Wealth Management Part 2: A Financial and Taxation Case Study Question 2: Case study You are...

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Wealth Management Part 2: A Financial and Taxation Case Study Question 2: Case study You are a financial adviser, and the following information is an extract of data you gathered as part of fact-finding during an initial client consultation for a married couple, Philip (aged 56) and Brittney (aged 55) McVey. The couple attended university together, started their careers simultaneously, and married within four years of graduating from university. Brittney left her well-established banking job upon the birth of her first child. The couple has three children. After the youngest child completed 10th grade, Brittney re-entered the workforce as a human resources administrator. All three children are now financially independent and successful in their careers. Philip is the local head of an international distribution firm. Brittney is concerned about her superannuation balance and is anxious to find ways to increase it. The couple would like advice on how to reduce their tax liability in the future. Income and Expenditure for the year ended 30th June 2024: Income type (ownership) Amount Gross Salary- (Brittney) Gross Salary- (Philip) ANZ Term Depost Interest (Philip) ANZ Bond Fund- Distribution (Philip) $57,000.00 $135,000.00 $4,500.00 $4,000.00 $2,100.00 Caltex Dividend- Dividend $1.10 per share- (Philip) $900 Imputation Credit Expenses Amount Food $13,500.00 Clothing/Haircuts/Beauty Medical/Dental Treatment Deductible gift recipient (DGR) Charity (Philip) Gifts Birthdays/Christmas Total $4,500.00 $2,500.00 $2,500.00 $5,000.00 $88,235.00 Wealth Management Asset and Liabilities as of June 30th, 2024 Assets (Ownership) Home and Contents (Joint) Cars (Two- Joint) ANZ Term Deposit (Philip) Investments: ANZ Bond Fund- (Philip) Caltex Shares (Philip) Current valuation $850,000.00 $70,000.00 $100,000.00 $80,000.00 $50,000.00 Superannuation- (Philip) Superannuation- (Brittney) Liability (Ownership) Mortgage (Join) Credit cards (Joint) (Includes the annual interest cost) PAYG (Philip) $31,000.00 $660,000.00 $135,000.00 Current valuation $330,000.00 $6,000.00 Required: A. Calculate Philip and Brittney's after-tax income for the year ended June 30th, 2024. Explain how Philip and Brittney could reduce their tax liability by splitting their income. Show the effect this strategy would have had if they had split income for the tax year ended. Wealth Management After tax income of Philip and Brittney for the year ended June 30 2024. Husband Philip Wife Brittney Assessable income Gross Salary Term deposit interest 135000 4500 57000 0 ANZ Bond Fund distribution 4000 Dividend income 3000 Less: Allowable deductions Gift Recipient (DGR) Charity 2500 Taxable Income 144000 57000 Tax rate applicable Gross tax payable 38346 8991 Plus: Medicare Levy 2880 1140 Plus: Medicare Levy Surcharge 1440 570 Less: Non-refundable tax offset Less: Refundable tax offset 900 0 Net tax expenses 41766 10701 Less: PAYG Credit 31000 0 Net tax payable (Refund) 10766 10701 After Tax Income 133234 46299 Note There is a 2% Medicare levy charged on net taxable income. The family's income is more than $186000. Therefore, Medicare levy a surcharge of 1% applied on their taxable income (Australian Taxation Office 2024). Wealth Management There is no non-refundable tax offset. Working Taxable income (18201-45000) @19% (45001-120000) @32.5% (120001-180000) @37% Total gross tax payable Tax liability Husband Philip Wife Brittney 144000 57000 5092 5092 24375 3900 8880 38346 8991 After tax income of Philip and Brittney for the year ended June 30 2024 After splinting. Before Splitting Wife After Splitting Wife Husband Husband Philip Brittney Philip Brittney Assessable income Gross Salary 135000 57000 135000 57000 Term deposit interest 4500 0 2250 2250 ANZ Bond Fund distribution 4000 0 4000 Dividend income 3000 0 3000 Less: Allowable deductions Gift Recipient (DGR) Charity 2500 2500 0 Taxable Income 3 144000 57000 134750 66250 Tax rate applicable Gross tax payable 38346 8991 34924 11998 Plus: Medicare Levy 2880 1140 2695 1325 Plus: Medicare Levy Surcharge 1440 570 1347.5 662.5 Less: Non-refundable tax offset Less: Refundable tax offset 900 0 0 Net tax expenses 41766 10701 38966 900 13085 Less: PAYG Credit 31000 0 31000 0 Net tax payable (Refund) 10766 10701 7966 13085 After Tax Income 133234 46299 126784 53165 Wealth Management Working Tax liability Husband Philip Wife Brittney Husband Philip Wife Brittney Taxable income 144000 57000 134750 66250 (18201-45000)@19% 5092 5092 5092 5092 (45001-120000) @32.5% 24375 3900 24375 6906 (120001-180000) @37% 8880 5457 Total gross tax payable 38346 8991 34924 11998 To find out the minimum tax liability, it is required to transfer some of Philip's income to Brittney without pushing her into a higher tax bracket. By splitting the income, both Philip and Brittney can minimize their tax liability. Here, Philip transferred 50% of his term deposit interest income, which is $2250, 100% ANZ Bond Find distribution income, which is $4000 and 100% dividend income, which is $3000, along with franking credit, to Brittney. After that, Philip's tax liability would fall to $7966 from $10766. On the other hand, Brittaney falls under the same tax bracket, which is 32.5%, after receiving a total of $9250 in income from Philip. Their net tax liability is reduced. The total tax liability for Philip after income splitting is $7966, which is lower than before splitting. However, the tax liability of Brittney has increased to $13085 from $10701. Brittney's total after-tax income increased from $46299 to $53165. Wealth Management Part 2: A Financial and Taxation Case Study Question 2: Case study You are a financial adviser, and the following information is an extract of data you gathered as part of fact-finding during an initial client consultation for a married couple, Philip (aged 56) and Brittney (aged 55) McVey. The couple attended university together, started their careers simultaneously, and married within four years of graduating from university. Brittney left her well-established banking job upon the birth of her first child. The couple has three children. After the youngest child completed 10th grade, Brittney re-entered the workforce as a human resources administrator. All three children are now financially independent and successful in their careers. Philip is the local head of an international distribution firm. Brittney is concerned about her superannuation balance and is anxious to find ways to increase it. The couple would like advice on how to reduce their tax liability in the future. Income and Expenditure for the year ended 30th June 2024: Income type (ownership) Amount Gross Salary- (Brittney) Gross Salary- (Philip) ANZ Term Depost Interest (Philip) ANZ Bond Fund- Distribution (Philip) $57,000.00 $135,000.00 $4,500.00 $4,000.00 $2,100.00 Caltex Dividend- Dividend $1.10 per share- (Philip) $900 Imputation Credit Expenses Amount Food $13,500.00 Clothing/Haircuts/Beauty Medical/Dental Treatment Deductible gift recipient (DGR) Charity (Philip) Gifts Birthdays/Christmas Total $4,500.00 $2,500.00 $2,500.00 $5,000.00 $88,235.00 Wealth Management Asset and Liabilities as of June 30th, 2024 Assets (Ownership) Home and Contents (Joint) Cars (Two- Joint) ANZ Term Deposit (Philip) Investments: ANZ Bond Fund- (Philip) Caltex Shares (Philip) Current valuation $850,000.00 $70,000.00 $100,000.00 $80,000.00 $50,000.00 Superannuation- (Philip) Superannuation- (Brittney) Liability (Ownership) Mortgage (Join) Credit cards (Joint) (Includes the annual interest cost) PAYG (Philip) $31,000.00 $660,000.00 $135,000.00 Current valuation $330,000.00 $6,000.00 Required: A. Calculate Philip and Brittney's after-tax income for the year ended June 30th, 2024. Explain how Philip and Brittney could reduce their tax liability by splitting their income. Show the effect this strategy would have had if they had split income for the tax year ended. Wealth Management After tax income of Philip and Brittney for the year ended June 30 2024. Husband Philip Wife Brittney Assessable income Gross Salary Term deposit interest 135000 4500 57000 0 ANZ Bond Fund distribution 4000 Dividend income 3000 Less: Allowable deductions Gift Recipient (DGR) Charity 2500 Taxable Income 144000 57000 Tax rate applicable Gross tax payable 38346 8991 Plus: Medicare Levy 2880 1140 Plus: Medicare Levy Surcharge 1440 570 Less: Non-refundable tax offset Less: Refundable tax offset 900 0 Net tax expenses 41766 10701 Less: PAYG Credit 31000 0 Net tax payable (Refund) 10766 10701 After Tax Income 133234 46299 Note There is a 2% Medicare levy charged on net taxable income. The family's income is more than $186000. Therefore, Medicare levy a surcharge of 1% applied on their taxable income (Australian Taxation Office 2024). Wealth Management There is no non-refundable tax offset. Working Taxable income (18201-45000) @19% (45001-120000) @32.5% (120001-180000) @37% Total gross tax payable Tax liability Husband Philip Wife Brittney 144000 57000 5092 5092 24375 3900 8880 38346 8991 After tax income of Philip and Brittney for the year ended June 30 2024 After splinting. Before Splitting Wife After Splitting Wife Husband Husband Philip Brittney Philip Brittney Assessable income Gross Salary 135000 57000 135000 57000 Term deposit interest 4500 0 2250 2250 ANZ Bond Fund distribution 4000 0 4000 Dividend income 3000 0 3000 Less: Allowable deductions Gift Recipient (DGR) Charity 2500 2500 0 Taxable Income 3 144000 57000 134750 66250 Tax rate applicable Gross tax payable 38346 8991 34924 11998 Plus: Medicare Levy 2880 1140 2695 1325 Plus: Medicare Levy Surcharge 1440 570 1347.5 662.5 Less: Non-refundable tax offset Less: Refundable tax offset 900 0 0 Net tax expenses 41766 10701 38966 900 13085 Less: PAYG Credit 31000 0 31000 0 Net tax payable (Refund) 10766 10701 7966 13085 After Tax Income 133234 46299 126784 53165 Wealth Management Working Tax liability Husband Philip Wife Brittney Husband Philip Wife Brittney Taxable income 144000 57000 134750 66250 (18201-45000)@19% 5092 5092 5092 5092 (45001-120000) @32.5% 24375 3900 24375 6906 (120001-180000) @37% 8880 5457 Total gross tax payable 38346 8991 34924 11998 To find out the minimum tax liability, it is required to transfer some of Philip's income to Brittney without pushing her into a higher tax bracket. By splitting the income, both Philip and Brittney can minimize their tax liability. Here, Philip transferred 50% of his term deposit interest income, which is $2250, 100% ANZ Bond Find distribution income, which is $4000 and 100% dividend income, which is $3000, along with franking credit, to Brittney. After that, Philip's tax liability would fall to $7966 from $10766. On the other hand, Brittaney falls under the same tax bracket, which is 32.5%, after receiving a total of $9250 in income from Philip. Their net tax liability is reduced. The total tax liability for Philip after income splitting is $7966, which is lower than before splitting. However, the tax liability of Brittney has increased to $13085 from $10701. Brittney's total after-tax income increased from $46299 to $53165.