Sunday, 21 December 2014

School reports hit the hip pocket

The school year has ended and the boys have been shipped off with my parents to spend a week at a beach-front resort on the mid-north coast before we join them on Christmas eve. The boys deserve a break - they've both been applying themselves at school and have achieved the results they deserve. They both got "straigh-A's" on their school report cards, so I'll be giving them $30 each as a small reward for their efforts. The rewards system I introduced last year was $5 for every 'A' (actually, the best report grades currently in use in the NSW education system are 'outstanding' in high school reports, and 'high' in primary school reports). But this year I simplified in to just being a flat $30 rewards for getting straight-A's.

DS1's school achieved another good outcome in this year's HSC results - ranking 8th in the state with 50.7% of the students making the 'distinguished achievers' list. But the whole idea of ranking high schools is a bit silly, as the results are fairly predictable and seem to be based mostly on the mix of students that are attending the school, rather than the 'value added' by the school itself.

For example, the school that is consistently ranked number one in the state, James Ruse High, is therefore the most sought-after school for selective school applicants. It therefore has the highest 'cut-off' mark of any of the selective high schools each year (ie. only the 'best' students can get in), and, as sure as night follows day, six years later that cohort of students gets the best HSC results in the state...

The correlation between the minimum entry score (or 'cut-off; mark) required to gain entry into a selective high school and its HSC results seems quite clear, so it will be interesting to see how DS1s school performs in future years. According to the trend in 'cut-off' mark over the past several years, I would predict that it will continue to do well (as the cut-off marks for entry into those years had increased by around 5 marks). Unfortunately entry cut-off marks have only been published since 2007, so the trend can't be quantified just yet, but should become clear over the next few years...

Manly Selective HS:
Yr 7 entry             >> HSC results
Year  cut-off              Year    Rank     %DA
2014   205                  2019
2013   207                  2018
2012   205                  2017
2011   201                  2016
2010   202                  2015
2009   199                  2014      8         50.7
2008   201                  2013      11       43.0
2007   n.a                   2012      7         51.4
2006   n.a                   2011      10       45.1
2005   n.a                   2010      7         47.2
2004   n.a                   2009      15       41.1
2003   n.a                   2008      15       37.7
2002   n.a                   2007      20       32.6

Comparing these to the data for one of the top selective schools (Sydney Boys High) shows that the Year 12 HSC results are dependent on the quality of the cohort selected for entry into Year 7:

Sydney Boys Selective HS:
Yr 7 entry             >> HSC results
Year  cut-off              Year    Rank     %DA
2014   218                  2019
2013   216                  2018
2012   222                  2017
2011   223                  2016
2010   219                  2015
2009   219                  2014      6         53.0
2008   219                  2013      7         48.2
2007   n.a                   2012      8         48.5
2006   n.a                   2011      4         56.7
2005   n.a                   2010      6         49.2
2004   n.a                   2009      7         43.8
2003   n.a                   2008      7         44.7
2002   n.a                   2007      10       39.2

Of course, the ranking of the school itself only has an indirect impact on an individual student's HSC result and ATAR (as the performance on the student cohort at a particular school in the HSC will affect the scaling of the HSC marks of students attending that school). Of more importance will be how well DS1 does in his chosen HSC courses, and where he ranks amongst fellow students at his school in these subjects. Getting an 'outstanding' result in all Yr 9 subjects, which puts him in the top half of the school in every subject, suggest he should be able to achieve an ATAR of 98+. But as he has no clear idea of which course he wants to do at university, it comes down to simply doing as well as he can, so that he has a good chance of gaining entry into whichever course he fancies.

DS1 is enrolled (via distance education) in an HSC preliminary subject (Software Design and Development) as an 'accelerated' student next year, so he will have completed one of his HSC subjects whilst he's still in Year 11. If he does well enough in that subject it may help him get a good ATAR result, as he will still be doing the normal workload of other HSC subjects in year 12, so he will have an extra couple of units to pick from when the best 10 units are used to calculate his ATAR. Of course the disadvantage of doing his favorite subject as an 'accelerated' student is that he will be competing with students that are a year ahead of him. Also, the distance education course is offered by a non-selective high school that doesn't have exceptional HSC results overall. So unless DS1 ranks at the very top of his class in SDD, his scaled mark in this subject won't be very high. Also, SDD in general doesn't scale up very much, due to the general caliber of the students taking this subject for the HSC, so it's unlikely his SDD result will be included in his 'best 10 units' used for ATAR calculations.

