Snorkmaiden's taxes: Part 2

Back in July I computed Snork Maiden's taxes for the 2014-15 financial year. I estimated she owed $169 in extra tax. When I actually submitted her tax return more recently I had refined that to $147. But in fact the letter from the ATO today says she owes $292. Why? There is a $145 "Excess private health fund reduction or refund (rebate reduced) item" on the notice of assessment. I guess our family income turned out to be too high and we won't get as large a tax rebate on private health insurance?

Moomin Valley Report October 2015

This month stock markets rebounded. The ASX 200 rose 4.37%, the MSCI World Index rose 7.87%, and the S&P 500 rose 8.44%. The Australian Dollar rose for a change from $US0.702 to $US0.7133. We gained 5.3% in Australian Dollar terms and 7.00% in US Dollar terms. So we outperformed the Australian market and underperformed the international market again. The only asset class that lost money was commodities. Private equity gained 12.86%! The top individual performer was the CFS Geared Share Fund gaining $23k followed by our two employer superannuation funds. The two private equity funds IPE.AX, OCP.AX, were next. IPE announced a share buyback. OCP sold part of one of its investments for the carrying value. It is still trading a lot below the stated book value though.

Net worth rose $A69k including housing equity ($US65k) to $1.490 million ($US1.063 million). The monthly accounts (in AUD) follow:

Spending was a bit high. We spent $7.4k not including mortgage payments and $6.9k without business expenses. The garden redesign got started. Most of this I will treat as spending but a new additional fence and gate etc. I will treat as investment. There was just a $500 deposit for that this month. That increases the "transfer to housing".

We saved $2.4k on the current account, $3.2k in retirement accounts, and $1.9k in housing equity. We paid $1,757 in mortgage interest, saving $431 in interest due to cash in our offset account.

Update on House Value

Another house in our development recently sold at auction. The price has just gone online. It sold for $A850k. The original sale price when new was $A735k. Our house originally sold for $A650k. Using the same percentage increase our house would be worth $A752k. We paid $A740k. But I have been valuing it at $A785k based on the valuation we got prior to buying. Not sure if I should lower the carrying value to $A750k?

Moom's Taxes 2014-15 Edition

I have now completed my tax return. Looks like I need to pay $590 in extra tax. My salary is flat on last year but my taxable income is up by 5%. Gross cash income is before tax income ignoring franking and other tax credits and adding in net undiscounted capital gains (not deleting losses from previous years). Dividends, franking credits, and foreign source income are all up steeply, but so are most forms of deductions. As a result tax is only up 4%. But because tax withholding is only up 1% this year I owe tax, whereas last year I got a refund.

Previous years:

2013-14
2012-13
2011-12
2010-11
2009-10
2008-9
2007-8

Moominvalley September 2015 Report

A volatile month, but in the end not as bad as last month. The ASX 200 fell 2.96%, the MSCI World Index fell 3.51%, and the S&P 500 fell 2.47%. The Australian Dollar fell more slowly from $US0.71 to $US0.702. We lost 1.7% in Australian Dollar terms and 2.81% in US Dollar terms. So this time we outperformed both the international and Australian markets. US stocks were our worst performing asset class and commodities the best with private equity and hedge funds also having positive returns. Winton Global Alpha Fund was the best individual performer in dollar terms, with good returns from Cadence Capital, Ocean Capital Partners, CFS Developing Companies, and Medibank. Platinum Capital, CFS Developing Companies, TIAA Real Estate,  and Cadence are all at all time highs in terms of profits.

Net worth fell $A9k including housing equity ($US18k) to $1.457 million ($US1.023 million). The monthly accounts (in AUD) follow:

Salary and retirement contributions were fairly normal. We spent $5.3k not including mortgage payments and $4.7k without business expenses. Again, a relatively low monthly spend. And that includes spending $929 on health insurance for Snork Maiden's mother who will be visiting us... Soon there will be new expenses including relandscaping our garden and lots of baby expenses...

So, we also saved quite a lot: $5.9k on the current account and $3.2k in retirement accounts, and $1.3k in housing equity. We paid $1,845 in mortgage interest, saving $412 in interest due to cash in our offset account.

