additional tax is payable. This can be a good idea in two cases:

1. If you are in a high tax bracket so that additional investments are taxed at up to a 47% marginal tax rate and you either have maximized your superannuation contributions or want the flexibility to get the money out before you retire.*

2. You want to invest in your children's name. Investments for children in their name are subject to very high penalty rates of tax in Australia to prevent income-splitting tax dodges. You can invest in a "trust account" in the child's name and avoid these penalty rates but you are liable to pay tax on the earnings.** You can specify a vesting age when the investment bond will be transferred to the child.

My mother's will specifies that each of her grandchildren will get £25k when they are 23 y.o. My brother and I are interpreting that as investing £25k now. We set up trust accounts for his children below 23 and my son in Falafeland where he lives and my mother lived. But then on 26 June this year our second child was born. It seems I haven't mentioned this on this blog before! My brother and I agreed to also invest £25k for him.

I began to explore setting up an Australian trust for him. An Australian will can set up a "testamentary trust" in the name of a child or grandchild etc. The income on that inherited money won't be subject to the penalty rates. The twist is that the money for our newborn son is my hands now. If I just set up a trust for him I will have a battle with the ATO to claim that the penalty rates don't apply. I talked to a lawyer on the phone and she said she needs to do research on whether we can set up a testamentary trust now. This would be a lot of upfront expense and then there is the hassle of running the trust and investing on its behalf and submitting annual tax returns etc. So, I am skeptical that this is going to work and if it does it would be a lot of hassle, I think. Also a trust must pay out all its earnings every year. So our son will need a bank account to receive them and this will be an income stream that his brother won't be getting.

An investment bond seems like a simpler option and is very similar to our first child's trust account In Falafeland, which doesn't pay distributions and is taxed at 25%. The 30% tax rate seems high, but there is a trick. If you make an additional investment that is greater than 125% of the previous year's investment then the bond resets to year 1 of the 10 year period. As the previous year's additional investment could be zero this is not hard. When that happens if the child withdraws money from the bond the money is taxable at their tax rate but they get a 30% non-refundable tax offset somewhat like a franking credit. But this will only reduce your tax if currently you earned less than AUD37k per year, which is below the full time minimum wage.*** But a 23 year old might earn that little if they were doing graduate study, for example.

There are six providers according to Macquarie:

• Comminsure (Commonwealth Bank)
• AMP
• IOOF
• Australian Unity
• Centuria
• Generation Life

The first three have all been very controversial and the first two are in the process of selling their life insurance businesses to offshore firms. AMP has the lowest management fees and Australian Unity the highest of the first 4. Centuria's PDS is really not transparent. Generation Life has index fund options which would be cheaper than any of the other providers' options. Generation Life is a specialist investment bond provider. So, I am going to look at this one in more detail. I am also following up with Unisuper, whose website mentions investment bonds.

* Investment bonds don't get a long-term capital gains tax discount. So, they aren't as effective if your not in the top bracket.

** Income children earn from labor/their own entrepreneurship isn't subject to the penalty rates and neither is inherited money in a testamentary trust. Trust accounts don't work for us as the children must get the money from them at age 18.

*** It's crazy that the minimum wage is already taxed at a marginal 32.5% + Medicare Levy.

May 2022 Report

World markets stabilized with the MSCI World Index (USD gross) rising by 0.19% and the S&P 500 by 0.18%. On the other hand, the ASX 200 fell 2.43%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7114 to USD 0.7177 increasing Australian Dollar returns and reducing USD returns. Our luck ended this month, and we lost 3.10% in Australian Dollar terms or 2.24% in US Dollar terms. The target portfolio lost 1.05% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.21% in US Dollar terms. So, we under-performed all benchmarks.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

Hedge funds were the worst drag on performance followed by gold. Only futures and real assets had positive returns.

Things that worked well this month:

• TIAA Real Estate (AUD 4k), Australian Dollar Futures (4k), and URF  (also 4k) were the best performers.
  

What really didn't work:

• Tribeca Global Resources (- AUD 25k), gold (-19k), and Pershing Square Holdings (-18k) were the three worst performers...
  

 The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are performing 1% per annum worse than the average hedge fund levered 1.67 times.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

 

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think. On the other hand, around 47% of net worth (not including our house) are now in retirement accounts. Liquid investments are 57% of net worth and illiquid non-retirement investments are 13% of net worth. Because of leverage, the total is 117%. 

We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I bought 1,000 shares of 3i (III.L) after its share price fell in sympathy with US retailers like Target and Costco. I figured that the problems those faced probably weren't that similar to those faced by Action – 3i's European discount retailer. 3i also posted very good results recently.
• I sold all our shares in URF at 27 cents a share.
• I made additional investments in APSEC and the Australian Unity Diversified Property Fund.
• We made a small investment in a start-up via Unpopular Ventures syndicate.
• There were a lot of small trades involved with forex, tax loss harvesting, moving positions between accounts etc...