DS1 has also been offered a place in the UNSW High School Computing course in the first half of next year - which teaches the first year university course in computing to selected Yr 11/12 high school students (and a few 'exceptional' year 10 students, such as DS1). It should be fun for him to do, and quite exciting for him to be attending 'uni' after school once a week! While not an HSC subject (so I'm glad he is able to do it while in Year 10, so it won't impact on his Year 11/12 studies), it should help him do well in his SDD course. Also, if he does extremely well (getting 85%+) he would be allowed to enter the CSE Elite students program if he decides to enrol in computer science at UNSW.

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Sunday, 7 December 2014

Net Worth: November 2014

Net Worth was down slightly during November, despite another monthly gain in the valuation of our house. This was due to the Australian stock market suffering a dip during November (but this has already been largely recouped during the first week of December). My SMSF account actually increased during November despite there being no employer contributions deposited during the month and the drop in the local stock market. This was because our investment in Vanguard LifeStrategy HighGrowth Index fund gained value, probably due largely to the drop in the Aussie dollar pushing up the value of unhedged overseas investments.

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Sunday, 23 November 2014

Excess Superannuation Contributions Tax - Timing is everything

Back in May 2010 I had put in place arrangements to 'salary sacrifice' as much as possible into my superannuation, without exceeding the current concessionally taxed contributions (which is the sum of both the mandatory employer superannuation guarantee levy (SGL) plus any additional employer contributions arranged via salary sacrifice). All should have been well, as the annual total of SGL and SS I had agreed with my employer was several hundred dollars below the 'cap' on such concessionally taxed contributions, just in case there was an extra fortnightly 'pay' processed during the financial year...

However, one of the more 'interesting' inconsistencies of Australian superannuation legislation is that while employees need to have made such 'salary sacrifice' arrangements prior to the start of the financial year, and fortnightly payslips report the amount of employer superannuation contributions (SGL and SS) that have notionally been 'paid' on each pay date, the actual timing of employer contributions is much more uncertain. By law, employees are only required to pay superannuation contributions quarterly, and then they have until the end of the calendar month immediately AFTER the end of each quarter to actually make the superannuation payments.

In my case, my employer was in the habit of paying the three monthly contribution payments at the start of the month immediately following the end of each quarter. Which meant that payments for the months of April, May and June were normally processed by the payroll office at the end of June and the funds were then processed by their superannuation administrator and were deposited into our self-managed superannuation fund in the first or second week of July.

However, in 2010 the payroll officer (who was a bit unreliable, and has since been 'let go' for finally making one mistake too many) suddenly decided to process the superannuation payments a few days earlier than usual in June, so that two of the quarter's monthly payments actually got deposited into our SMSF bank account during June. This resulted in my 'concessionally taxed' superannuation contributions for the 2009-10 financial year being a total of 14 months' worth of employer contributions, and therefore exceeded the 'cap' by several thousand dollars...

As this had happened within a few days of the end of June it was way too late to take any remedial action, as any change to my salary sacrifice arrangements at that time would only have affected subsequent months, which would not be processed until the following financial year. So I phoned the ATO for advice at the time, only to be advised that nothing could be done pro-actively, and that I'd have to wait until an excess contributions advice eventuated after the 2010 SMSF tax return had been processed - at which time I could lodge an appeal outlining the 'special circumstances' which affected the timing of the employer contributions.

Nothing seemed to be happening - the 2010 SMSF tax return got processed without any excess contributions notification appearing, so I thought common sense may have prevailed (yes, that was hardly realistic when dealing with the tax office!). But then, just a few months ago, I suddenly received a notice of assessment for excess contributions tax for 2010 (quite a delay, given the 2011, 2012 and 2013 SMSF tax returns have all been processed years ago, and we are currently working with the administrator to finalise the 2014 tax return for our SMSF). The excess contriubtions tax assessment was due for payment within about 21 days, so I phoned the ATO again to check on the appeals process, I was advised that there would be penalties applied if the tax wasn't paid by the due date, and that even if I lodged an appeal immediately the amount due probably wouldn't be varied prior to the due date (as appeals have up to 28 days to be processed, counting from after receipt of all required documentation). So I went ahead and just paid the $1700 or so excess contribution tax, and downloaded the relevant appeal form....

