Maximising your returns - an example
| 0% Geared |
50% Geared Margin Lending |
100% Geared Capital Protected Fund |
|
| Investor Contribution (over life of product) | |||
| Investment | (100,000) | (100,000) | (100,000) |
| Interest (prepaid) | (21,200) | (45,250) | |
| Loan Establishment Fee | (1,100) | ||
| Capital Protected Fund Protection Fee | (4,200) | ||
| Loan | 50,000 | 100,000 | |
| Investor contribution | (100,000) | (71,200) | (50,550) |
| Proceeds at Maturity | |||
| Redemption proceeds | 176234 | 176,234 | 168,316 |
| Loan repayment | (50,000) | (100,000) | |
| Net proceeds | 174,234 | 126,234 | 68,316 |
| Tax (over life of product) | |||
| Capital gain | 50,823 | 50,823 | 42,380 |
| Tax on capital gain | (12,325) | (12,325) | (10,277) |
| Income | 25,411 | 25,411 | 25,411 |
| Imputation credits | 5,445 | 5,445 | 5,335 |
| Ongoing management fees | - | - | (6,380) |
| Capital Protected Fund Loan Est. Fee write off | - | - | (1,100) |
| Net income | 30,857 | 30,857 | 22,754 |
| Tax on net income | (9,520) | (9,520) | (9,700) |
| Tax benefit of interest cost & Capital Protected Fee | - | 10,282 | 20,386 |
| Tax (paid)/saved | (21,845) | (11,563) | 4,408 |
| Return | |||
| Investor contrbution | (100,000) | (71,200) | (50,550) |
| Net proceeds | 176,234 | 126,234 | 68,316 |
| Tax (paid)/saved | (21,845) | (11,563) | 4,408 |
| Cash return | 54,389 | 43,471 | 22,175 |
| Post tax rate of return on investor contribution | 8.9% p.a. |
11.7% p.a. | 16.8% p.a. |
This example shows cumulative net proceeds for an individual from the investment over a five year term, after Capital Gains Tax and after repayment of the loan. This example assumes:
- initial investment of $100,000
- margin loan geared at 50%
- Capital Protected Fund geared at 100%
- franking level 50%
- Capital Protected Fund Loan Establishment Fee 1.1%
- ongoing Capital Protected Fund management fee 1.025% p.a. (net impact after taking into account the benefit of reduced input tax credits)
- ongoing Capital Protected Fund Protection Fee 0.84% p.a.
- The investor will hold the investment on capital account and that 6% pa interest on the Investment Loan and the Protection Fee is deductible to investors in the Capital Protected Fund.
- Individuals pay tax out of their own funds on returns generated.
- The CGT discount provisions are applicable.
- Marginal tax rate (including Medicare Levy) of 48.5%
- Company tax rate of 30.0%
- Capital growth of 8.0% p.a.
- Income yield (net of underlying managed fund ongoing management fee) of 4.0% p.a. on assets,
- Margin loan five year fixed interest rate of 8.48% p.a.,
- Capital Protected Funds five year fixed interest rate of 9.05% p.a.
- All income has been reinvested
- Post tax rate of return on investor contribution takes into account timing of cash flows. Tax cash flows are assumed to occur three months following the end of the year to which they relate.
- This example is not a forecast of returns. Investors may not receive returns at the rate assumed in the example, or any returns. The value of the amount invested may increase or decrease over the term of the investment.
