Ted is an investor and has purchased an IIP for the original price of $857.4049524756.

For your convenience, the original information regarding IIP's has been repeated below.

Customers pay $857.4049524756 to buy an IIP.

The IIP will pay out $43 at the end of each year for 13 years

The IIP will pay out a further single payment of $1,000 after 13 years

There are no further payments after this single payment at time 13.

(a) Suppose Ted holds on to the IIP for the full 13 years. Ignoring time value of money, what is the profit he receives on an IIP? (This can be regarded as profit for tax purposes).

(c) If the final single payment exceeds the original price paid, the difference between the two is called a "capital gain" for tax purposes. Conversely, if the original price exceeds the final single payment, this is called a "capital loss".

For this investment, only 50% of the capital gain is taxable. Calculate the tax that Ted pays as a result of the single payment. Give your answer in dollars, to the nearest cent.

(Note: we have implicitly used the "CGT discount" rule in Australia for investments held for more than 12 months in this question)

Answer rating: 100% (QA)

a Teds profit on the IIP is 43 per year for 13 ye... View the full answer