There are 6 Case studies in this final assessment, you must answer all questions and all parts of each question.
Case study 1
Jim, who is 70 years of age, is contemplating relocating to new accommodation. To this end, he has conducted some research and has subsequently inspected two special accommodation houses, Carlton Manor and Surfside Terrace.
The following information has been provided to him regarding Carlton Manor:
- He is entitled to purchase lifetime occupancy rights for $300,000 and thereafter, pay a weekly fee of $150.
- If he decides to vacate the property, a deferred management fee of 2.5% p.a. (on the vacating value) is required to be paid for a maximum period of eight years.
- He has been informed that he would be able to claim 75% of any capital gain when the property has been resold.
The following information has been provided to him regarding Surfside Terrace:
- He is not required to pay any initial occupancy fee (ie, an ingoing fee). However, the current ongoing fee to be paid is $700 per week. This fee is to be increased based on any change in the Consumer Price Index (CPI). The return on investment rate is 3%
Assume that the CPI increases at an average of 3% p.a., and Jim expects to be in residence for eight years.
- Calculate the total cost of his accommodation for both facilities – Carlton Manor and Surfside Terrace at the expiration of eight (8) years.
- What option would you recommend to Jim, in terms of his choice of accommodation? Provide a brief explanation as to why, citing the financial considerations that would be relevant.
- List two non-financial factors that he should consider.
(6 + 2 + 2 = 10 marks)
Case study 2
Henry is a designer who is 58 years old and past his preservation age. He seeks your advice concerning his current superannuation position. You ascertain he has $500,000 in total in his superannuation account, which includes a $400,000 taxable component. He rolls this over in order to obtain an account-based pension on 1 July 2020.
- Calculate the minimum and maximum pension amount that must be paid in the financial year 2021. Show your calculations.
- Calculate the minimum pension payment in the financial year 2021, if Henry commences his account-based pension on 1 February 2021. Show your calculations
- Calculate his taxable and tax-free portions, if Henry elected to receive a pension of $20,000. Show your calculations.
- Discuss the tax treatment of Henry’s pension income at his current age, and when he turns 60 years of age. Provide and demonstrate the relevant calculations to support your answer.
(2 + 1 + 2 + 4 = 9 marks)
Case study 3
Ray is aged 62, works full time as a lecturer and is likely to continue working for at least another 4 years. Ray consults you for the first time on 16 April 2021, he informs you that he has just inherited $700,000 from his mother and has heard that superannuation is an appropriate place to invest the funds. His total super balance on 30 June 2020 is $900,000. He contributed $110,000 non-concessional contributions to his super fund during the financial year 2020.
- What is the maximum amount of the inheritance he can contribute to superannuation in the financial year 2021?
- Advise Ray on the maximum amount of non-concessional contributions he can make over the 2021 and 2022 financial years in order to maximize the total balance in his superannuation account. Provide a brief explanation.
(1 + 4 = 5 marks)
Case study 4
Lyn has a Lyn family Self-Managed Superannuation Fund (SMSF). She seeks your advice on what are the main conditions that must be met where a trustee of a SMSF wishes to enter into a limited recourse borrowing arrangement. Provide your advice to Lyn with an explanation.
Case study 5
Tim (59) and Kat (58) are considering retiring in the next few years. They have some questions for you since you are their adviser.
Tim is employed as a surveyor and earns a salary of $110,000 p.a. + 9.5% Superannuation guarantee charge. He has $800,000 in his superannuation account, with $300,000 in the Tax-Free component and $500,000 in the Taxable component.
Kat is a self-employed freelance journalist and earns $55,000 p.a. She has not made any contributions to her superannuation account since starting her business 2 years ago. From her previous employment, she has a superannuation account which has $350,000 in it, made up of $280,000 Taxable and $70,000 Tax-Free components. Kat’s superannuation account has a binding death nomination, split 70% to Tim, and 30% to Paul, who is their son and is aged 38.
- Calculate the maximum amount that Kat can withdraw from her superannuation account without paying any tax in the year 2021. Show your calculations.
- Calculate the new tax-free component amount and percentage for Kat after adopting a re-contribution strategy in the year 2021. Your response will relate to your answer in part (a).
- Unfortunately, Kat has passed away. Calculate the benefit to Kat’s estate if she had implemented a re-contribution strategy. How much tax will Tim and Paul be required to pay? Ignore any Medicare levy. Show your calculations.
(1 + 3 + 3 = 7 marks)
Case study 6
The ATO assessed Agnes’s financial year 2021 Division 293 income of $300,000 and $25,000 in concessional contribution for the superannuation purposes of Division 293.
- Calculate Agnes’s Division 293 taxation liability. Show your calculations.
- Calculate the total amount of taxation payable on Agnes’s $25,000 superannuation contribution, including paying the Division 293 taxation liability. Show your calculations.
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