FIRE Tax Time Shock

Let me start by acknowledging that this is a post of privilege. I support paying tax. Sometimes I’m a direct beneficiary of what those taxes are spent on (health, education, roads). If not, my taxes go to benefit others who are not as privileged or lucky as I have been (pension, disability, unemployment benefits).


We have the majority of our FIRE savings in a Vanguard Managed Fund. As most of you know, last year was extraordinary in terms of market returns – over 20% for our superannuation, for example.

Mr. ETT and I were astounded to see we had earned $40,000, of which $31,000 was Capital Gains. The year before we had earned $15,000 of which $14,000 was Capital Gains.

(As an aside, I really shouldn’t use the word “earned” in the sentence above. We did nothing to earn this – it’s passive income. I guess I should reword it to say we gained $40,000. Straight up, there’s the privilege. It’s the old adage of you need money to make money.)

This year, because our individual capital gains were more than $10,000, it opened up a new screen in MyTax.

Capital Gains Tax Schedule Issues

Well, I admit I know nothing about CGT. What I thought would be a straightforward balancing of numbers turned out to be anything but. I kept getting a circular error I couldn’t fix.

I used the ATO’s online help, and ended up speaking to three different people within the ATO. Each time, I was handed to an increasingly experienced staff member. Unfortunately, the outcome was that they couldn’t help me. I was advised to speak to Vanguard or consult a tax agent. Well, the Vanguard AMMA Tax Statement specifies “If you have any doubt about your specific tax circumstances, you should seek professional advice,” so it was off to a tax agent.

We used to use a tax agent, and actually enjoyed catching up with her once a year. She eventually retired (early, although we didn’t know about FIRE then) and it wasn’t as much fun with the new person. Also, as MyTax became more sophisticated, we ended up doing it ourselves once I realised we were paying $440 a year when the vast majority of it was pre-filled. At that point, our taxes were fairly simple.

But, it’s no longer simple. As much as I don’t believe it should be so complex that even the ATO can’t help me, that is the price I need to pay for not wanting to put in the time to study tax law and accounting. I am paying for expertise. Unfortunately as the screens the tax agent sees are different to those presented to me in MyTax, they weren’t able to tell me how to enter it for myself. By this time though, I’ve spent many hours researching and quite frankly I’m happy to pay to just to get it submitted.

FIRE Tax Bill Shock

Based on a first pass-through by the tax agent for me, then doubled assuming Mr. ETT will be similar, we are likely to have a combined tax bill of around $9,000. Given the gains above, and the fact that Mr. ETT and I are both in the 32.5% tax brackets, this shouldn’t have been a surprise. But to be honest, it was.

I’d had some indication that tax may be an issue from reading FIRE blogs in the past. In 2019 I instituted a bucket in YNAB to begin saving for the eventuality. It started with our tax refunds for that year and I was adding $100 a month. I stopped at $4,000 because I thought this would be way more than we would need the first time it happened. I expected we would begin paying one year, then each year after that our bill would grow in line with our investments.

What compounded the shock is that we reinvest via a DRP, so all gains automatically reinvest for us. This means the gains don’t feel real – no more than numbers on a screen that can (and do) rise or drop according to the whims of the market. However, this $9,000 will have to be cold, hard, cash that comes from our budget. That’s a big chunk of money to find when we weren’t expecting the expense (or partially expecting, at least).

Finding Money in the Budget 

After a few days of allowing it to sink in, I realised that we are very lucky it has happened this month. Mr. ETT started a new job, so had a payout of annual leave from his old job. September is also a five pay month, so we have one extra pay to go towards the bill. Adding the $4,000 we had already saved, and hoping maybe Mr. ETT’s liability won’t be quite twice what mine is, we might just cover it.

The Future

Clearly, we need to make sure we have significant provision of cash for tax in the future. We could consider doing what The FI Explorer does: take the cash, put a quarter away for future tax liabilities, and reinvest the rest. I’d prefer not to do this for two reasons:

  1. As discussed previously, I’m lazy. I love set and forget. It worked for us through the upheaval of moving house, starting new jobs, and COVID.
  2. We are still in the accumulation phase. The more money we can keep in investments early on, the better the return due to compounding. 

However finding an extra $10,000 cash a year isn’t easy (working on an unfounded assumption that returns will continue at this rate). My last car cost $5,000, so that’s like saving for two cars a year!

I’m not going to side hustle. I just went part-time so I could start winding back. Yes, we could reduce our spending but after 5 years of fairly steady spending, let’s just say that the motivation isn’t there (when you have a saver marry a spender you reach an uneasy middle ground…)

It does mean that I will have to slow down our investments somewhat. We currently invest $2,000 a month into Vanguard, but I put aside $2,700. All those extra $700 add up for 6 months, then I push them in as a one-off bonus when the price drops ex-dividend each half-year.

I will now divert the extra $700 into our YNAB tax bucket, and top up through the year with any savings we manage. Maybe this will provide some motivation to reduce our spending.

Does anyone have any words of wisdom? Have you had a tax bill this size (or even larger)? How do you manage it?

2 thoughts on “FIRE Tax Time Shock

  1. Joseph Seeto says:

    “Privilege” has nothing to do with anything. Stop berating yourself for having the sense and knowledge to organise your affairs so that you eventually don’t become a burden on the taxpayer. Take pride in what you achieve without acknowledging a guilt trip that isn’t warranted.

    • Mrs. ETT says:

      Thanks for taking the time to comment, Joseph. I see your point – this is directly related to us deciding to take control of our futures. To make the hard decision not to spend money now so we can live the life we want in the future. For 99% of the people we know, it is almost that simple – choice. And you’re right, I shouldn’t apologise to them, or feel guilty. But I have a friend who, through a bunch of random life events, lives below the poverty line. Because of this, they become almost invisible to society. To be honest, when I put myself in their shoes, I do feel guilty. I have helped in the past and I will again, but my recognition of privilege is for those people. The ones we might not even see.

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