Your target retirement capital and income

Oh I have a lot of spares couldn’t sell as restaurants shut down. I heard they’re now $100 each

 

I spend that on yearly school fees.

 

I've only just become enlightened on this topic after reading Motivated Money.

I am trying to work out what i would need to retire on as well. The problem which keeps entering my head is "what about support for the kids!?" ..

I would love to retire to Europe, but in speaking to my accountant today, ANY income from Australia would be taxed at foreign resident status (48% minus medicare levy)... so i'm just trying to work out what if scenarios. My accountant also told me the day you leave Australia that I would be subject to CGT (without even selling - the value of the share portfolio/fund). I'd welcome any other thoughts on that.

Anyway to actual retirement, I would like to retire in 12 years from now and be on the equivalent of 100K nett of today.

I may or may not be doing it wrong, but I am looking at how to "work backwards" from the goal and then work towards it, with investing now and then regularly putting in cash every year..

Would anybody be able to offer me a "you need to do this within the next 12 years to get 100k nett P.A return?"

 

That is only part of the story.
A deemed disposal will trigger cgt event k3 but capital gains could be tax free there after.

Also Think trusts. The trust could remain a resident but issues with getting income out as franking credits could be lost if a non resident, but no top up tax generally.

 

A start Start Here - Aussie Firebug

About 2/2.5 million invested in shares will go close to your $100k

 

How has 'Rona affected your projections?

 

That´s not right, tax on non residents is 32.5% flat up to 120K, and franked dividend income is tax free. Also capital gains on shares and other non-property investments is tax free, but these things can be taxed overseas where you are resident. Property is a different story full gain is taxed, concession was removed in 2012.

 

i just checked out the rate and you are right - great news, only 32c ..

but the other stuff re: shraes and non-property investment being tax free - are you 100% sure of that? i hope you are right, that's better for me

this is the extract from the ATO website.

----
Foreign residents
If you're a foreign resident for tax purposes you must declare on your tax return any income earned in Australia, including:

• employment income
• rental income
• Australian pensions and annuities
• capital gains on Australian assets.

As a foreign resident:

• you have no tax-free threshold
• you do not pay the Medicare levy
• the capital gain on your Australian home may need to be included if you are a foreign resident at the time you sign the contract of sale.

 

Check on how your country of tax residence handles franked dividends. It is not necessarily tax free - details might be in the tax agreement between your country of tax residence and Australia.
In my case franked dividends are also taxed, but 15% allowance is given for the withholding tax specified in the tax agreement. So I pay 10.5% of the actual amount received in local tax. Total tax on dividends for publicly listed companies here is normally 25.5%

 

True, but you can reduce this to 15% by making super contributions up to $25k per year. Depending on your local tax rate, this may be worthwhile.

 

Yes, these things are tax free in Australia, but probably not in your new country, and there is a lot of transfer of information these days so not worth hiding it.

ATO: You and your shares 2020
"If you are a non-resident of Australia, the franked amount of dividends you are paid or credited are not subject to Australian income and withholding taxes."

Capital gains tax only applies to property related assets, hence most shares are not taxed.
ATO: Capital gains tax
"Foreign residents make a capital gain or loss if a CGT event happens to an asset that is 'taxable Australian property'."

 

Yes in the end it it not tax free, I pay tax on the franked dividends in Spain, but I get a maximum 15% credit from other tax paid in Australia (property and non-franked dividends). Although franking is not recognised there is a generous discount of 50% in Spain of rent received to be declared as income which makes some of the property income "tax free". This is to encourage permanent rentals over tourists, and incredibly applies to my Australian property as well. Different countries have some very strange rules relating to property.

So for property I end up paying most of the tax in Australia.. and for the dividends I end up paying most of the tax in Spain with credit from the tax paid on the property in Australia.. complicated.

 

Sometimes though saving tax in one country just transfers the obligation to the other country because they don´t recognise that particular deduction, e.g. super contributions, franking credits, negative gearing & margin loan interest deductions do not exist in Spain.

 

Don’t mind to be cheeky but I’m now 89% there

 

Congratulations. What's organic yield?

Mind if I ask what parts of your lifestyle demand such a high target?

 

We will only draw c2.0-2.5%

Overall AA is like 15% PE, 35% AU listed, 35% Int’l incl Property, 15% cash and bonds. So yield c3% but will exit PE in 2022-3 and that goes to AU / Int’l equities and prop which brings up the yield. Vast majority of capital came from a recent CGT event.

My wife and I like nice things but totally not required...new cars, trips, Jewellery, renos etc

 

It's worth reading up on the information exchanges to understand how it all works so that you remain compliant.

The relevant standards are:
FACTA - information exchange between the US and other countries
CRS - information exchange between OECD members (Australia is an OECD member)
DAC2 - EU directive for EU member states

Your obligation is to tell all your financial institutions in which countries you have tax obligations and your TIN (=TFN in Australia) in those countries
The financial institutions then report this to the local tax authority (ATO in Australia)
The tax authorities then automatically pass the information to each other

More info is here: Automatic Exchange - Organisation for Economic Co-operation and Development

One point in all this that is relevant to the original post is that Australian Super Funds are CRS exempt - so your super balance will not be reported. However if you move to pension mode then the income (the 4% or whatever minimum withdrawal) will be reported by the financial institution where the withdrawal is deposited. These withdrawals will quite probably be taxable in another country, whereas it would be tax free in Australia.

Second point is that don't try to run an SMSF and retire abroad.

 

That is so true! However for me the tax on rent income could be reduced 32.5% -> 15% as the depreciation allowances are so much higher here than Australia.

 

I’ll give it a try. Sorry if there was an err.

Equivalent of 100K net income at today’s tax rate one needs to a have gross income of $140k per annum.

@4% returns one needs to have a fully paid of $3.5 ml portfolio. ( without taking into effect of franking credits)

Comparing Time value of money.

12 years from now at a modest 2% annual growth rate the present value of $100 k will be equivalent of $127k approx.

Or if one manages to get to $100 k, after 12 years discounted at same 2% the value lost will be an equivalent of $79K.