Chan And Naylor

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GUEST OBSERVER
Most Australians entrust their super funds to professionals but you can control your own superannuation and invest your contribution yourself.
Managing your super not only gives you the opportunity to take matters into your own hands, you may also save thousands of dollars on fees.
However, you need to know if managing your own super is right for you.
The biggest advantage of setting up your own SMSF is control. You can invest your money the way you want to – in companies, a property or a fixed interest term deposit.
You can choose among a wide range of investment options like direct mortgages, bank deposits, managed funds, direct property and shares.
Another advantage of DIY SMSF is lower fees. If you have over $300,000 in your superannuation, you may be able to operate your SMSF for less than the annual management fees of a company.
You can also use gearing and leverage to purchase assets like shares and property to expand your investment portfolio faster.
Remember that contributions to your SMSF are tax deductible so you can save more tax through franked dividend income and timing your capital gains carefully.
SMSFs also let you buy other assets for a maximum of 15% tax. SMSFs can continue indefinitely and family members may still enjoy this benefit even after the member's death.
However, you should be aware of the disadvantages, too. As a trustee, make sure you comply with super and taxation laws otherwise, you can be charged a hefty fine and even be imprisoned.
You also have to be savvy about investing to ensure that your SMSF is earning more than what a super company could earn. If not, you can choose to appoint brokers or advisors for a fee.
You will also be required to meet all record-keeping and reporting obligations such as transactions and contribution records and annual tax returns.
Just the same, you may want to ask the experts to handle this for a fee. Another downside of setting up your own SMSF is it may be less diversified than it could have been if handled by a superannuation company.
Note that gearing may add to the risk and though super funds sometimes come with insurance coverage, you still have to get an independent life, income protection and total permanent disability insurance that you need.
Do you think you can set up your own SMSF? Why don't you assemble a team of professionals, such as a lawyer, experienced investor, SMSF expert and financial partner to help you?
You can start with a solicitor, accountant, investment strategist and financial planner. Check their fees and accreditation and don't be afraid to get a second opinion.
ED CHAN is founder and non executive chairman of <a href="https://www.chan-naylor.com.au/" target="_blank">Chan &amp; Naylor Accountants</a>.
<a href="https://www.chan-naylor.com.au/contact-us/?utm_medium=propertyobserver" target="_blank">Click here</a> to schedule a chat or call one of their <a href="https://www.chan-naylor.com.au/contact-us/?utm_medium=propertyobserver" target="_blank">local offices</a>.
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How to decide if you should set up your own SMSF: Ed Chan

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GUEST OBSERVER
Any amount you can claim on a property will be advantageous to your financial well being.
Negative gearing is a popular wealth creation strategy.
The net loss can be offset against other income to reduce tax which means the higher you can claim on a property, the bigger the tax benefit.
Here are some of the tax deductions you can and cannot claim on negatively geared investments.
Capital gain is derived from the sale of a property where the proceeds are more than the cost base of the property.
There is a capital loss if the proceeds are less than the cost base.
To minimise your CGT, you should know all expenses that fall within the property's cost base.
You can apply capital losses from the previous year as well.
The cost base consists of the property's purchase price, stamp duty, borrowing expenses, broker fees, legal expenses, capital improvement outlays and auctioneer's fees.
Rental properties bought on or after 19 September 1985 are subject to capital gains tax but any remaining net capital gain can be reduced under the 50% CGT discount for those who owned the property for over 12 months.
There are other concessions if it used to be your main residence as well.
You can also claim management expenses against the investment property's income, including insurance, interest on your investment loan, real estate management fees, depreciation on assets, council and water rates, tenancy costs including advertising, repairs and maintenance and cleaning costs.
Until 30 June 2017, reasonable travel expenses to maintain, inspect and collect rent for the property may be claimed.
For body corporate fees, you can claim admin levies and general purpose sinking funds as well.
To those whose rental property is in their name and not part of a property leasing business, you can reduce your tax on prepaid tax-deductible expenses if the prepayment is for services in the next 12 months.
For others, a prepayment may only be deductible immediately if the expenditure is less than $1,000 or specifically required to be incurred by a law.
To claim, you have to present official documentation such as bank statements and receipts and accurate depreciation and capital works schedules.
The depreciation schedule outlines the amount you claim in depreciation every year while the capital works schedule outlines building and construction expenses, costs of altering a building, capital improvements to the surrounding property and how much you can claim every year.
Expenses can be written off at 2.5% every year over 40 years for rental properties build after 15 September 1987.
Those who do not have building or construction records can obtain an estimate from a quantity surveyor, clerk of works, experienced builder or supervising architect.
A quantity surveyor can also create a depreciation schedule. They are experienced in valuing assets accurately to help you save money in the long run.
Meanwhile, expenses you cannot claim are those related to your personal use of the property, utility bills paid by the tenant, borrowing costs when you've borrowed against the investment property's equity for private use and those related to the sale or purchase of the property.
However, many of these can be part of the cost base. You should document and keep all records of all your spending from the start of your investment.
You should document and keep all records of all your spending from the start of your investment.
Talk to your accountant to understand what you need and map out what you want to do in the coming financial year.
Ed Chan is founder and non executive chairman, Chan &amp; Naylor Accountants and can be contacted <a href="https://www.chan-naylor.com.au/" target="_blank">here</a>.
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