It then took two weeks to get a letter from the company payroll office outlining the fact that they had caused the problem by making an unexpected and unannounced change to the timing of their contribution payments (and I had to provide the new payroll officer with details of the superannuation employer contributions arranged and processed for 2009/10!). I then sent this letter (plus a spreadsheet showing the fortnightly contribution amounts and dates, the totals due for each calendar month, and the expected payment timings vs. the actual dates deposits appeared in our SMSF bank account, plus copies of emails I'd sent payroll reminding them to ensure payments were processed on schedule, as I didn't want to exceed the contribution cap!) along to the ATO. The ATO officer in charge of this case then asked me to provide copied of all my 2009/10 payslips to verify the amounts I'd listed in the spreadsheet. Fortunately I still had all my old payslips sitting in an archive box in the garage...

Subsequently he has also asked for copies of the 2008. 2009. and 2010 financial statements from our SMSF, which I sent last week. It then transpired that what he actually wanted was a listing of the individual employer contributions paid into my SMSF account. I pointed out that I'd already sent him copies of the SMSF bank statements which showed all the deposits, and a spreadsheet showing how much of each deposit was attributed to my account (the employer contribution deposits are complicated by the fact the DW works for the same company as myself, an the employer SGL payments for DW and myself appear as a single deposit into our SMSF bank account, and similarly there is a single monthly payment for the total of salary sacrifice made by both DW and myself).

I'm now in the process of getting a listing of the amount of each deposit transaction attributed to each member (which is based on the information I, as SMSF trustee, provided to our SMSF administrator in order to prepare the financial statements and do the SMSF tax return!). Hopefully that will be last documentation required by the ATO to evaluate my appeal against the excess contribution tax, and they may then decide to 'reallocate' some of the excess contributions for 2010 to other tax years...

Overall, this highlights one of the hidden risks of using superannuation as a tax-effective investment vehicle. Not only do you 'lock in' your savings in superannuation until you reach retirement age (and are subject to legislative risk in the meantime), you don't save a lot of tax unless you are in the top marginal tax bracket (in my case I was only saving a modest amount of tax by 'salary sacrifice', paying 15% contributions tax rather than around 30% PAYG tax on salary). And if something goes wrong and you exceed the contributions 'cap' then the 'excess contributions' have tax levied at difference between the TOP marginal tax rate (around 50%) and the 15% superannuation contributions tax rate ... so my 'excess' contributions ended up being taxed at around 50% rather than my normal marginal tax rate of around 30%!

All in all, and especially in light of the tendency of government to chop and change the superannuation rules relating to the 'cap' on employer contributions, it seems best to stay well below the limits set for concessionally tax superannuation contributions. Especially if your employer has a badly run payroll office!

ps. There were also complications caused by the 'cap' being suddenly changed from year-to-year by the government. From $50,000 pa for over-50s, back to the standard $25,000 pa for everyone, then back up to $35,000 for those over 55 etc... no wonder many people tend to ignore superannuation as being 'too complicated' in Australia!

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Sunday, 16 November 2014

Going on a cruise

We haven't been on a holiday for quite a while (I currently have about 40 days of 'long service leave' accumulated plus another 40 days of accumulated 'annual leave'), so early last week we decided to book a 'cheap' 14-day round-trip cruise to New Zealand during the January school holidays. The initial idea was to book a cheap 'quad share' interior room that would have cost a total of around $6,000, but it turned out that there were not any 'quad share' interior rooms available, and only one interior twin-share room. So we then tried to book one interior twin share room and one slightly more expensive 'ocean view' twin share room close by. However, during the booking stage it turned out that the 'quota' for 12-17 year old children on the cruise was full, so we couldn't book DS1 on. At that stage it was looking like we'd have to defer the trip, as the other available cruises to New Zealand were either one-way (and DW didn't want to have to fly back to Sydney), more expensive (over the Christmas/New Year period), or were travelling during Dec or Feb and would have meant that the boys would miss out on some of the school term.

Luckily DW decided to double-check on the same cruise again the next day, and either the quota had been increased or someone had cancelled, as we were then able to book everyone onto the January cruise we'd initially wanted. There were no longer any interior rooms available, so we ended up booking two adjacent 'ocean view' twin-share rooms for a slightly higher total cost of about $7,500. I'm guessing that the total vacation cost will end up somewhere over $10,000 for the two week trip! Aside from the cruise itself (basically transportation to New Zealand from Sydney, overnight accommodation between ports, main meals, and on-board entertainment), I've already paid another $136 for travel insurance, and we will be applying for new passports for DS1 and DS2 this week as their passports expired in 2013. Each 5-year children's passport will cost $122 (which is half the cost of a 10-year adult passport). Finally there will be extra costs for the various sight-seeing 'excursions' available at each port of call -  I'm estimating at least $100 per excursion per person for the ten days or so we are visiting various ports in New Zealand.

