Bankwest Qantas Transaction Account - Beats Paying Tax on Interest.

[Renato1]

Deductions are not red herrings. They are necessary, along with marginal tax bracket information, to help us find what our effective tax rate is. The effective tax rate is necessary to figure out what our tax liability is. Without knowing our liability, we can't tell how much we've got left after deducting our tax obligations from income.

All I've been trying to show you is how, if you don't look at the big picture, you're at risk of over-estimating the tax liability from earned interest. This in turn influences the effectiveness the strategy you've outlined in the first post.

However, as you've gotten a tax refunds, you at least have the necessary experience to see how estimating your tax liability based on a single income source can be misleading.

Red Herrings galore.

If deductions are as necessary as you claim, not to mention your supposed need to see how much PAYG you have paid - how pray tell did you work out the after-tax interest rate of 1.19% net without using those supposedly necessary deductions and PAYG?

I've given you a simple calculation which anyone who understands marginal tax rates can give the answer to in 10 seconds.

However, after more than 24 hours have elapsed, far from having calculated an answer using the supposedly equivalent average tax rate method, all I see is apparent prevarication.
Regards,
Renato

 

[Benno]

Red Herrings galore.

If deductions are as nececssary as you claim, not to mention your supposed need to see how much PAYG you have paid - how pray tell did you work out the after-tax interest rate of 1.19% net without using those supposedly necessary deductions and PAYG?

I've given you a simple calculation which anyone who understands marginal tax rates can give the answer to in 10 seconds.

However, after more than 24 hours have elapsed, far from having calculated an answer using the supposedly equivalent average tax rate method, all I see is apparent prevarication.

I was responding to this:

You say, "Yes Dear, I will invest some money in this investment which is guaranteed to pay $10,000 per year. And I will give you what's left after tax for pocket money."
How much money does you wife get after you've paid the tax?

Can you explain how it is possible to give a meaningful answer to this question without more information? All we have is a single piece of information, $10k earned. To know how much tax should be paid we need more information.,


When you talk about 1.19%, are you referring to this post:

For a person with a 200K taxable income, their tax+levy liability is still only about $68K. This gives an effective tax rate of ~34%
...
If 1.8% interest income is included in their taxable income, then after tax that becomes about 1.19% net.

What about that is unclear?

 

[ajd]

I have this account and earn about 3000 points per month. I'm very surprised that the ATO allows this to be tax free. I wonder if I can get my employer to pay 50% of my salary in QFF points, tax free of course!

You may be joking, but the issue of employers paying frequent flyer points has come up: https://www.ato.gov.au/law/view/document?docid=CLR/CR201377/NAT/ATO/00001 (It's rather obviously considered a fringe benefit for which the employer would be liable to pay FBT)

The question of whether Frequent Flyer points are taxable if they are earned as a result of work travel was tested in court in 1996: https://www.ato.gov.au/law/view/document?DocID=JUD/96ATC4407/00001&PiT=99991231235958

 

[Renato1]

Can you explain how it is possible to give a meaningful answer to this question without more information? All we have is a single piece of information, $10k earned. To know how much tax should be paid we need more information.,

The meaningful answer is,
a. If my marginal tax rate is 49% (including Medicare levy) I owe the ATO $4900 and my wife $5100, or
b. If my marginal tax rate is 34.5% (including Medicare Levy) I owe the ATO $3450 and my wife $6550, or
c. If part of the $10,000 is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Which is exactly the same as in the interest rate example, with an interest rate of 1.8%
a. If my marginal tax rate is 49% (including Medicare levy) then 0.882% goes to ATO and 0.918% goes to me.
b. If my marginal tax rate is 34.5% (including Medicare Levy) then 0.621% goes to ATO and 1.179% goes to me
c. If part of the interest from the 1.8% is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Regards,
Renato

 

[medhead]

Oh for God's sake. Is this about earning points or doing my tax return?

 

[incumbent]

Oh for God's sake. Is this about earning points or doing my tax return?

You have a problem with numbers?

 

[medhead]

You have a problem with numbers?

