Where can I park $800K?

H

Harriet

Hello all,

We are preparing to sell our PPR, and expect to walk away with about $800K.

Long and complicated story, but we will not be in a position to buy our next PPR for a year or two. We will be renting during this time.

I am seeking advice on the best thing to do with our $800k in the meantime? We'd like to earn money from it, but also minimise tax payable.

I'm not sure if these factors might be relevant, but we have a family trust (with a corporate trustee). We also have a son who is a uni student.

What say you, accounting brains?
 
I'll PM you my BSB and account details.

6 month loan.

I'll pay you 5% interest for 6 months at the end of 6 months..
 
What's your level of risk tolerance?

The 2 year time frame suggests that most forms of investment aren't suitable because they generally need more than 2 years commitment to get a reliable return. The key word being 'reliable'.

If you don't want to risk the money, put it into a term deposit. You're almost certainly going to get the original money back plus a small return.

You could put the money into some blue chip shares. There's a good chance that you'll make significantly more, but there's also a good chance you'll loose some of it. You probably want more than 2 years for this sort of investment to be more reliable. Fully franked dividends are reasonably tax effective.

You could invest in property directly, but I'd only expect to break even on the buying and selling costs over 2 years, you could loose money too. If you bought the property outright you might make some money on the rental income. Probably in the same risk/reward category as the blue chip shares.

Any investment in a 2 year time frame is going to require you to pay tax if it turns a profit. The most tax effective investment strategies tend to be far more long term.


Is it possible to buy the next PPOR now, but rent it out for 2 years before moving in? Buying now locks you into todays prices (for better or worse) and it's very tax effective because it's ultimately your own home.
 
or if you are going to buy an investment property once you settle into your new ppr, buy the investment ppty now, with all the funds parked against it in a redraw facility, then redraw them to buy your ppr and you will have your ppr paid off and an investment ppty with a huge debt against it to negative gear.
 
Have you considered a protected buy write strategy on an aussie blue chip stock? Buy the stock, buy a long date put for protection and either sell a long date call or a series of rolling shorter expiry calls. Attempt to pay for put with the sold call premium(s). Advantages are downside protection if stock falls, dividends from stock. If you can hang onto the stock for more than 12 months theres some CGT relief. Disadvantages: stock falls and you will have to exercise put creating a capital loss. Limited upside with sold call.
 
How about delaying selling your Sydney PPOR for the next year or 2 until your ready to buy your next place, and rent it out in the meantime?

That way you can keep getting CG that's happening right now and also collect rental return, without having to do anything such as enter complicated structures.
Then rent with the rental funds you receive from your current PPOR.
Also, if the Sydney property market continues to get away, this will keep you in the market.
 
Harriet said:
Hello all,

We are preparing to sell our PPR, and expect to walk away with about $800K.

Long and complicated story, but we will not be in a position to buy our next PPR for a year or two. We will be renting during this time.

I am seeking advice on the best thing to do with our $800k in the meantime? We'd like to earn money from it, but also minimise tax payable.

I'm not sure if these factors might be relevant, but we have a family trust (with a corporate trustee). We also have a son who is a uni student.

What say you, accounting brains?
Click to expand...

Two years is a long time to be out of the owner occupied market in Sydney. In that time IF properties were to push another 10% then you can appreciate the $80K shortfall that might pay all your duties etc.

It may be a risk to consider growth investments too. (You could lose 30% if the market tanks)

If you see a low risk option then a cash or similar ETF linked to a degree of stable income may be an option and these are touch more than cash. Say 4%. But 4% x $800K = $32K...So tax on this could be $10K BUT at least its a net $22K. So $44K over two years.

Putting the $ in your kids name is as transparent as Apple's front window. The ATO would ask questions if his interest income was suddenly $32K. Perhaps a non-interest loan to the trust etc. Get some tax advice on how to do this right is my tip. You don't want the ATO classifying the $800K in two years as assessable.

And some financial advice on how to invest without getting burnt. Perhaps even a capital guaranteed 2 year investment ?? (I saw one the other day that has a floor but no cap and thse can include income and/or capital guarantees.) One of our advisers would be OK to have a chat. Contact me through direct email below and I would refer you on if you interested.
 
Ace in the Hole said:
How about delaying selling your Sydney PPOR for the next year or 2 until your ready to buy your next place, and rent it out in the meantime?

That way you can keep getting CG that's happening right now and also collect rental return, without having to do anything such as enter complicated structures.
Then rent with the rental funds you receive from your current PPOR.
Also, if the Sydney property market continues to get away, this will keep you in the market.
Click to expand...

Hello again,

Thanks all for the great thoughts so far.

This option suggested by Ace in the Hole is the one we've been considering most closely. The rent we can get on our PPOR will more or less cover the rent we will have to pay. But NOT if you factor in the income tax that will be payable on the rental income we receive. And then, what if our PPOR is vacant for a long period?

Still thinking.
 
By your posts, you seem highly concerned with reducing your taxes.
I'd advise to go for the capital growth, tax free for your PPOR, for the real gainz.
But it's your play.
 
fernfurn said:
or if you are going to buy an investment property once you settle into your new ppr, buy the investment ppty now, with all the funds parked against it in a redraw facility, then redraw them to buy your ppr and you will have your ppr paid off and an investment ppty with a huge debt against it to negative gear.
Click to expand...

I like this idea too.
 
Harriet said:
Hello again,

Thanks all for the great thoughts so far.

This option suggested by Ace in the Hole is the one we've been considering most closely. The rent we can get on our PPOR will more or less cover the rent we will have to pay. But NOT if you factor in the income tax that will be payable on the rental income we receive. And then, what if our PPOR is vacant for a long period?

Still thinking.
Click to expand...

Huh...You said you sold it. If you agree on the price then deferring settlement doesn't benefit you. You lock in your profit now AND lose access to reinvest the cash and gain nothing from market for next two years. You are far worse off.

The strategy would have been to defer selling at all for the two years. Rent the property out for the 2 years and allow market forces to run. Claim any interest and depreciation etc. You get income (rent) after tax (neg gear ??) and the growth tax free. If prices fall so what ! Your new PPOR will cost less too.
 
Definitely way to go. You don't want to be out of market paying tax on $800K earning %. Instead ride the market tax free. The main residence exemption would continue while you rent. You may even get two years in and decide to keep it and buy new PPOR.
 
Possibility?

https://www.vanguardinvestments.com.au/retail/ret/investments/funddetailVCIF.jsp

It's a diversified 70/30 split between income assets like bonds (70) and growth assets such as shares (30), and very, very diversified. And because your balance is above 500K you'd qualify for the wholesale fund, hence the management fee is very low (0.33%). Definitely don't go all stocks for a two year timeframe.

Still, 2 years is pretty short timeframe even for that.
 
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