Sean (aged 58), a partner in the event management business, sold his share to the remaining...
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Sean (aged 58), a partner in the event management business, sold his share to the remaining partners three years ago. Since then, he has agreed to perform a part-time job with the business and earns a $36,000 p.a. salary (plus a 10.5% superannuation guarantee contribution). He and his wife, Leanne (aged 54) approached you for financial advice in respect of reducing the tax payable and their retirement planning. The couple are anxious about their post-retirement financial situation. Leanne works as a physiotherapist and earns $ 165,000 (plus a 10.5% superannuation guarantee contribution). They have twin sons, Peter and John. Both are independent, married and work in the medical profession. Peter lives in the USA and John lives in Sydney. The couple provides the following financial details: Assets (Ownership) House (joint) (Purchase price) House contents (joint) (Purchase price) Beachside Holiday home (Sean) (Purchase price) Car (Sean) (Purchase price) Car (Leanne) (Purchase price) Savings account (Sean and Leanne) Term deposit (Sean) Managed Funds - Growth Fund (Leanne) Shares (Sean) (Purchase price) Superannuation (Sean) 50% Tax-free Superannuation (Leanne) 40% Tax-free Liability Mortgage (holiday home) (Sean) NAB Car loan (Sean) Value 298,000.00 $ 64,000.00 $ 1,050,000.00 $ 25,000.00 30,000.00 11,000.00 200,000.00 150,000.00 65,000.00 $ 270,000.00 $ 340,000.00 Value 400,000.00 18,000.00 $ $ $ $ $ $ $ Income Holiday home rental (Sean) Managed Funds Fund (Leanne) distribution Shares Dividends (Sean) (franking credits amount to $1,500) Interest- savings accounts (Sean and Leanne) Interest- Term Deposit (Sean) Additional Information: Expenses Mortgage Interest - Holiday home (Sean) Maintenance, Insurance Mortgage - Holiday home (Sean) Australian Physiotherapy Association (APA) annual subscriptions (Leanne) Travel from home to work for work (Leanne) Credit Card (Sean) 15% p.a. interest Car loans (Sean) 7% p.a. interest PAYG (Leanne) The couple does not have any private health insurance. ● $ $ $ $ $ $ $ $ $ $ $ $ Amount 16,000.00 6,500.00 3,500.00 150.00 6,000.00 Amount 12,000.00 5,500.00 700.00 2,000.00 5,000.00 1,260.00 57,000.00 Until now, their savings and investments were merely tax-saving devices driven without any focus on long-term retirement financial planning. These were based on random advice provided by friends over time. For example: The couple decided to spend/invest net sale proceeds of the business three years ago as follows (all investment/expenditure and tax calculations and payments were done three years ago immediately after the sale of the business, hence do not pertain to the current year): Invested in shares in the name of Sean, to avail themselves of franking credit benefits in saving tax. The shares have shown a 40% increase in value. CASE STUDY (continued) Part of the proceeds of the sale of the business were also used to pay off an NAB Unsecured Personal Loan taken out in the name of Sean. The balance amount was used for travelling and a gift to the two sons' families. Part of the sale proceeds i.e. $ 650,000 was used to pay off part of the amount owing on the interest-only holiday home (beachside) mortgage. The mortgage is in the name of Sean. They did this on the advice of one of their friends. The initial cost of the loan was $1.05 million. They intend to move into this house after retirement. This is based on the fact that Sean's future income will be substantially reduced. REQUIRED: QUESTION 1 (a) Determine the net tax payable for the current year for both Sean and Leanne. (20 marks) (b) The couple has inquired about the effect salary sacrifice will have on their superannuation accounts. What is the benefit of salary sacrificing into superannuation, and what is the maximum amount the couple can individually contribute? Explain in the context of their present salaries. (6 marks) (c) The couple are happy that they invested in the holiday home, as the property market value has shown good appreciation. Although they claimed to have made this investment to save tax, they are wondering what is a "negative gearing" tax strategy. Please provide the couple with an explanation of gearing and negative gearing in their current financial context. How could this help the couple reduce their tax liability and create an asset? (d) You ascertain that the couple can reduce their total tax expenses by implementing a 'splitting of income tax strategy. Please explain to the couple the most appropriate 'splitting of income tax strategy, identifying income items from part (a). (This does not require any calculation; Not more than 100 words;) (6 marks) (e) The couple asked you to explain concessional and non-concessional contributions. They want to use the money in the term deposit for a contribution to their respective super accounts. Explain to the couple the difference between concessional and non-concessional contributions in super, and identify for them whether the money in a term deposit (i.e. after- tax money) should be contributed as a concessional or non-concessional contribution. (8 marks) (f) Sean is planning to go on a Europe vacation to celebrate Leanne's retirement 6 years from now. The estimated expense for the couple is $100,000. If he can earn 4% compounded quarterly, how much will he need to invest now so that he receives $100,000 after six years? Sean (aged 58), a partner in the event management business, sold his share to the remaining partners three years ago. Since then, he has agreed to perform a part-time job with