Ah, Kerry Packer. They just don't make 'em like that anymore, do they?
There's no shortage of KP anecdotes around these days. Many more are in the public domain since his passing, and I don't blame those involved for waiting… from all reports his temper could be fierce and his presence the definition of intimidating.
Despite the bluster, I have a soft spot for him — as a kid, I used to sell ice creams at the SCG (not a bad way to get paid while watching the Aussies play test cricket, right?). On one occasion, some blokes on the concourse spotted Kerry in a corporate box and called out to him. He bantered with them for a bit, then lowered down some cans of beer in a basket.
Yes, he could afford it, but he didn't have to do it. And yes, I'm sure he sometimes deserved the disdain from his detractors, too. But if (almost) everyone has a Kerry Packer story, that's mine.
Packer's most famous soundbite, though, was saved for our federal politicians.
Appearing before a House of Representatives select committee enquiry in 1991, he was asked to state his name and the capacity in which he appeared. His answer:
"Kerry Francis Bullmore Packer. I appear here this afternoon reluctantly."
Perhaps his best line, though, was on tax:
"Of course I am minimising my tax, and if anybody in this country doesn't minimise their tax, they want their heads read… because as a government I can tell you, you're not spending it that well that we should be donating extra."
You're nodding along, aren't you? I don't want to pay more tax than I have to, either. But don't put the cart before the horse!
"How can I pay less tax?"
It's the question that's paid for 10,000 accountants' kids to go to private schools, and one I received from a correspondent recently.
He's got a well-paying job, which means he has good cash flow. But he doesn't have much in the way of a nest egg, yet.
And like many people, he looks at his payslip and sees a decent slug go to Messrs Morrison, Frydenberg & Co. Surely, there's some way to lower it?
"Aha!" His accountant said. "You should borrow to buy shares".
After all, if he makes a cash flow loss, he can write off that loss against his tax. Hey, presto! Mission accomplished, right?
Wrong.
Cue Lost in Space: "Danger, Will Robinson!"
See, here's the thing: In the words of the famous baseball catcher, Yogi Berra:
"In theory, there is no difference between theory and practice – in practice there is"
In theory, borrowing to lower your tax is smart.
After all, you'll buy quality shares, right?
And you won't over-leverage, right?
And you won't lose your job, right?
And the market won't crash, right?
What could possibly go wrong?
I get it. Borrow money. Buy shares. Pay less tax. It's a win-win-win.
Until it's not.
Sure, many people reading this are expecting to be the exception that proves the rule. Sure, it's dangerous for others, they think, but I'll do it responsibly.
Except, the 'others' are all thinking that, too.
Like the 90% of us that think we're above average drivers.
Don't get me wrong — I'd like to pay less tax. So would most of us, including Kerry Packer.
But, even leaving aside the fact that in a well-functioning society, tax should be paid by those who can afford it for the services we all need and use, tax minimisation can't be the only goal.
Remember, you only pay less tax if you make a loss. Let that sink in.
By all means, don't pay more tax than you're obliged to, but don't make tax minimisation your main aim.
And, like in my correspondent's case, don't risk your very solvency by trying to take the fast lane.
Or, as Warren Buffett said: "Rational people don't risk what they have and need for what they don't have and don't need."
You know those 'get rich quick' schemes? There's a reason they're a cliche and a warning — they don't work.
In reality, you either get rich slowly or get poor quickly. Sure, some people do manage to get rich quick, but then, some people win lotto, too, and that doesn't make it a smart wealth accumulation strategy.
So here's the 'Get Rich, Slowly' rule book:
1. Work hard
2. Spend wisely
3. Save diligently
4. Research thoroughly
5. Invest regularly
6. Sell slowly
7. Reinvest dividends religiously
See anything about tax in that list? No, me either. But it's there, at least inherently. Don't sell too often (and pay CGT). And dividends are tax-advantaged, if they have franking credits attached.
But the aim isn't minimisation of tax… it's maximisation of after-tax returns.
Hell, if I have to pay a squillion dollars in tax, it's probably because I've earned 4 squillion in capital gains.
That's a tax bill I'd be happy to pay!
