You are a financial adviser and approached by married couple Diane and Leo Alexander. They have limited financial knowledge and are seeking your advice about their current financial status. The following information is an extract of data you gathered as part of fact-finding during an initial client consultation for this couple:

- Leo and Diane have returned just before Covid-19 to Melbourne after living in New Zealand for the past 8 years. Both are 35 years old and have a 2-year-old son. They have used part of their savings to fund their living expenses whilst looking for work upon their return. Luckily, Leo who is an advanced practice registered nurse found work in a local hospital and Diane has since found part-time work as a teacher.

- The Alexander couple currently rents an apartment at Elizabeth Street in Melbourne. They intend to buy a house in the future. They are looking into saving money for margin money for a home loan.

- The couple has informed you of investing part of saving in the managed fund (equities) and Afterpay Ltd Share (ASX: APT) in the name of Leo. They intend to use this as margin money for the purchase of the house.

- The Alexander couple has informed you that “Savings from their family income” will be invested into the Leos’ Managed Fund (equities) at the end of each financial year. Initially, Diane wanted to invest the savings directly into equities instead of a managed fund.

- The couple intends to pay back their credit card debt before the financial year ending June 30th, 2021. This debt they accrued during their search for a job.

- The family do not have any private health insurance.

Assume that both Leo and Diane have minimum employer superannuation contributions paid in addition to their salary and they do not salary sacrifice into their superannuation. Diane and Leo have limited financial knowledge and are seeking your advice about their current financial status.

Required:

A. Calculate Diane and Leo’ annual after-tax income for the year ended 30th June 2021. Also, explain how Leo and Diane could reduce their tax liability by splitting their income. Show the effect this strategy would have had if they had split income for this current tax year. Please provide a brief explanation of splitting of income (not more than 100 words) as an effective strategy for the couple.

B.

i) Calculate the solvency ratio, liquidity ratio and savings ratio using the Alexander couple’s financial information.

ii) Explain in everyday terms what these ratios mean, highlight any concerns you have and

iii) Suggest one improvement the Alexander couple could make
 

Transcribed Image Text:

Assets and Liabilities (as of 30th June 2021) Liability (Ownership) Assets (Ownership) Home Contents (Joint) Car (Leo) Current valuation Current valuation $20,000 | Credit cards (Joint) Includes $30,000| the annual interest cost $5,000 $6,600 Current accounts (Joint) Managed Fund- Equity (Leo) $19,000 Afterpay Ltd Share (Leo) Superannuation Cars loan (5-year term) (repayment $520 per month) 50,000 $29,400 $12,000 $7,000 -Leo -Diane Assets and Liabilities (as of 30th June 2021) Liability (Ownership) Assets (Ownership) Home Contents (Joint) Car (Leo) Current valuation Current valuation $20,000 | Credit cards (Joint) Includes $30,000| the annual interest cost $5,000 $6,600 Current accounts (Joint) Managed Fund- Equity (Leo) $19,000 Afterpay Ltd Share (Leo) Superannuation Cars loan (5-year term) (repayment $520 per month) 50,000 $29,400 $12,000 $7,000 -Leo -Diane

Answer rating: 100% (QA)

In Australia each person fills out their own tax return there is no such thing as a joint tax return However once you have a spouse or de facto you must include some of their tax information on your r... View the full answer