Aussie FIRE Maths

If you don't have an PPOR Offset, you might be tempted to use your IP Offset.  But as an IP offset is against an IP and not a PPOR, the interest saved is indirectly taxed. So the benefit is minimal. In addition to this, the IP offset often locks the 'saved' interest into the mortgage where it is unable to be extracted for a future PPOR purchase. And as the full 6% saved is locked in, the additional tax comes from your savings, and so this approach certainly speeds up paying off the IP at the expense of your savings and future PPOR. Lets assume you want to put $10k into either option. 5.5% HISA, 6.3% IP Mortgage. HISA - MTR 32% = $10,000 x (5.5% x (100% - 32%)) = $374 - MTR 39% = $10,000 x (5.5% x (100% - 39%)) = $335.5 - MTR 47% = $10,000 x (5.5% x (100% - 47%)) = $291.5 IP Offset - MTR 32% = $10,000 x (6.3% x (100% - 32%)) = $428.4 - MTR 39% = $10,000 x (6.3% x (100% - 39%)) = $384.3 - MTR 47% = $10,000 x (6.3% x (100% - 47%)) = $333.9 Cashflow Now the catch is the IP offs...

A common miss-conception that caught me out for longer than I want to admit is the difference in 'making money' and 'no longer spending money'. When you use your offset you are 'no longer spending money', however I mistakenly thought of it as 'making money'. This meant I often miss-calculated investing while I have a mortgage. Credit Card Think of your credit card. If you spend $1,000 you start paying interest. If you repay the $1,000 you stop paying interest. Now the question, are you saving 20% pa x $1,000 forever by paying off the credit card? How do we account for the interest we no longer pay because we paid the credit card off?  I ignore it, and this applies to my offset too. The Offset Fallacy The example that made me see offsets differently was to imagine my current situation, lets say I've got a $200K mortgage with $100K in the offset. Now imagine you are debt free, and go and borrow $200K, park $100K in the offset and spend $100K on a nice ...

 I've always relegated NAB EB to the useless pile, 8% interest are you kidding me! But anyone investing with cash who has a mortgage is effectively investing with a = 6.1% / (100% - 32%) = 9% loan.  With that thought, NAB EB is actually better than it looks. If you are prepared to invest cash from your offset, consider NAB EB instead, its cheaper. So who can benefit from NAB EB? What if you have a starter home and thus debt recycling is probably not a good long term strategy?  Your options become below.  1. Don't Invest For many this is the sensible choice, as if you plan to buy a larger home will might need all the money you have. But, if you have a cash surplus, then... 2. Invest Cash from Offset Invest the cash directly from the offset. You are paying 6% (mortgage rate) after tax interest doing this. This comes with the advantage that you can easily sell and debt recycle when you buy your long term PPOR. 3. IP Equity Your future IP (or any IP) you can pull equity ...

I'm considering the impact of DIV 293 on my possible IP sale, so lets see what its all about. DIV 293 tax is a fun one as it works on the lessor of two amounts. Thus some funky things occur. Now lets put aside the very good point that focusing on reducing tax is a terrible strategy, and focus on reducing tax. Formula If  DIV 293 Income > $250K  then DIV 293 applies. If  Super < Income + Super - $250K  then  Super Assessed  Else  Income + Super Assessed Note:  Income  on this page means all DIV 293 Income excluding Super. Hold My Triple Venti Half-Caf Soy Latte Wait a second, I see something... = Super > DIV293 Income + Super - $250K = Super - Super > DIV293 Income + Super - $250K - Super  (Subtract Super both sides) = 0 > Income - $250K  (Eliminate) = Income - $250K < 0  (Reverse) = Income - $250K + $250K < 0 + $250K  (Add $250K both sides) = Income < $250K Oh, I did not expect to simplify what it t...

I've been on the FIRE path a good 8+ years now, mostly lurking in the comments on reddit getting and sharing insights. There is a lot of good content out there, with Barefoot Investor  and Passive Investing Australia  being two I use. My posts here will not attempt to repeat them, but instead delve into the areas I find interesting that are not covered as well there. And the main area I enjoy is the maths and attempting to simplify the equations such that I can more easily see the best path forward. As Stan said: The essence of math is not to make simple things complicated, but to make complicated things simple. — Stan Gudder, American mathematician By simplifying the options we can more easily see the path forward, at least that's the hope.

While most people are not overly excited by this subject, the engineer in me loves to optimise, and that includes the tax impact on my investment decisions. And to achieve that it helps to understand what the relevant MTR is. This is useful not only in the growth stage calculations of FIRE, but also in the RE part of it. 1. Basics My best effort is this table, with the Extra Addons below. From To MTR Notes $0 $18,200 0.0% $18,201 $26,000 16.0% $26,001 $32,500 28.0% 10% Medicare** $32,501 $37,500 18.0% 2% Medicare $37,501 $45,000 23.0% 5% LITO $45,001 $66,667 33.5% 1.5% LITO $66,668 $135,000 32.0% $135,001 $190,000 39.0% $190,001 $224,000 47.0% $224,001 $250,000 63.70% 16.7% DIV269* $250,001 $261,000 48.72% 1.72% DIV269 $260,001 47% *DIV293 depends on your Income + Super contributions plus some other funky things. If your income includes non-job income, like a capital gain, then figure this one out yourself. I have relied on this as my source: 62% effective marginal tax rat...