EK ATO Tax Analysis
I’ve decided to consolidate our ATO Taxes by year to see if we’re tax efficient and utilizing everything that’s available to us. Let’s assess our 2017-2023 ATO Tax Analysis by year.
Since we’ve relocated to Australia, our full tax year is 2017-18. Based on my research from the ATO website, and tax related books from Michael Yardney, and Expat Tax Forum groups, I’ve learned about Employer Concessional Contributions, Salary Sacrificing, Super Spouse Contribution with the tax rebate, Franking Credits tax offsets, etc. We’ve relocated in MAR17. Kathy was within her 6 month probation period, so I had to handle most of our relocation, as well as managing our US Investments and managing our tax accountants.
I did paper trading on the ASX around SEP17 so that I can become more familiar with how the ASX market works. In JAN18, I’ve dedicated 3 full months to determine a trading process as well as an allocation and started trading officially by MAR18. It was about 10K per quarter during that time. It was a mix of ETFs and Income Funds mainly for me to see how Franking Credits work on both. Whether we made income or not it wasn’t our objective as the main objective was to see if the trading methods apply here in AU vs how we invest in the US.
For our assessment, I’ll exclude 2017-18, and 2018-19 as those two years we were still trying to settle in AU and our personal finances weren’t locked in yet mainly due to liquidating our US Investments, tax payment settlements, one off purchases for the relocation, Brandon’s day care costs, etc.
For 2019-20, I’ve noticed that Kathy had to pay Medicare Levy. We were exempt the first few years as we were foreign tax residents. However, it looks like it’s due to the surcharge, they call it MLS. This is on top of the Medicare Levy. Our private insurance is with BUPA, so it’s most likely based on Kathy’s income threshhold. As for Employer CL, Employer Contribution % was still at 9.5%. The increase in CL is due to her increase in her adjusted Salary+Bonus. As for EFI, Gross Income was primarily due to the strong performance in the ASX and we’ve capitalized on the realized gains, as well as its Dividends and Franking Credits prior to the market downturn due to Covid. Taxable Income was 8.9K, or about 16%. Tax Free Limit is 18.2K. Using DCA Buys and Sells and trading its volatility while capitalizing on DFC works. I believe I was trading within the 350K range.
For 2020-21, not much change within Kathy’s Salary. Her Accumulated Super Contr was about 100K by JUN21. Since I didn’t make any Non-Concessional Contributions in the previous years, we’ve decided to come up with 60%/40% allocation between our Supers so that our range isn’t too far apart. Since Super taxes at 15%, it’s more favorable since her effective tax rate is at 29%. For me, that’s when the US decided not to treat Super as a separate Trust account, so makes sense for me to trade PFICs there. Made a NC contribution of 31K using the NI from prior year. Covid happened, so did a bulk DCA Buys in all of our investment accounts.
For 2021-22, Kathy’s Accumulated Super Contr was about 127K. Since our Net Savings Rate averaged > 50% for 3+ years, and our rent remained the same, and Brandon needed to settle in a permanent address, we were ready to purchase our Property after we became Permanent Residents so that we wouldn’t need to pay the additional Foreigner Stamp Duty, on top of the initial Stamp Duty. I’ve reallocated the funds from EFI to make the 20% Down Payment, as well as the Stamp Duty and closing/conveyancer fees. EFI now averaged 200K in the Investment Balance. We still hit our Target TI of 18.2K to take advantage of the Tax Free component. What’s interesting that I’ve noticed is the Low Income Offset of 700. Based on my research, it’s another threshhold on top of the tax free threshhold only after you reach the initial Taxable Income. Based on the ATO website, [$37,500 or less, you will get the maximum offset of $700]. Based on my calculation, since tax free is upto 18.2K and 19% onwards, it’s 700/19%=3.68K, so 18.2+3.68K=21.88K tax free. Onwards only LMITO is impacted, but not on LITO. I’ve updated our Eligible Tax Free calculation to now include LITO, so 21.88K is tax free, instead of the 18.2K. An additional 3.68K tax free invested annually while compounded would be beneficial.
For 2022-23, Kathy got promoted as Team Leader. Her new manager adjusted her Salary to reflect her additional responsibilities, and increased her GI by about 30K. Our Net Savings Rate % is now > 65%. We didn’t have a lifestyle creep and instead decided to invest her additional earnings since 2019. What’s interesting is that her Taxable Income increased by about 15K, but her Effective Tax Rate % remains at 29%. Bonus actually has a big impact. Bonuses are taxed at 50%, while her marginal tax rate is at 30%. We couldn’t necessarily Salary Sacrifice more since her CL has increased due to her adjusted Salary. Instead, her CL is about 19K, so we’ve reduced our Super Contr from 10.5K-to-7K.
For 2023-24, I’ll be updating our tax assessment around JUL24. This year is very interesting as our Mortgage is changing from Fixed-to-Variable and our Variable Rate is at 6.79% to-date. We’ve prepaid our Mortgage by an additional 100K utilising the funds from EFI, and now our ING Offset is now sitting at 150K. Based on my calculations using the Property Offset Calculator that I’ve created, we’ll be saving interest by about 17K/annually. Our current interest charge is at 1.5K monthly instead of 3K, so we save 1.5K/monthly = 18K/annually. Our repayments are now 42K/annually, so we’re effectively paying down our Principal by 42K (repayments) - 18K (interest charged) = 24K/annually. We also plan to make an extra contribution of 7.5K/[JUN & DEC]=15K/annually for 10 years, by reducing from our ING Offset Balance of the 150K. Based on our estimates, the estimated interest charge would be < 10K/annually by 2027, within 3 years from now.
