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- 18 March 2009
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Your in a very fortunate position. You say as a foreign investor you only pay 10% on your australian earnings, we pay our marginal tax rate(between 35%-45%) depending on our total income.
That puts you at a huge advantage to us.
Then you rightly state that Japan is in a deflationary environment. Australia is still inflationary(although lower than last few years).
Again huge advantage to you.
With those 2 factors alone, i would say a term deposit could earn enough for you to actually grow your money. Not saying that shares or property arent the better option, but bank deposit in you circumstances is adequate.
Example: $100k, 1year term deposit earning 4%.
Japan:
100k*(1+(0.04*[1-.1]), assumes .1 or 10% tax rate
cash on hand after 1 year $103,600 after tax. assume negligible fees and currency conversion to Japan.
take deflation of 1% into account and its like you earnt a further 1% interst, so in 1years time you would have the equivalent of $104,636 in todays purchasing power.
Now consider Australian taxpayer living in australia
100k*(1+(0.04*[1-.45]), assumes marginal tax rate of .45 or 45%
cash on hand after 1 year $102,200 after tax. assume negligible fees.
take inflation to be 3%(ballpark figure) and its like being charged a fee of 3% on your total amount. so your left with $102,200*0.97 or $99,134 in todays purchasing power. effectively your money after 1year of investing is worth less than when u started.
in that example the australian lost nearly 1% in 1year. not a lot but would be significant if compounded over 30year retirement 1.01^30 =1.35 (ie you lost 35% of purchasing power over 30years).
things for an australian to consider are housing has outperformed inflation, and many things are excluded from inflation calculations meaning your buying power in terms of realestate and other things may be substantially less.
also when people talk about inflation eroding ones nett worth the calculation are general comparing someone that had there money in an ordinary bank account earning 0% interest(or under there bed). in your example you are earning an amount that offsets inflation somewhat.
That puts you at a huge advantage to us.
Then you rightly state that Japan is in a deflationary environment. Australia is still inflationary(although lower than last few years).
Again huge advantage to you.
With those 2 factors alone, i would say a term deposit could earn enough for you to actually grow your money. Not saying that shares or property arent the better option, but bank deposit in you circumstances is adequate.
Example: $100k, 1year term deposit earning 4%.
Japan:
100k*(1+(0.04*[1-.1]), assumes .1 or 10% tax rate
cash on hand after 1 year $103,600 after tax. assume negligible fees and currency conversion to Japan.
take deflation of 1% into account and its like you earnt a further 1% interst, so in 1years time you would have the equivalent of $104,636 in todays purchasing power.
Now consider Australian taxpayer living in australia
100k*(1+(0.04*[1-.45]), assumes marginal tax rate of .45 or 45%
cash on hand after 1 year $102,200 after tax. assume negligible fees.
take inflation to be 3%(ballpark figure) and its like being charged a fee of 3% on your total amount. so your left with $102,200*0.97 or $99,134 in todays purchasing power. effectively your money after 1year of investing is worth less than when u started.
in that example the australian lost nearly 1% in 1year. not a lot but would be significant if compounded over 30year retirement 1.01^30 =1.35 (ie you lost 35% of purchasing power over 30years).
things for an australian to consider are housing has outperformed inflation, and many things are excluded from inflation calculations meaning your buying power in terms of realestate and other things may be substantially less.
also when people talk about inflation eroding ones nett worth the calculation are general comparing someone that had there money in an ordinary bank account earning 0% interest(or under there bed). in your example you are earning an amount that offsets inflation somewhat.
