The bottom line
It is a mistake to think that all returns are expressed in the same way. They’re not. When banks and the other institutions quote returns for term deposits they quote the rate before tax, the gross rate. Here’s how it works:
7.5% before tax changes to these rates after tax:
19.5% tax payer 6.04%
33% tax payer 5.03%
39% tax payer 4.57%
When we report returns to clients we report the net return after tax and after fees. Make sure you are comparing apples with apples when you compare returns.
It’s also important to appreciate that fees paid in respect of portfolio management can be tax deductible in the same way as other expenses are deductible in generating income. For example, if your income is $35,000 per annum your tax bill will be about $6,825. If you have expenses of, say, $1,500 (and these are legitimate tax deductible expenses) then your income is deemed to be $33,500 and your tax bill is reduced to $6,532. That amounts to a refund of $292.
The rebating of brokerage and tax deductibility of portfolio management fees makes a significant difference to the bottom line.
If you have over NZ$350,000 to invest and want truly impartial advice, contact us to find out how we can put your money to work to fund your important goals.
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