With personal finances left looking fragile after the annual Christmas spending splurge, I thought it best to offer a list of simple strategies that can help Australians improve their financial fitness in 2013.
If done properly, this includes assessing all aspects of personal finances, including strategies to boost retirement investments, such as including property and super, savings, a review of insurance policies, staying ahead of tax obligations and making an effort to improve financial literacy as more and more Australians take more control of planning their financial future.
Maximise the potential of any investment properties. Renovations to an existing property can reap huge rewards in the long run, with even the addition of air-conditioning dramatically increasing a property’s yield in terms of the amount you are able to receive in rent. Also, holding an investment property within a self-managed super fund trust is one of the most tax-efficient ways of managing these types of assets.
Ensure your property agents cover all property investment expenses (excluding interest). After all, you are paying them. This will greatly reduce your accountant’s costs and reduce your administration, as the agent will give you monthly and annual statements showing all income and expenses and will attach relevant invoices to each statement for your compliance needs.
Interest rates are near all-time lows, so while this is not great for savers, it is terrific for borrowers, who should ensure that their loans are properly structured and rates are in line with the competitive market rate. Many borrowers have not been given access to what is called the professional discount, although most are eligible.
This potential 0.7% rate decrease applied to pay down a loan reduces the average loan by over $2,300 per year which equates to an overall saving of over $104,000 and reduces the term by nearly 6.5 years. The use of honeymoon credit card rates can also be very beneficial to enhance the faster payment of credit card debt while not increasing actual cash requirements.
The use of a specialist property accountant will be able to show you all the legal tax deductions available to you, including the proper set-up of loans and the use of trusts for the astute property investor. Many investors forget to claim depreciation, which is a non-cash expense relating to the wear and tear of the building and fixtures and fittings.
When doing a renovation, you should also prepare a scrapping schedule, which puts a value on everything you rip out and throw away. The taxman will pay you for your junk via an expense in the year of renovation and then allow depreciation on the new work. Remember depreciation and scrapping schedules must be prepared by a qualified quantity surveyor.
We have all heard of the horror stories of the wrong people getting your assets or, even worse, the government. Wills are a way to protect family wealth, and the common will, where assets are bequeathed to your children or surviving spouse, can have dire consequences if the receiver becomes bankrupt, has a family dispute, or has other medical issues. For many, a better alternative is required and therefore a different type of will is needed.
This is normally referred to as a testamentary will. In this scenario, your will makes provision for your assets (such as property) to go to a trust set up after your death and you have your loved ones in control of the trust. This protects the assets from divorce, bankruptcy and taxes minors at adult tax rates and not the dreaded 66% on income generated from a normal death distribution.
An enduring power of attorney (EPOA) is also recommended as the will does not take effect until death. If in a coma, access to bank accounts or the ability to sell assets for your medical treatment may be delayed or stopped without the EPOA. Remember your will only looks after what you own in your name and does not cover your superannuation or trust assets. Other documentation is required for these.
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