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Solution to share market volatility
The recent market ups and downs can provide good lessons about investing and the importance of maintaining a well diversified and long-term plan.
By their nature, share markets will either rise or fall every day.
And it is important to realise that the recent turbulence is not particularly extraordinary.
In the period from January 1989 to July 2007 the Australian All Ordinaries Price Index has fallen by more than 10 per cent on 11 occasions.
And over the same period the market has produced a total return of more than 750 per cent.
Panic reactions to short-term volatility means investors can risk missing out on the long-term return potential of markets.
Short-term fluctuations will come and go for very specific reasons and they are likely to be big news at the time and highly emotional.
But people shouldn't get caught up in the moment. Take a step back, assess the overall fundamentals.
Ultimately, a long term, well diversified rational approach will be rewarded.
But, is there such a thing as being provided with a greater degree of certainty in your investment income while still benefiting from market growth?
Recently, a new style of investment has arisen that enables you to do this. It's been around overseas, but is pretty new in Australia.
These are called 'protected growth' investments with an underlying guarantee on the investment gains you make.
These allow you to 'lock in' investment gains periodically, while benefiting from market gains.
In other words, manage the downside, while retaining the growth opportunities of being invested in shares and so on.
If you are relying on your own investments or superannuation for your retirement income and are concerned about market volatility, you should speak to us now about a protected growth' investment.
By JOHN FLANIGAN and DEREK SCHUTZ, of Lehmann Flanigan Financial Services, who are Authorised Representatives of AXA Financial Planning, license number 234663. 
Salary sacrifice some of your pay
Salary sacrificing to boost your superannuation can be an attractive strategy because you will generally pay less tax than if you took your full salary as cash.
Salary sacrificing can be particularly useful if you are expecting to receive a bonus at the end of this financial year.
Salary sacrificing is attractive because you only pay 15 per cent contributions tax instead of your marginal tax rate on your income.
In addition, your investment earnings are only taxed at 15 per cent, instead of your marginal tax rate (up to 45 per cent). It involves an arrangement between you and your employer where you agree to forego part of your salary in exchange for an equal amount in super contributions.
The amount you sacrifice is taken out of your gross salary by your employer and paid to your superannuation account. To set up this arrangement, you will need an agreement with your employer.
As salary sacrifice agreements need to be forward looking, now is a good time to think about setting one up for the new financial year or before a bonus payment becomes payable.
But…watch out for the concessional contributions limit.
Before tax (or concessional) contributions are limited and include super guarantee payments and salary sacrifice contributions. If you are eligible to claim a tax deduction for personal super contributions, these tax deductible contributions will also be included.
In order to avoid paying a penalty tax, the limit for before tax contributions is $50,000 (indexed) per year.
So to make sure you will have enough for your retirement, it pays to start thinking about your super sooner rather than later, as you can no longer make large before tax contributions just before your retirement.
The information in this article does not take into account your objectives, financial situation or needs. Therefore, before acting on the information, you should consider its appropriateness to your personal circumstances. This document was prepared by DANNY KEARNEY, certified Financial Planner and Authorised Representative of AMP Financial Planning Pty Limited ABN 89 051208327. The information is current as at June 24, 2008 and may change over time.
QUESTION - ANSWER
By Danny Kearney
Super fund purchase?
Q. Is it now possible to use the money in my self-managed super fund as a deposit to purchase my business premises?
A. Within a self-managed super fund it has been possible to purchase and hold business real property, providing it was owned outright and unencumbered.
Legislation was passed in September 2007 introducing some exceptions to the superannuation borrowing restrictions. This has seen a number of scenarios presented to the ATO.
Early in April this year, the ATO further released clarification on a number of practical aspects, while also highlighting some areas where they had particular concerns.
The ATO has confirmed, among other things, that borrowings for any type of asset that the fund would be legally allowed to acquire are acceptable, not just listed securities.
Interest on borrowings from a related party must be at commercial rates, and both the governing rules and investment strategy of the super fund must allow for these borrowings to be implemented.
However, the ATO is still forming its view on issues, including whether the acquired asset must be the only property of the security trust, and whether arrangements that permit re-financing or the capitalisation of interest satisfy the new laws.
With the ATO still examining these arrangements, it is essential that you seek professional legal and taxation advice to ensure any arrangements you enter into are structured appropriately and that all necessary legal documentation is in place.
Work-related expenses - What your tax agent can claim
The Australian Taxation Office looks at claims for work-related expenses very closely.
Of the 11.5 million people who lodge a tax return each year, more that seven million claim deductions for work-related expenses.
As well as common mistakes, the Tax Office says they also find claims that are false and cannot be substantiated.
Generally this year the Tax Office will look closely at a range of claims for deductions, including expenses for motor vehicles, self-education and travel.
The Tax Office also looks at tax returns from last year and identifies particular occupations where
- Average amounts of claims are high.
- There is an increase in the number of people making claims.
- There is a lot of people making claims for the first time.
In the spirit of 'prevention is much better than cure', the Tax Office uses that information and writes to people in those occupations.
They send information outlining common mistakes made in claims and provides help on how people can get their claims right in this year's tax return.
The Tax Office will send information to more than 380,000 people in the following occupations:
- Nurses, including midwifes and carers.
- Chefs.
- General and specialist medical practitioners.
Some of the mistakes the Tax Office has seen in these occupations include:
- Nurses claiming a deduction for self education expenses where there isn't a sufficient connection between the study and current work duties.
- Chefs incorrectly claiming car expenses for normal trips from home to work while carrying equipment such as chef knives or where no public transport is available. Other common mistakes include claiming a deduction for pre-vocational courses and incorrectly claiming deductions for up-front student contribution amounts and compulsory HELP repayments.
- Medical practitioners claiming private travel expenses, such as trips where the practitioner is accompanied by their family or friends. Another common mistake is incorrectly claiming entertainment expenses, which are generally not deductible. This includes business lunches (even if business matters are discussed at the meeting) or attendance at social events, industry promotions, or similar events.
Tips to get it right:
When working out your work-related expenses there are some simple rules to help you get it right:
l You must have incurred the expense in the year you are claiming for.
l The expense must be work-related and not private and if the expense has been reimbursed by your employer it cannot be claimed.
l Receiving an allowance from your employer does not automatically entitle you to a deduction.
l If your claims total more than $300 you need written evidence.
You can also use records other than paper receipts.
For a full list of accepted records visit the Tax Office website (ato.gov.au).
Meanwhile the Australian Taxation Office has announced that it will continue to focus on capital gains tax this year, in particular people who do not report capital gains for the sale or disposal of shares, properties and other assets (see above).
What is a capital gain?
A capital gain is generally the difference between the cost of an asset when you purchased it or what it was worth when you obtained it, and its value when you dispose of it.
You most commonly have a capital gain to declare if you have sold or given away an asset.
Assets which attract capital gain tax include real estate, shares and units in managed funds and unit trusts.
Capital gains tax may also apply to paintings, antiques and collectables such as coins or stamps.
You may be entitled to an exemption from capital gains tax when you dispose of an asset acquired before September 20, 1985, or a property that is your home.
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