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Journal of Law and Financial Management - Volume 6 (1) June 2007

Editorial »

Self Managed Superannuation Funds: Theory and Practice

By Dr Peter J Phillips, University of Southern Queensland


In this paper, a small preliminary sample of self managed superannuation funds (SMSFs) is investigated. The contents of the actual SMSF portfolios are examined and a number of microstructure features that characterise the SMSF portfolios are described. These empirical characteristics are juxtaposed with theoretical and empirical finance to produce an analysis of self managed superannuation funds in theory and practice. A theoretical economic rationale for the existence of SMSFs is developed and microstructure features exhibited by the SMSFs such as home bias, under-diversification, high relative weightings of blue chip securities and the deployment of infrequent portfolio revisions (buy-and-hold strategies) are reported and discussed vis-a-vis theoretical and empirical finance. The outcome is a first step towards a more complete understanding of this increasingly important component of Australia's retirement income stream.

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Gearing and Negative Gearing

By Tom Valentine, Macquarie Graduate School of Management


The purpose of this paper is to clarify some aspects of geared investments which are investments partially financed from a loan. Gearing is a standard tool of investment and although it is usually applied to property or share portfolios, the approach can be applied to any asset. Some investors are resistant to it because they think it is risky, but the same people have often made large leveraged investments in the family home.

The second section of the paper outlines the basics of gearing and the factors that affect the return earned on a leveraged asset holding. The third section demonstrates that a share portfolio can contain "hidden leverage". The fourth section looks at margin loans. The fifth section considers instruments which provide leverage without requiring an explicit loan. They are particularly useful for superannuation funds which are not permitted to borrow.

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Finance Lease Taxation: Giving Tax Losses to Lenders

By GD Mackenzie and G Hart


Accounting standards characterise leases as either finance or operating, with the difference between the two based on concepts of economic ownership, but Australian taxation law does not recognise any such difference, except in three limited cases.

The lack of separate recognition of finance leases in tax law produces advantageous tax outcomes including in substance: Deductible repayment of a loan, Deductible of the cost of the leased asset, and Transfer of capital allowance deductions to the non-economic owner.

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