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

Got a Call from Australian Unity

I blogged recently about the proposed merger between the Australian Unity Diversified Property Fund and a Cromwell office fund. Today, I was called by a representative who told me about the plan and timeline and asked if I had questions and whether I would support the proposal So, I told him that I understood the reasons for seeking a merger and that I thought this merger was better than previous proposal but also that I invested in the fund to get exposure to a diversified portfolio and now it was going to be a office dominated fund, a sector that's not doing too well. So, I wasn't really sure which way to vote. He sounded disappointed and said he understood my thinking...

New Australian Unity Merger Proposal

Australian Unity Diversified Property Fun has a new merger proposal on the table following the failed merger in 2021-22. This is a merger with the unlisted Cromwell Direct Property Fund. This seems like a fair deal unlike the previous one. It has various advantages. The only downside is that the merged fund will have 70% of its assets in offices. The attraction of AUDPF was that it was truly diversified and not dominated by offices. 

I expect I will stay in the fund (there is only a limited near term opportunity to withdraw) and think about withdrawing in 2025 when a full liquidity event is promised. The main risk is that office properties are downvalued in 2024 and 2025 after the merger happens. I am seeing a decline in value in the TIAA Real Estate Fund even though only a quarter of their assets are in offices. I reduced my holdings near peak value, should have reduced them more. So, maybe I should try to withdraw some of our investment when allowed later this year...

Australian Unity Sells Diversified Property Fund

After a couple of failed attempts at merging the Diversified Property Fund with other funds, Australian Unity has decided to rid itself of managing the fund by selling the management rights to ASA Real Estate Partners. I don't have any objections to this. The previous mergers would have reduced the diversification of the fund and also financially disadvantageous to existing unit holders. This sounds like an experienced team.

Investments Review 7: Developing Real Estate Investments

The smaller investments have done better here, which is not optimal...

TIAA Real Estate Portfolio Share: 3.3% IRR: 4%.  I don't have a chart for this one. Currently this is the only holding in my US retirement account (403b). I would have done better investing in a balanced fund instead. The advantages of this fund are that it has very low volatility and it is possible to predict when it is going to go up or down. So, I have switched between this and the CREF Social Choice Fund. But just sticking with the latter would have given a better return. So, perhaps I just should switch back to that.

ASADPF Portfolio Share: 1.9% IRR: 3%. This fund was originally run by Australian Unity, had a fair degree of leverage and had performed well. It was one of the initial investments in our SMSF. It also has low exposure to office property. Most Australia property funds are office-centric. But profit peaked in February 2023 and the unit value has declined 14% since then. Australian Unity made a various attempts to sell or merge the fund. In the end. ASA took it over. It is very illiquid, though we could get the distributions paid out instead of reinvested. I have been thinking of doing that.

 

URF Portfolio Share: 1.0% IRR: 10%. This is a listed fund invested in residential real estate in the New York metro area. The managers are gradually selling off the assets. The original investors in the fund lost lots of money. I came in when it was already distressed. The fund continues to trade a lot below net asset value but has caught up quite a bit recently and so we have reduced our holding. The fund NAV does not take into the selling costs of the inventory. So probably fair value is near 50 cents rather than the stated 60 cents per share. It currently trades at about 40 cents. I would sell the rest if it got nearer to 50 cents.

 

Domacom Investments Portfolio Share: 0.8% IRR: 13%. Domacom is a platform for making fractional investments in real estate etc. The company, which I have also invested in, has struggled to build a big enough portfolio to be profitable and is perpetually on the brink of bankruptcy. It is in the process of re-inventing itself as Assetora. But some of the investments on the platform, which are in segregated funds, have been quite profitable. I have bought into investments after they traded below their original offer prices. Initially, I invested in a farm, which has now been sold, then in two properties near the new Sydney airport, and two NDIS properties in Perth and the Sunshine Coast. All of these are doing well.

New Investment: Australian Unity Diversified Property Fund

This is the first new investment in our SMSF. Real estate is the area where we are most underinvested relative to our target allocation. The SMSF already has an investment in US residential real estate via URF.AX. I sold our existing investment for a capital loss and bought a larger holding in the SMSF. So, this investment covers Australian commercial property. This fund has a very good track record (better than Charter Hall in my opinion) and is diversified across industrial, retail, and office properties. Coles and Woolworths are the biggest tenants. We are investing AUD 50k in this fund.

I have a definite preference for direct investments in property rather than listed investments. REITS tend to move up and down with the stock-market and so don't provide as much diversification as direct investments. On the other hand, actually buying property myself is not something I want to do as the required size of investment is too large. Well, we could easily buy an apartment to rent but we couldn't access commercial property easily. So pooling investments with others makes sense. 

