Short N Sweet is a fortnightly newsletter providing timely investment insights on current market events and trends. If you would like to join the mailing list, please reach out to your Dimensional representative.
Taxing Times
Kerry Packer’s famous words about “minimising tax” are probably ringing in the heads of Australian investors following the tax changes presented in last week’s federal budget.1 The changes reduce some of the tax benefits that can be gained from investment structuring, which means that after-tax outcomes of the underlying investments become even more important to overall tax efficiency.
Tax efficiency starts with the investment strategy. A strategy designed for low turnover and managed with flexibility can help reduce tax costs. Strategies that achieve these lower tax costs while also keeping a focus on higher expected returns can lead to better after-tax take-home returns.
An investment’s relative tax efficiency also depends, in part, on the amount of control and flexibility it gives an investor about when they pay taxes. A fund with flexibility to reduce realised capital gains through thoughtful trading enables investors to defer capital gains taxes. Dimensional’s effective capital gains management has resulted in relatively low distributions of capital gains over the last decade, with most of the funds’ return coming from growth in unit prices. This doesn’t eliminate an investor’s future tax obligation, but it does give them more control over when they actually pay taxes and, in the meantime, allows their full investment amount to compound.
Exhibit 1
Average Total Returns
Financial year 2016-2025
Past performance is not a guarantee of future results. Investment capital, growth and income returns are not guaranteed.
Footnotes
-
1. In the November 1991 House of Representatives Select Committee on Print Media, Kerry Packer, Media tycoon, famously quipped, “I am not evading tax in any way, shape or form. Now of course I am minimising my tax and if anybody in this country doesn’t minimise their tax, they want their heads read.”
Disclosures
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
AUSTRALIA
This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and the target market determination (TMD) that have been made for each financial product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
NEW ZEALAND
This material is issued by DFA Australia Limited (incorporated in Australia, AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. This material does not give any recommendation or opinion to acquire any financial product or any financial advice product, and is not financial advice to you or any other person. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and for the Dimensional Wholesale Trusts the target market determination (TMD) that have been made for each financial product or financial advice product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.