FINA 1101 Personal Fiance

Tax payable formula

Tax payable = income tax + Medicare levy − tax offsets.

Marginal tax rate

Tax rate paid on the next extra dollar earned.

Average tax rate

Total tax paid ÷ taxable income. Shows overall tax burden.

Medicare levy

Usually 2% of taxable income.

LITO

Low Income Tax Offset reduces tax payable, not taxable income.

Tax deduction

Reduces taxable income. Value = deduction × marginal tax rate.

Tax offset

Directly reduces tax payable dollar-for-dollar.

Deduction vs offset ($200)

$200 offset saves $200. $200 deduction at 32% saves $64.

Opportunity cost of tax refund (over-whitholding)

Too much tax withheld = giving government an interest-free loan.

Crypto capital gain

Selling crypto for profit triggers CGT. If held >12 months, individuals may get 50% CGT discount.

Capital loss

Capital loss offsets capital gains, not normal salary income.

Risk in investing

Risk = uncertainty/variability of returns.

Shares vs Bonds

Shares = higher risk/higher expected return
Bonds = lower risk/lower expected return

Nominal return

Return before adjusting for inflation

Real Return

Return after inflation

Diversification

Spreading investments to reduce concentration risk

Holistic portfolio

Looks at human capital + financial capital + housing capital together.

Concentrated risk example

Maree works in farming IT, invests in farming companies, buys regional house = concentrated risk.

Growth portfolio

High percentage in shares/property

Conservative portfolio

High percentage in cash/bonds

Benificial ownership

You receive economic benefits, but asset may be legally held by another party

Direct ownership

Asset is registered directly in your name

HIN

Holder Identifiaction Number, Broker-sponced CHESS holdings

SRN

Security Reference Number, issuer-sponsored holdings

Custodial model

Platform/cusodian holds assets on your behalf

ETF (Exchange Traded Fund) vs Managed fund

ETF trades on exchange. Managed fund usually bought through fund/platform.

Active vs Passive investing

Active tries to beat benchmark. Passive/index tries to match market.

Ponzi scheme

Uses new investors’ money to pay earlier investors.

Housing equity formular

Equity = house value - loan balance

Leverage in housing

Borrowing magnifies gains and losses. Small house price change can cause big equity change