I'll post a break-down of the final costs (and some photos) when we get back.

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Tuesday, 4 November 2014

Net worth: October 2014

The stock market rebounded, so pretty much the opposite happened compared with last month -- my superannuation account balance was up, my geared stock portfolio was up, and, uncorrelated but still welcome, the valuation for our house was up (along with the rest of Sydney real estate it seems). So, overall, my net worth was up by a fairly massive $57,607 (3.70%) during October.

Next month is likely to be much less impressive, even if the stock market continues to do well, as there aren't any more monthly employer superannuation contributions due until next January, and I will be paying the $32,000 tax bill due on the 21st. So I'll be pleasantly surprised if my NW manages to break through $1.65M by the end of 2014, and if things go really well I might become a 'multi-millionaire' (with the bare minimum $2M) sometime during 2017. Just goes to show how little a million dollars really is worth these days.

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Sunday, 2 November 2014

Tax Sux

Having sold our investment rental property at the start of last financial year, my recent tax return ended up having a massive taxable income of over $190,000. Not only did that mean a large capital gains tax amount, but it also meant not getting any rebate for our net medical expenses this year (despite having net 'out of pocket' medical expenses of over $8,000), as DW also had a considerable 'taxable income' from her half of the capital gain from selling the investment property. The large taxable income also meant having to pay both the medicare levy and also a medicare levy surcharge (as we don't have private health insurance). All up, instead of the normal situation of getting a sizable tax refund of some of my PAYG tax (due to deductions for investment loan interest payments), this year I have an estimated tax bill of $32,370 that will be due in about three weeks. As she only works part-time, DW's tax bill will be slightly lower - just under $30,000.

Although we had used most of the net proceeds from selling our investment property to reduce our home loan, we each have around $100,000 invested in cash accounts and some share investments (so we would have funds available at short notice to pay our CGT bill). I liquidated the relevant share portfolio last week in order to have the cash ready to pay my tax bill (the $96,000 share portfolio I bought last year had lost around $6,000 - so I would have been better investing in an index fund, or else just investing in a term deposit), and once the official notice of assessment arrives in the next week or two I'll pay the amount owing and see how much cash DW and  I then have. The plan is for DW and me to each kick in equal amounts and pay off as much as possible of the remaining home loan balance (as the interest is not tax deductible). However, we don't plan to pay off the home loan entirely, as we still have an investment 'portfolio loan' account secured against our house equity.

Going forward, the reduced mortgage payments (once most of our remaining home loan has been paid off) will provide some additional cash flow, which I'll use to slowly pay down my margin loan balances as I get closer to retirement age. The big question mark hanging over my financial planning is whether I will remain in full-time employment until my expected retirement in about 15 years time...

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Tuesday, 21 October 2014

Judo and 5BX update

Well, I survived my first Saturday afternoon Judo lesson, but for a while I thought I might not even last through the 'warm-up' session! If I hadn't been doing my daily '5BX' exercise program and a long walk every day for the previous three or more weeks I never would have got through the entire lesson without collapsing. The first lesson was a good refresher of 'Ukemi' (break-falls), and an introduction to the throw 'O goshi' (major/large/full hip throw).

I was feeling pretty exhausted after the first lesson and had a sore shoulder and hands (the cost of being thrown while still having a BMI around 32!) the first afternoon. The next day I was feeling sore around the neck (probably for tensing up when getting thrown), and by the third day was feeling sore around the diaphragm (poor core body strength). Fortunately by day four I was pretty much back to normal - and was fully recovered in time for my second lesson.

The second lesson started off with an even more exhausting 'warm-up', as we were training in pairs, and I was having trouble keeping up with the thirty-something woman I was training with. I'd also managed to catch the cold that had kept DS2 home from school the day before, so I ended up coughing throughout most of the lesson. The second lesson reviewed O goshi and then introduced 'O soto gari' (major outer reap) throw and the pin 'Kesa gatame' (Scarf hold). I was favouring my right shoulder (which had been sore the week before), so of course I ended up with a sore left shoulder this week! I also had a sore inner thigh (O soto gari probably used muscles that I don't normally use very much). I ended up going to bed early due to my cough (and feeling exhausted) and was feeling pretty sore on Sunday. Fortunately I was already feeling pretty normal again today, so my 'recovery time' already seems to be improving.

