November 27, 2015 taxitime

Property vs Shares Debate Evening

Tuesday the 17th November saw a terrific turnout by Paris Financial clients to hear Martyn Rose from Morgan Stanley and Brad Straughair from Domain Property go head to head and toe to toe as they debated the respective benefits and advantages of their chosen assets – property and shares.

Both guests were very generous with their time and passionate opinions, which were possibly enhanced by the products of Daniel of Tellurian wines who conducted expert wine tasting with some generous prizes going good clients Dennis and Greg, enjoy the wine gentlemen!

So who won the debate? A show of hands at the end of the night split opinions right down the middle. It was agreed by both parties there is a place for both assets in a well structured portfolio.

We had many comments from clients who enjoyed the debate style format, so please let us know other topics you would like to hear about, we are always looking to provide relevant information to help you make the best decisions.

My summary of the main points of the debate are provided below, in the same format as the event, split into three important categories of Income, Capital Growth and Tax Benefits

INCOME

Property

  • Provides a more certain income stream when a tenant is occupying and paying rent
  • High frequency, monthly income
  • Able to index the rate of income

Shares

  • Regular income
  • Less frequent payments, typically 6 monthly
  • Some stocks are currently yielding returns of around 6 – 7%

CAPITAL

Property

  • Capital growth has been exceptional, especially inner Melbourne metropolitan area
  • Brad’s parents achieved capital growth of 8.5% over 35 years!
  • Equity built up in property and used to purchase additional properties
  • Capital growth very dependent on the location, regional areas haven’t experienced such dramatic growth

Shares

  • Enjoyed strong growth over long term, 9.64% over previous 20 years
  • More short term volatility toward long term capital growth
  • Ability to diversify across different sectors such as mining, banks, telco, health care
  • Further diversify into international markets and worlds biggest companies such as Google, Apple, GE

TAX

 Property

  • All income earned from renting a property is assessable
  • Expenses paid such as maintenance, council rates, real estate management fees can be claimed as a deduction, including all interest on borrowed money for investment properties can be claimed
  • The Australian Tax Office (ATO) allows owners of income producing property to claim a tax deduction called depreciation, on a building’s structure and plant and equipment assets.
  • Properties that are your principal place of residence are free from Capital Gains Tax

Shares

  • All income earned via dividends is assessable
  • Expenses such as management fees, ongoing advice via stockbrokers and financial advice are deductible.
  • Income is passive, does not require any involvement from shareholder
  • Dividends come with imputation credits, in which some or all of the tax paid by a company may be attributed to the shareholders by way of a tax credit to reduce the income tax payable.
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