Moominvalley Report August 2015

My main reaction when doing the accounts this month was: "Could have been worse!" Markets were down strongly, especially in Australia. The ASX 200 fell 7.79%, the MSCI World Index fell 6.81%, and the S&P 500 fell 6.03%. The Australian Dollar continued to fall from $US0.7331 to $US0.71. We lost 5.2% in Australian Dollar terms but 8.19% in US Dollar terms. So yet again we underperformed the international markets but outperformed the Australian market. All asset classes fell but the fall in small cap Australian shares was small and the CFS Developing Companies fund rose. Also at record high profits for us are Platinum Capital and TIAA Real Estate.

Net worth fell $A53k including housing equity ($US73k) to $1.465 million ($US1.041 million). The monthly accounts (in AUD) follow:


Salary and retirement contributions were fairly normal. We spent $5.4k not including mortgage payments. This is now a relatively low monthly spend. So, we also saved quite a lot: $5.3k on the current account and $3.2k in retirement accounts, and $1.3k in housing equity. We paid $1,868 in mortgage interest, saving $391 in interest due to cash in our offset account.

Becoming Moominpapa

I'm in the process of metamorphosing into Moominpapa and Snork Maiden into Moominmama. If you were wondering what all the large medical expenses over the last year were that was IVF. We've now done a bunch of ultrasounds and genetic tests and everything seems to be OK and healthy with the developing baby and looks like it will be a baby Moomin and not a Snork Maiden. This is what things will hopefully look like here early next year:

Moominvalley July 2015 Report

A milestone this month as we went over $A 1.5 million net worth for the first time. $1.518 million to be precise ($US1.13 million).

Markets were up, especially in Australia. The ASX 200 rose 4.4%, the MSCI World Index rose 0.9%, and the S&P 500 rose 2.1%. The Australian Dollar fell steeply from $US0.7703 to $US0.7331. We gained 5.8% in Australian Dollar terms but only 0.7% in US Dollar terms. So we again underperformed the international markets but outperformed the Australian market. All asset classes rose except private equity. Large cap Australian shares did best. There was a total $71.5k investment gain.

Net worth rose $A85k including housing equity but only $US9k. The monthly accounts (in AUD) follow:

This was a three paycheck month and so salaries and refunds came to $21.9k. Retirement contributions were also higher than normal at $4.9k. We spent $5.8k not including mortgage payments and $5.1k not including business expenses. This is now a relatively low monthly spend. So, we also saved a lot compared to recent months - $11k on the current account and $2.9k in housing equity. We paid $1,842 in mortgage interest, saving $373 in interest due to cash in our offset account. Transfer to housing adds that nominal saving, which we count as an investment return, to the actual mortgage payment to balance the accounts.

Snork Maiden's Taxes 2014-15 Edition

I've done the calculations for Snork Maiden's tax return for this tax year. The tax year runs from 1st July to 30th June in Australia. The figures ignore employer and employee contributions to superannuation (retirement account) which amount to a lot of extra income. Everything is in Australian Dollars of course.


Looks like she needs to pay extra tax :( Compared to last year the Medicare Levy has increased by 0.5%, which means an extra $450 of tax before anything else So, despite income being up only by 3% taxes are up by 5%. Salary is unchanged because the current Enterprise Agreement has expired and the union hasn't agreed a new deal with the employer. Investment income is up as are tax credits derived from investment income (by more than 50% in the latter case). Deductions are steeply down because there was no unreimbursed work related travel this year. Gifts and donations are up 1100%. Snork Maiden started donating $40 per month to Save the Children a month before the end of the last tax year.

The average tax rate on taxable income is 24.94%. Gross income before deductions and tax credits is not a lot higher than taxable income and so the tax rate on "gross cash income" is only slightly lower. The difference will be much bigger on my own income.

Here are the reports on Snork Maiden's taxes for all previous years:

2013-14
2012-13
2012-13
2011-12
2010-11
2009-10
2008-9
2007-8

Mid-Year Update

We are tracking close to the more optimistic projection I made at the beginning of the year. The adjusted optimistic forecast from here is $A1.639 million by the end of the year. So far the Australian stock market hasn't performed that well but the Australian Dollar fell more than forecast and so those two factors balance out. $US1.148 million is the adjusted optimistic forecast in US Dollars. Only down $US50k from the forecast at the beginning of the year.

