Philip is a 30-yearold single software programmer, below is some of his financial information for the year just ended.

• Investment account (70% fixed income/ 30% equity)   $165,000
  • Interest income $5,300
  • Dividend income                          $3,600
  • Capital gains income $1,500
  • Equity Beta 0.90

• RRSP Account (60% fixed income/40% equity)          $50,000
  • Interest income                           $1,500
  • Dividend income $2,500
  • Capital gains income $2,000
  • Equity Beta                                 0.95

• He has $23,500 in unused RRSP contribution room
• Annual salary                  $120,000
• Assets – Condo               $700,000
• Assets – Car                   $80,000
• Mortgage    $300,000          
• Debt – Car loan               $40,000            
• Marginal tax bracket         46.41%
• Company pension plan     $35,000
• Pension adjustment          $14,500

1. (5 marks) Calculate the amount of tax Philip must pay on his investment account income.
2. (3 marks) Based on Philip’s salary information, what is Philip’s RRSP contribution for the year just ended?
3. (3 marks) Based on the information provided, what advice would you give Philip about his current asset mix with respect to tax efficiency for his investment account and his RRSP account? Would you recommend any changes? Explain your response.
4. (5 marks). If Philip’s risk tolerance is deemed to be above average, what do you think of Philip’s investment portfolios in terms of asset mix and market risk? Based on all the information provided, would you recommend any changes? Support your recommendations.
5. (4 marks). Fast forward 10 years, and Philip is now married with two kids. He is no longer with his software firm but has just recently started a company with two other partners. Philip has had to use half of his investments to set up this company and has pledged his house as collateral for a loan. He expects to earn a minimal amount over the next 3-5 years while he builds up his business. His wife is a high school teacher and earns enough to cover most of their daily living expenses. What type of investment advice would you give to Philip now?

Answer rating: 100% (QA)

1 Calculate the amount of tax Philip must pay on his investment account income To calculate the tax on investment income we need to consider the different types of income Philip received from his inve... View the full answer