As a physicist, not particularly. Just don't see the point in going around in circles. But what the hell

The meaningful answer is,
a. If my marginal tax rate is 49% (including Medicare levy) I owe the ATO $4900 and my wife $5100, or
b. If my marginal tax rate is 34.5% (including Medicare Levy) I owe the ATO $3450 and my wife $6550, or
c. If part of the $10,000 is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Which is exactly the same as in the interest rate example, with an interest rate of 1.8%
a. If my marginal tax rate is 49% (including Medicare levy) then 0.882% goes to ATO and 0.918% goes to me.
b. If my marginal tax rate is 34.5% (including Medicare Levy) then 0.621% goes to ATO and 1.179% goes to me
c. If part of the interest from the 1.8% is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Regards,
Renato

Actually, it will all depend on how I've funded the investment. As a general rule I'd leverage it at about 50%. So how much is the investment? What is the interest rate on my loan? Both of which are critical to know to determine my tax debt. Also if SWMBO is going to get the money, why haven't I put the investment in her name and hence in a much lower tax bracket?

 

[Renato1]

As a physicist, not particularly. Just don't see the point in going around in circles. But what the hell



Actually, it will all depend on how I've funded the investment. As a general rule I'd leverage it at about 50%. So how much is the investment? What is the interest rate on my loan? Both of which are critical to know to determine my tax debt. Also if SWMBO is going to get the money, why haven't I put the investment in her name and hence in a much lower tax bracket?

That's irrelevant. I said the investment makes $10,000. You could have geared it up to100%, if you had wanted to - after you got what it made and subtracted the interest that you paid - to get the investment netting out at the final $10,000. The position with respect to tax is exactly the same as if you had just earned $10,000 ungeared.

If one wants to give one's wife pocket money of what remains after tax of $10,000, is one really going to give her a couple of hundred thousand dollars so that she can earn her own pocket money? Seems like overkill to me.
Regards,
Renato

 

[Renato1]

Oh for God's sake. Is this about earning points or doing my tax return?

Both - if one is trying to perform an accurate comparative analysis of the Bankwest Transaction account versus zero or low interest accounts typically used for liquid cash.
Regards,
Renato

 

[medhead]

That's irrelevant. I said the investment makes $10,000. You could have geared it up to100%, if you had wanted to - after you got what it made and subtracted the interest that you paid - to get the investment netting out at the final $10,000. The position with respect to tax is exactly the same as if you had just earned $10,000 ungeared.

If one wants to give one's wife pocket money of what remains after tax of $10,000, is one really going to give her a couple of hundred thousand dollars so that she can earn her own pocket money? Seems like overkill to me.
Regards,
Renato

Sorry that doesn't match what you previously wrote. I also note that your hypothetical didn't say anything about net earning. Are we making up the rules as we go along here?* You said the investment was guaranteed to make $10000, that is not the same as nets. If I set up that investment so that I pay $10000 in interest a year then I pay no tax and SWMBO still gets her $10000.

As for the second question add a line to the below for the 18% tax rate. If we take you new set of rules we'll see that SWMBO is going to have even more pocket money, and potential a full $10000 if her total income is under the TFT. Why would I pay thousands to the ATO if I don't have to?

* In other words, as already pointed out, answering your question requires much more information than you gave.

The meaningful answer is,
a. If my marginal tax rate is 49% (including Medicare levy) I owe the ATO $4900 and my wife $5100, or
b. If my marginal tax rate is 34.5% (including Medicare Levy) I owe the ATO $3450 and my wife $6550, or
c. If part of the $10,000 is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Which is exactly the same as in the interest rate example, with an interest rate of 1.8%
a. If my marginal tax rate is 49% (including Medicare levy) then 0.882% goes to ATO and 0.918% goes to me.
b. If my marginal tax rate is 34.5% (including Medicare Levy) then 0.621% goes to ATO and 1.179% goes to me
c. If part of the interest from the 1.8% is in the 34.5% bracket and part in the 49% bracket, then I apply those marginal rates to each part.

Regards,
Renato

 

[Duffa]

I'm on 3.2% with Rabobank or BOQ for example. Move the money every 4 months to get the bonus interest rate.
Takes about 1 hour to open a new account all up

And that beats the Bankwest Qantas day to day account by a mile

 

[medhead]

Both - if one is trying to perform an accurate comparative analysis of the Bankwest Transaction account versus zero or low interest accounts typically used for liquid cash.
Regards,
Renato

Really, well as I said the Qantas CU account give me points and interest.

 

[coles525]

I'm quick and simple (don't care about the difference between points Vs interest!)..

Thank you individual payments of bills

 

[JohnK]

Yes, but when you eventually use your accumulated points for a flight - the ATO misses out on revenue.

Extremely confusing.

What revenue does the ATO miss on when you book an award flight as opposed to a revenue flight?