At the weekend some friends helped us put up some pictures on the walls in the house. We have 8 pictures of African animals that Snork Maiden took * all lined up above the staircase well now. Getting them lined up straight was the issue that needed help. I'm going to call this part of the house "The African Gallery" now :)

* Seems like I never mentioned the African safari on this blog. Was in 2013.

June 2015 Monthly Accounts

These are the preliminary accounts for June. The main thing that might change are tax credits, which are estimated at the moment. Markets were down, especially in Australia, and as a result investment income was a negative $63k (Australian Dollars) and as a result net worth declined $58k. Salaries came to $13.8k which is what they are in a two payday month with no reimbursements. Retirement contributions were also the normal $3.2k. We spent $11.3k not including mortgage payments and $7.7k not including business expenses. But due to the business expenses and mortgage payments there was negative saving on the current account, offset by positive saving on the retirement and housing accounts. Tax credits, mainly associated with the end of financial year managed fund distributions are estimated as $2,800. These reduce tax payable on a 1:1 basis. We paid $1945 in mortgage interest, saving $350 in interest due to cash in our offset account. Transfer to housing adds that nominal saving, which we count as an investment return, to the actual mortgage payment to balance the accounts.

Update (from England)

It is always a slow process to get the accounts together at the end of June as it is the end of the financial year in Australia and data on tax credits etc. won't be available till mid-July. I estimate that we lost more than $A40k in net worth for the month and got -4.0% rate of return in AUD terms. The ASX 200 index was down 5.3% though. OTOH the MSCI lost 2.31% and the S&P 500 1.94%. Our estimated loss in US Dollar terms was 3.5%. So, again, we beat the Australian index but lagged the international stock market indices.

It looks like we again had high spending - $A7.6k not including large business expenses. And that doesn't include our mortgage repayments. We did buy a washing machine and dryer. That cost $A3030 in total. So the rest of our spending came to $4.6k. $943 was property tax ($313 per quarter) and body corporate fee ($630 per quarter). Health insurance is $308 (per month) etc.

I'm in England on business. Working on putting together an international consortium to bid for research funding. Round trip of 6 days away. I was in the Middle East for 2 weeks in late May early June - going to conferences and visiting family. My doctor was surprised when I said I was visiting family in the Middle East :) This second trip only came up while I was in Turkey (one of the three countries I was in). Yesterday was the hottest day of the year here in England. In London it hit almost 37C. A bit cooler where I was. Though we were meeting in a room which had air conditioning installed, the air conditioning was broken. So, it was hot work. We had lunch yesterday in the hall in this picture. Our meeting on Tuesday was in the building on the right...

Moomnvalley May 2015 Report

The Australian Dollar declined from 78.66 US cents to 76.59 US cents. Stock markets were flat to positive. The MSCI World Index fell 0.05%, the S&P 500 rose 1.29%, and the ASX200 rose 0.40%. In Australian Dollar terms we ganed 1.69% and in US Dollar terms we lost 1.00%. So we underperformed the international markets but outperformed the Australian market again. All asset classes rose with private equity doing best.

Net worth rose $27k to $1.294 million not counting housing equity and fell $US6k to $US0.992 million. Including housing equity, net worth rose $28k to $1.495 million - a new high ($US1.145 million). The monthly accounts (in AUD) follow:

Current non-investment income (salary etc.) was $20.2k due to business and medical expense refunds and retirement contributions were $3.2k.  Total investment returns were $21.2k. Spending on the current account was $13.3k. Removing a business expenditure and the cleaning of our old apartment it was $12.1k. We bought a new bed and again had major medical expenses. However, this number doesn't include mortgage interest, which was $2.1k of actual spending, for a total monthly spend of $14.2k (see last column core expenditure). If we hadn't reduced our mortgage interest using our offset account we would have paid $2.5k in mortgage interest. This gap will continue to get bigger. This month we raised cash as a share of gross assets to 5.67% from 5.28% in April.

We (notionally - the actual repayment was smaller by the amount of the gap in mortgage interest...) repaid $3.5k of the mortgage resulting in net saving on the housing account of $1,046. So, we saved a total of $7.6k.

Moominvalley April 2015 Report

The Australian Dollar rose for a change from 76.24 US cents to 78.66 US cents, which means that this month we did better in US Dollar terms than in Australian Dollar terms. World stock market indices gained but the Australian market fell. The MSCI World Index rose 2.95%, the S&P 500 0.96%, and the ASX200 fell 1.70%. In Australian Dollar terms we lost 1.10% and in US Dollar terms we gained 2.04%. So we underperformed the international markets but outperformed the Australian market (again).