the business and earns a $36,000 p.a. salary (plus a 10.5% superannuation guarantee contribution). He and his wife, Leanne (aged 54) approached you for financial advice in respect of reducing the tax payable and their retirement planning. The couple are anxious about their post-retirement financial situation. Leanne works as a physiotherapist and earns $ 165,000 (plus a 10.5% superannuation guarantee contribution). They have twin sons, Peter and John. Both are independent, married and work in the medical profession. Peter lives in the USA and John lives in Sydney. The couple provides the following financial details: Assets (Ownership) House (joint) (Purchase price) House contents (joint) (Purchase price) Beachside Holiday home (Sean) (Purchase price) Car (Sean) (Purchase price) Car (Leanne) (Purchase price) Savings account (Sean and Leanne) Term deposit (Sean) Managed Funds - Growth Fund (Leanne) Shares (Sean) (Purchase price) Superannuation (Sean) 50% Tax-free Superannuation (Leanne) 40% Tax-free Liability Mortgage (holiday home) (Sean) NAB Car loan (Sean) Value 298,000.00 $ 64,000.00 $ 1,050,000.00 $ 25,000.00 30,000.00 11,000.00 200,000.00 150,000.00 65,000.00 $ 270,000.00 $ 340,000.00 Value 400,000.00 18,000.00 $ $ $ $ $ $ $ Income Holiday home rental (Sean) Managed Funds Fund (Leanne) distribution Shares Dividends (Sean) (franking credits amount to $1,500) Interest- savings accounts (Sean and Leanne) Interest- Term Deposit (Sean) Additional Information: Expenses Mortgage Interest - Holiday home (Sean) Maintenance, Insurance Mortgage - Holiday home (Sean) Australian Physiotherapy Association (APA) annual subscriptions (Leanne) Travel from home to work for work (Leanne) Credit Card (Sean) 15% p.a. interest Car loans (Sean) 7% p.a. interest PAYG (Leanne) The couple does not have any private health insurance. ● $ $ $ $ $ $ $ $ $ $ $ $ Amount 16,000.00 6,500.00 3,500.00 150.00 6,000.00 Amount 12,000.00 5,500.00 700.00 2,000.00 5,000.00 1,260.00 57,000.00 Until now, their savings and investments were merely tax-saving devices driven without any focus on long-term retirement financial planning. These were based on random advice provided by friends over time. For example: The couple decided to spend/invest net sale proceeds of the business three years ago as follows (all investment/expenditure and tax calculations and payments were done three years ago immediately after the sale of the business, hence do not pertain to the current year): Invested in shares in the name of Sean, to avail themselves of franking credit benefits in saving tax. The shares have shown a 40% increase in value. CASE STUDY (continued) Part of the proceeds of the sale of the business were also used to pay off an NAB Unsecured Personal Loan taken out in the name of Sean. The balance amount was used for travelling and a gift to the two sons' families. Part of the sale proceeds i.e. $ 650,000 was used to pay off part of the amount owing on the interest-only holiday home (beachside) mortgage. The mortgage is in the name of Sean. They did this on the advice of one of their friends. The initial cost of the loan was $1.05 million. They intend to move into this house after retirement. This is based on the fact that Sean's future income will be substantially reduced. REQUIRED: QUESTION 1 (a) Determine the net tax payable for the current year for both Sean and Leanne. (20 marks) (b) The couple has inquired about the effect salary sacrifice will have on their superannuation accounts. What is the benefit of salary sacrificing into superannuation, and what is the maximum amount the couple can individually contribute? Explain in the context of their present salaries. (6 marks) (c) The couple are happy that they invested in the holiday home, as the property market value has shown good appreciation. Although they claimed to have made this investment to save tax, they are wondering what is a "negative gearing" tax strategy. Please provide the couple with an explanation of gearing and negative gearing in their current financial context. How could this help the couple reduce their tax liability and create an asset? (d) You ascertain that the couple can reduce their total tax expenses by implementing a 'splitting of income tax strategy. Please explain to the couple the most appropriate 'splitting of income tax strategy, identifying income items from part (a). (This does not require any calculation; Not more than 100 words;) (6 marks) (e) The couple asked you to explain concessional and non-concessional contributions. They want to use the money in the term deposit for a contribution to their respective super accounts. Explain to the couple the difference between concessional and non-concessional contributions in super, and identify for them whether the money in a term deposit (i.e. after- tax money) should be contributed as a concessional or non-concessional contribution. (8 marks) (f) Sean is planning to go on a Europe vacation to celebrate Leanne's retirement 6 years from now. The estimated expense for the couple is $100,000. If he can earn 4% compounded quarterly, how much will he need to invest now so that he receives $100,000 after six years?
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Case Study Sean and Leannes Financial Planning continued QUESTION 1 a Net Tax Payable Calculating the net tax payable for Sean and Leanne requires analyzing their income deductions and tax rates Unfor... View the full answer
Related Book For
Business Law and the Legal Environment
ISBN: 978-1111530600
6th Edition
Authors: Jeffrey F. Beatty, Susan S. Samuelson, Dean A. Bredeson
Posted Date:
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