Your top 6 money questions answered by an expert

We got Aussies from around the country to send in their mortgage, money and superannuation questions. Here’s what Aussie finance guru Peter Switzer said in reply.

Q. I’m in my late 40s and so is my husband. We have about $450,000 in our combined super and we want to create a self-managed super fund and buy an investment property as we hate stocks after losing too much in 2008. Is this a good idea to invest in property inside an SMSF? Avril, Bowral, NSW.

Having $450,000 inside super is a good starting balance for an SMSF as you could keep your costs under 1% very easily. This would make you competitive with what good super funds might charge you. However, on whether you should buy a property, the question is complex. I’ll try to make my answer relatively simple. A good super fund will probably double your money every 10 years.

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So your $450,000 will be $900,00 in your late 50s and $1.8 million in your late 60s, when many Aussies will eventually retire. On top of that, you will have another 20 years of contributions, with around 7% return per year over a decade. You and your husband are in the box seat without property but if you want one, then say use $240,000 as a deposit and borrow the rest.

This way you are diversified between properties, shares, cash etc. Make sure you buy a property that tenants want to live in with a good history of OK capital gain. Also make sure you are an organised person who likes to manage things like money, stocks, accounts, etc. If not, then stick to a good performing super fund. Check out the best at www.superratings.com.au

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Q. I’m buying a house over the next few weeks. I could pay more than I’d like to and too many interest rate rises could kill me! Should I fix my interest rate and what is a good rate to benchmark off? How long should I lock it in for?

A. I think interest rates will start rising later this year but I expect the rises to be small between now and the middle of 2019 but they could hot up after that. I’d fix for three or five years if I was over-borrowing like you, though I would rather advise that you don’t over-borrow. I went on to Canstar’s website and there are a lot of home loans for five years under 5% and even some under 4%. Hopefully over five years your income will be higher and your house will be more valuable. You then could get out of a fixed rate home loan. By then, let’s hope you won’t be in so much of a tight money situation.

Q. Can you tell me if you have to pay tax on compensation you receive? Bill, Gosford, NSW.

A. As you haven’t explained what kind of compensation, let me look at two different situations. The first involves a one-off payment to make up for some calamity or loss you have endured. Under most circumstances, you would expect to pay no tax. However, if you have a compensation payment that substitutes some regular form of income, then that in all likelihood would be taxed like any other regular income. I reckon you should ask an accountant to make sure you know whether your compensation is set to be taxed.

Q. How can I work out if my super fund is worth sticking with? Jason, Middle Park, VIC.

A. Recently Chant-West released the latest performance of super funds. This is what the super watching business found: “Australia’s major super funds look certain to deliver a sixth consecutive positive calendar year return – and quite possibly in the double digits. A gain of 1.3% in November has pushed the median growth fund (61 to 80% growth assets) to a cumulative return of 10% for the first 11 months of 2017, so a positive December would make for a vintage year.”

And according to SuperRatings, the top five funds over a three-year period have been HOSTPLUS – Balanced (10.25% p.a.), MTAA Super – My AutoSuper (9.82%), Australian Super – Balanced 9.8%, Cbus Growth (9.71%) and Catholic Super – Balanced MySuper (9.64%). Use these to see how your fund performed over and then check out how much you pay compared to what these funds charge. If you’re paying over 1% and your returns aren’t as good as the funds above, then forget it and change funds.

Q. I believe the rules for claiming tax deductions when you buy an investment property have changed since January 1 and it stops me claiming for existing fixtures and fittings and trios interstate to see my property. Is this right? Jack, Bulli, NSW

A. On the subject of travel expenses, this is what the Tax Office website tells us: “From 1 July 2017, travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as deductions by investors. The changes are now law. The travel expenditure is also not recognised in the cost base of the property for CGT purposes.”

If you are a business, a public fund, etc. you can claim these expenses but individuals and trustees of a self-managed super fund won’t be able to claim these expenses of being a landlord. On the other matter, the new laws mean property investors can no longer claim depreciation for plant and equipment, such as air conditioning, solar panels or carpet in second-hand residential properties purchased after May 9 last year.

The rule changes do not affect capital works deductions for a property’s structure or any fixed items, such as doors, basins or retaining walls. Fairfax Media had a nice example to explain this latter point. “That means the owner of a $600,000 three-year-old house bought after May 9 can expect to claim about $6000 in capital deductions in the first year of ownership.” But note that the new rules will not apply to investors who purchased their properties before May 9, new residential properties or commercial owners who use their properties for conducting a business.

Q. How do I find the best credit card? Annie, Malvern, VIC.

A. This is not an easy question to answer because we are all different. Some people like frequent flyer points, others just want the cheapest cards. The benchmark current cheapest card is ME Bank’s frank credit card at 11.99% without any fees. Use that as a comparison and remember, if the rate is lower but there are fees, it effectively pushes up the real rate you are paying.

Always look for the comparison rate, which adds fees to the interest rate advertised. If you want to do some real homework on finding the best credit card for you, have a look at ASIC’s website at https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/how-to-choose-a-credit-card and it even shows you how to use money comparison websites.