Commodities did very poorly this month - down 3.67%. Partly because of dividend timing private equity was the best performer in our portfolio.

Net worth fell $9k to $1.269 million not counting housing equity and rose $US24k to $US0.998 million. Including housing equity net worth fell $8k to $1.466 million ($US1.153 million). The monthly accounts (in AUD) follow:

Current non-investment income (salary etc.) was $13.7k and retirement contributions were $3.2k.  Total investment returns were -$14.0k. Spending on the current account fell to $8.6k. Removing some business expenditures that will be refunded it was $4.2k. However, this number doesn't include mortgage interest, which was $2.3k of actual spending, for a total monthly spend of $6.5k (see last column core expenditure). I expect that this will be the typical monthly expenditure when we don't make any large extra expenses... If we hadn't reduced our mortgage interest using our offset account we would have paid $2.4k in mortgage interest. This gap will get much bigger next month. I am recording the saved mortgage interest as part of our investment income. But as this isn't actual cash we receive it has to be offset somewhere else in the accounts. We do this by recording housing expenditure - i.e. mostly mortgage interest - to include the saved interest. Core housing expenditure is what we actually spent on mortgage interest.

We repaid $3.3k of the mortgage resulting in net saving on the housing account of $841. So, we saved a total of $5.9k.

Snapshot at an Inflection Point

Now the house purchase is complete * and we are starting a new financial restructuring plan I thought of drawing up a balance sheet as a snapshot of this "inflection point". It's in a different format to anything I've done before as it is based on the various accounts things are in and how flexible they are rather than asset classes and beta and other investment theory things I've considered in the past. This is all in Australian Dollars:


Long term assets are retirement accounts, checking, saving, cash, and credit cards are short term and everything else is medium term as it can be restructured/sold/closed etc. but probably won't be done fast. So, the goal now is to increase the size of the offset account until it is the size of the mortgage. In the meantime adding a bit to some investments  - we still have $2000 of automatic savings a month outside of retirement accounts for example - and increasing the margin loan. Then one day in a few years there will be a flip - pay off most of the mortgage, redraw the mortgage, then pay-off the margin loan and make investments.

BTW, if you're wondering why we have a thousand dollars in Australian Dollars cash, a big chunk of that is a travel money card.

 * As you can see from the balance sheet we still didn't get the deposit on our apartment back, so everything is not yet settled.

Redrawing Mortgage for Investment Purposes

Following up finally on comments that bigchrisb made about paying off the mortgage faster and then redrawing the money to investment in shares/refinance margin loans. This appears to be the ATO ruling on this. So, there is no problem to do this, but I have been thinking about the practicalities. It seems to me that if you pay off say $50k of the mortgage and then withdraw the money for investment, then the next $50k you pay off just repays the redraw and so your tax deductible loan gets no bigger. So, it only makes sense then to do the redraw after paying off as much of the mortgage as you want in the long term before doing the investment loan. So, in the meantime I think we will continue to accumulate money in the offset account, which gives more flexibility. If you are wondering why we should pile up cash while having a margin loan, actually the effective untaxed interest on the offset account is higher than the after tax rate on the margin loan. So, it makes sense to borrow more on the margin loan while piling money up in the offset. I think I will stop automatic re-investments of distributions and dividends where there is no discount for re-investment to speed the process a little. The only one I think is with my Colonial First State funds. When we are nearer an amount I think is reasonable then it would make sense to actually sell investments and add that money to the pile. But that should be a final step I think. I do have a lot of tax losses so that the first $60k of capital gains is tax free. This will be a project over several years. Of course, maybe in the end we would take the cash pile and use it as a downpayment on an investment property instead :) So, lots of things are possible.

P.S.
For U.S. readers who might wonder about why go through this complicated plan.... in Australia, mortgage interest is not tax deductible for owner occupiers. But investment interest is, even if it exceeds the income on the investment so that you make a net loss. The latter is known as "negative gearing".

P.P.S.
From March on, I'll include the implicit saved mortgage interest as part of investment return. That means that it also needs to be included in the "transfer from current account to housing" and included in housing expenses in the account in order to balance all the books. I'll also include the "core housing expenditure" in the accounts which will be the actual interest paid to the bank.