Question 1: Case study Assume: You are a financial adviser and the married couple Timothy(aged 37) and Sara(aged 38) Brown approachedyou for planning to savefor their retirement. The following information is an extract of data you gathered as part of fact-finding during an initial client consultation. Timothyworks as ahuman resources administrator and Saraworks as a Medical Imaging Technologist.Theyhave two children who are aged 13and 15. •Timothyand Sarawould like to know how much money they will receive after paying tax for the year ended 30thJune 2021. They would like advice on how to reduce their tax liabilityin the future.•Sara on the adviceof her brother purchased a rental property for $400,000 by borrowing $360,000 from Bank in 2015. The annual insurance, rates and costs to maintain theproperty is $3,900 p.a. and interest costs on her loan is$24,000 for the year.•10 months ago,Sarainvested in shares. She bought 3,000shares in “IOOF Holdings Limited”at $5 a share (current market price: $3.50) and 750shares in “Afterpay Ltd”at $20a share(current market price: $120). She wants to sell her Afterpay Ltdshares to lock in her profit and has come to you for advice. Her brother advised her to use the sale proceeds of these sharesto buy another investment property toavail negativegearing. This time she wants to buy the property in the name of her husband. She does not expect any major change in the prices of these shares in the near future.Incomefor the year ended 30thJune 2021: Income type(ownership)AmountGross Salary-(Sara)$95,000Gross Salary-(Timothy)$40,000ANZ Savings Account-Interest 3.00%-(Sara& Timothy)$550Investment Growth Bond(Commonwealth bank) -Distribution 4.60% (Sara)$2,300“IOOF Holdings Limited”-Dividend(Sara)$490+ $210Imputation Credit“Afterpay Ltd”Dividend-Dividend (Sara)$900+387Imputation CreditRent from rental property (Sara) $17,940 p.a.Itemised expenses:•Travelling to and from work-$2500 (Sara) and $2000 (Timothy)•CAANZ-Membership Fees $735.00(Sara)•Donations to registered Charity $1,500 (Timothy)
Page 3of 5RMIT Classification: TrustedCurrent Assetsand Liabilities Assets (Ownership)Current valuationLiability (Ownership)Current valuationHome and Contents (Joint)$850,000Mortgage(Joint)$450,000Rental Property (Sara)$400,000Mortgage-Rental property(Sara)$360,000Cars (Joint)$35,000Credit cards (Joint)Includes the annual interestcost$6,000Bank Account:ANZ Savings Account (Joint)$15,000Investments:Commonwealth bankBond Fund-(Sara)“IOOF Holdings Limited”Shares3,000-(Sara)“Afterpay Ltd”750-(Sara)Superannuation-(Timothy)Superannuation-(Sara)$50,000$15,000$15,000$80,000$120,000Required:
A.Calculate Timothyand Sara’s after-tax income for the year ended June30th2021. Also,explain how Timothyand Saracould reduce their tax liabilitybysplitting their income. Show the effect this strategy would havehadif they had split income for the tax year ended.A brief explanation of splitting of income is required (not more than 100 words) as the major focus is on explanation by calculation on tax after splitting of income.
B.Calculate Sara’s capital gains liability if she were to sell her Afterpay LtdShares. Assume that Sarawill sell hershares and advise her on a strategy she could use to minimise her possible capital gain. Also,show (calculation)the effect this strategy would have.
C.The couple ishappy that they invested in the rental property, as the property market value has shown good appreciation. Perhaps that is the reason Sars is considering investing in another rental property, although this time in name of her husband. While claimingto have done 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 using in their current context. Whose name should the investment property and mortgage be held in and whyto avail themselves of the maximum benefit provided by negative gearing?(not more than 150words).(10+ 5+ 5= 15 marks)
Page 4of 5RMIT Classification: TrustedQuestion 2: Infographic/posterYou are required to design an infographic/poster that would be used on the financial planner’s website or displayed in their office. The purpose of the infographic/poster is to explain to investors the key similarities and differences between investing in exchange-traded bonds vs. ordinary shares. The poster should be self-explanatory and contain real information. So,you need to conduct additional research and you may want to compare two actual investments. Make sure to reference your sources in the poster. The poster aims to communicate essential information about exchange-traded bonds and ordinary shares to an audience with limited financial knowledge on this topic.