Barring any injuries it is looking more likely that by the end of the ten week 'adult beginner' course I should be fit enough to handle to standard adult judo classes. I'll probably forget about attending the second weekly sessions (on Thursday nights) until I get my weight down to where it should be (about 22 kg less than it currently is).

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Saturday, 4 October 2014

Getting fit (or at least a bit fitter) on the cheap

With my 'adult beginner' Judo classes starting next weekend (I found my old 6th Kyu and 5th Kyu grading certificates from 40 years ago, but I'll be starting from scratch obviously) I needed to improve my fitness. So having recently cancelled my Crunch Fitness gym membership (I wasn't going often enough to make it worth keeping) I've taken to doing an hour or so brisk walking every day (at lunchtimes and in the evening), logging my 'step count' using my mobile phone (I'm finally reaching the recommended target of at least 10,000 steps per day). I'm also doing '5BX' exercises every day, which despite it ridiculously easy exercises at the beginning, is starting to gradually improve my fitness level (as measured by the weekly 'step test' I do). Combined with a modest rate of weight loss (using a combination of attempting to cut out all 'junk food' and 'lollies', eating a CRAN-style core diet plan most days, the odd low-calorie 'fasting' day thrown in along the lines of the "5:2 diet", and an increased level of physical activity, I'm managing to shed about 0.75 kg each week) I should be in reasonable shape to commence Judo lessons if I take it fairly easy to begin with.... we'll see how it goes. There's a grading at the end of the 10-week beginner's course (so hopefully I'll get my "yellow belt" back again), and at this stage I'm planning to continue with Judo one or two times a week during 2015, with the goal of achieving my "orange belt". I'm not sure that aspiring to any higher grades would be realistic at my age and level of health/fitness...

ps. DS1 managed to break his arm falling down while ice-skating for the first time during this school holiday period, so with his arm in a plaster cast for the next 4-6 weeks it looks like he'll miss his yet another Judo grading, and won't be attending the older kids class that runs concurrently with the 'adult beginner' classes - at least for a while.

For anyone interested in starting a free, equipment-less, easy-to-do, and quite effective exercise regime that literally only takes 11 minutes each day, you can download the original '5bx' pamphlet from various places such as:

And you might find this old training presentation of interest. It's both amusingly quaint, and provides some useful examples of how to do the advanced versions of some of the exercises properly:

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Net Worth: September 2014

The stock market was down last month. Such is life. Hence our SMSF balance was down, and my geared stock portfolio was down by a larger percentage. Sydney house prices (at least in our suburb) were unchanged. In the long run being heavily invested in the stock market should be a "good thing", but then again, as Keynes quipped "in the long run we're all dead". Maybe October will be a good month for the market...

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Thursday, 11 September 2014

Learning Judo after a forty-year break

The Judo club that my sons attend on Saturday afternoon is planning to run another 'adult beginner' course (lasting 10 weeks) next term (starting about four weeks from now), so I've decided to attend the lessons and see how it goes. I did Judo for a year or two when I was in High School, and as I have to spend a couple of hours watching the kids at Judo most weekends anyway, I thought that I may as well join in (the adult course is being run concurrently with the older kids class). I still have a Judogi from when I made an aborted attempt to resume Judo training in my late 30s (the class was full of twenty-something 'alpha males' and a bit too 'gung ho' for my liking), so the only cost will be $120 mat fees for the 10-week course, plus $120 to join the NSW JFA for a year.

The standard adult class seems reasonably accomodating of older players (there are several black and brown belts that are around my age or even older), so hopefully I can survive the adult beginner class if I don't 'over do' it. If nothing else, the decision to resume Judo training has given my diet and exercise regime a new focus, with a very short time frame in which to shed as much excess weight as possible and do daily aerobic exercise (5BX) and attend the gym until my current membership expires on 10 October.

If I enjoy (and survive) the beginner course I plan to keep attending lessons once or twice a week, and aim to eventually get a yellow and perhaps an orange belt, but I doubt that I'll be able to progress beyond that level even if I keep training indefinitely, as progressing to the higher Kyo grades require attaing some competition points and even the 'masters' competitions (for over-30s) are likely to put me in hospital!

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