 

[Renato1]

Sorry that doesn't match what you previously wrote. I also note that your hypothetical didn't say anything about net earning. Are we making up the rules as we go along here?* You said the investment was guaranteed to make $10000, that is not the same as nets. If I set up that investment so that I pay $10000 in interest a year then I pay no tax and SWMBO still gets her $10000.

As for the second question add a line to the below for the 18% tax rate. If we take you new set of rules we'll see that SWMBO is going to have even more pocket money, and potential a full $10000 if her total income is under the TFT. Why would I pay thousands to the ATO if I don't have to?

* In other words, as already pointed out, answering your question requires much more information than you gave.

The words "Clutching at Straws" come to mind.

If one says to one's wife "I am going to make an investment that gives me $10,000, and I will give you what is left after tax", then that may bring an appreciative smile to her face .

But if one says to one's wife "I am going to make an investment that gives me $10,000, and I will give you what is left after tax........ and after I have deducted the $8000 in interest that I will have paid to get that 10,000", then may I suggest that the appreciative smile will quickly turn to something rather nasty - since plainly, anything she money gets from it will be trivial.

Far from making new rules up as I go along, it is you who takes what is plainly implicit to anybody else, and comes up with new interpretations that make the initial scenario nugatory.

As for the second part - if one wants to avoid paying the ATO $3450 or $4900 dollars by giving several hundred thousands of dollars to one's wife, then that is fine. That is no longer one's money. But I like keeping my capital.
Regards,
Renato

 

[Renato1]

I'm on 3.2% with Rabobank or BOQ for example. Move the money every 4 months to get the bonus interest rate.
Takes about 1 hour to open a new account all up

And that beats the Bankwest Qantas day to day account by a mile

Bankwest is owned by CBA.
One has to make value judgements about security in being with very big banks versus being with small banks.
Technically, prudential regulation should mean that the risk is equal.
But much of the business community don't see it that way - else they'd all have their funds in Rabobank.
Regards,
Renato

 

[Renato1]

Extremely confusing.

What revenue does the ATO miss on when you book an award flight as opposed to a revenue flight?

A revenue flight earns profit. Company tax is paid on profit.
An award flight is paid for by FF points which have no intrinsic value.
Regards,
Renato

 

[JohnK]

A revenue flight earns profit. Company tax is paid on profit.
An award flight is paid for by FF points which have no intrinsic value.

With all due respect that's a really long bow.

The ATO has lost nothing. If I don't have the FF points I won't be booking those flights as revenue flights. Award flights are my reward for flying a lot.

 

[burmans]

With all due respect that's not what you asked which was "What revenue does the ATO miss out on when you book an ward flight as opposed to a revenue flight." Throwing in that you wouldn't take the flight if you couldn't take the rewards is itself a furphy. Most of us make choices, any of us whoever have taken both revenue flights and redemption flights (and I suspect that's most of us) have done exactly that, are you seriously suggesting you've never made a choice between the two?

 

[medhead]

The words "Clutching at Straws" come to mind.

If one says to one's wife "I am going to make an investment that gives me $10,000, and I will give you what is left after tax", then that may bring an appreciative smile to her face .

But if one says to one's wife "I am going to make an investment that gives me $10,000, and I will give you what is left after tax........ and after I have deducted the $8000 in interest that I will have paid to get that 10,000", then may I suggest that the appreciative smile will quickly turn to something rather nasty - since plainly, anything she money gets from it will be trivial.

Far from making new rules up as I go along, it is you who takes what is plainly implicit to anybody else, and comes up with new interpretations that make the initial scenario nugatory.

As for the second part - if one wants to avoid paying the ATO $3450 or $4900 dollars by giving several hundred thousands of dollars to one's wife, then that is fine. That is no longer one's money. But I like keeping my capital.
Regards,
Renato

You're the one clutching at straws. Your original premise was widely open to interpretation. "An investment that makes $10000". No limitation at all on how I make that investment - the structure etc. So as already pointed out, you've asked a question that required more information.

As for your interpretation of what I'm saying to my wife. That's your interpretation, which does match what I actually wrote. I adopted your original point of giving the wife what is left from the $10000 made by the investment. How I make that investment is a completely separate issue except to the point of how much tax I pay. How I structure my tax arrangements has zero impact, the wife still gets the $10000 from the investment. Nothing about deducting interest from her money - that's your false assumption.

BTW I trust my wife.