If a REIT is trading a lot below NAV, like URF is, then I am interested in buying. URF is a pretty risky investment, though US residential property seems to have turned the corner. Financial Samurai even said he wanted to buy Manhattan Real Estate.

We already have exposures to US and Australian commercial real estate through our employer superannuation funds, the Wilson Alternative Assets Fund (WMA.AX) and the TIAA Real Estate Fund.

Australian Unity Merger Deferred

 

Australian Office Fund (AOF.AX) announces that the merger meeting is delayed till at least February because some large shareholders gave negative feedback on the proposal. That's strange because I thought the merger unfairly benefited AOF shareholders! Anyway, we will have to wait and see what changes are made or if the whole thing is cancelled in the end.

Update on Australian Office Fund / Australian Unity Diversified Property Fund Merger

I have been planning to vote no on this merger for a number of reasons. The explanatory booklet for the merger has been released to the ASX. This provides details on the options to exist the fund. Though the unitholder meeting will be on 10 December, we have to decide by 8 December whether we want to exit the fund. However, we can choose to withdraw only if the merger goes ahead, so that is OK.

They are also offering to redeem a minimum of AUD 24.8 million of units if people want to redeem that much and maybe more than that if the merger is approved. If the merger isn't approved the cap will be at AUD 8.6 million. So, I plan to submit a withdrawal notice now and vote no. My guess is that only part of our investment will be redeemed if the merger doesn't go through. Anyway, we could always apply for more units again if we really wanted to in that case.

After reading all these details I am happier than I was about the proposal, but really would have preferred if they raised more capital instead. I would have been happy to invest in more units.

Changes to Health Insurance and Superannuation

The recent Australian federal budget announced changes to arrangements for health insurance and superannuation. The former surprised me because it made me aware of a tax concession I didn't even know existed. I'll also comment on how easy it is to exceed the new superannuation contribution limits for some middle income people.

Health Insurance Australia has more or less free government health care under Medicare (with very hefty copays effectively) but also since the late 1990s has tax incentives to encourage people to take out private insurance. When the Howard government introduced the current tax incentives (I lived in Australia at the time) I was under the impression that people earning less than $A30k a year would get a 30% rebate on the cost of their health insurance while people earning more than $A50k a year (which was the top tax bracket when the Howard government came to power!) would be taxed 1% extra a year - the Medicare Surcharge - if they didn't have private health insurance. This 1% wasn't marginal but applied to your entire income. Earn $A1 over $A50k and you got hit by a $A500 charge. The surcharge was also raised higher for a while. I knew that the threshold for the surcharge had been raised to $A75k a year, but what I didn't know was that rebates for private health insurance appear to apply at every income level. I found this out only because of the Rudd government's decision to means test them. Did I misunderstand the original structure of the Howard scheme? Or were the rebates extended to higher incomes at some point?

Back when I lived in Australia in 1996-2002 I never found it worthwhile to get private insurance as mostly I got my income below $A50k and even if I hadn't the insurance seemed to cost about as much as the charge and I like to avoid this kind of hassle. And I had no idea what benefits private insurance might give me. Now both Snork Maiden and I will probably earn less than the $A75k threshold for the 2008-9 and 2009-2010 tax years. When we had to take out private cover for Snork Maiden it cost around $A1,000 per year. Australian Unity quote a rate of $110 per month for the most minimal coverage for the two of us together and I think that is after the rebate of 30%. So it would make sense if both of us earned more than $A75k per year but not before we hit that level...

Superannuation The government lowered the maximum limit for concessional contributions to superannuation (taxed at 15% instead of your marginal rate) from $A50k per year to $A25k per year. It's important to note that required employer contributions are included in this limit. If you exceed the limit you are hit by an extra 31.5% tax on the contributions. The Unisuper superannuation scheme in the higher education sector has extremely high contribution rates. Employers contribute 17% of salary to the fund (instead of the legally required 9%) and employees contribute 8.25% from pre-tax salary. Any academic earning more than $99k per year - i.e. the Associate and Full Professor levels at most universities - will exceed the new limit. You can instead pay the employee contribution post-tax. Then you'll need to earn $A147k to exceed the limit which covers all regular full professors. But anyone in those ranks needs to switch to post-tax contributions.

I'm sure most senior administrators come in above that level - e.g. a department head who is a professor will probably earn an administrative supplement on top of the professor's salary and deans must earn more than that. Also some professors earn more than this due to supplements for people in some areas like law or additional fellowships like the Federation Fellowships. John Quiggin, for example, has one of these and, therefore, has a salary close to $A 1/4 million. These people will need to get their employer contributions lowered and their salary raised (with larger post-tax contributions) to reduce tax. I don't know if that flexibility is available.