1)Mr Jones is employed as an accountant with XYZ Accountants. He earned $120,000 gross and paid $30,000 in tax. He received $158 in interest on his bank account. He spent $300 on a work calculator and some pens.

Calculate the tax liability (refund) including all medicare costs for Mr Jones.

2)Mrs Smith, 59, is a self-employed cabinet maker. Her net business income was $50,000. She wants to contribute money to superannuation to obtain a tax deduction. She is comfortable contributing all of her income if necessary.

Calculate her personal income tax liability Pre the contribution (including all medicare costs):

What level of contribution would you recommend?

Why do you recommend that level?

Calculate her personal income tax liability POST the contribution (including all medicare costs):

3)Mr and Mrs Axel (both 70) live in their own home. They have the following assets:

Cash in bank $150,000

Home contents $10,000

Motor Vehicles $25,000

Caravan $15,000

Shares $220,000

Calculate their Centrelink Entitlement (both income and asset tests):

4)Use Excel to solve these questions:

Mr Jones earns $80,000 per annum. He has a $300,000 personal mortgage with repayments of $32,000 per annum. The interest rate is 5% per annum (so the interest component is $15,000).

• a)How many years will it take to pay off the loan?

Mr Jones has the opportunity to invest into an Australian Unit Trust that will pay 7% interest per annum, with no capital gains. Mr Jones has been advised to make interest only payments on his personal mortgage and invest the balance of what he is repaying now ($17,000) into this Unit Trust investment.

• b)Using a graph, show Mr Jones which option is best over a 20 year period.
• c)What rate of return would the investment need to generate for the two options to be equal?

If it is required, assume that the tax rate is a flat 30%.

For adviser use only MLC Facts and Figures 2015/16 Contents Tax\b1-14 Super\b15-38 Income streams\b 39-50 Social security\b 51-60 Aged care\b 61-66 Insurance\b67-74 Important information and disclaimer This publication has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) ('GWMAS'), a member of the National Australia Bank group of companies ('NAB Group'), registered office at 105-153 Miller Street, North Sydney 2060. Any advice and information in this publication is of a general nature only. It is solely for use by financial advisers and any distribution to investors is prohibited. GWMAS and the NAB Group do not accept any liability which arises as a result of dissemination of this publication to investors by financial advisers or an investor's reliance on this publication. Information in this publication is based on our interpretation of relevant superannuation, social security and taxation laws as at 1 July 2015. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither GWMAS nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual's liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent. 2 | MLC Facts and Figures 2015/16 Tax Tax contents Contents Personal tax rates 2 Minor tax rates 2 Temporary Budget Repair levy 2 Medicare levy (2014/15) 3 Medicare levy surcharge (2015/16) 3 Tax offsets (2015/16) 4 Corporate tax rate 4 Non-resident Withholding tax rates 4 Capital Gains Tax 5 CGT Small Business Concessions 6 Taxation of bonuses paid on life assurance policies 9 Fringe Benefits Tax 10 Employment Termination Payments 11 Other termination payments 13 MLC Facts and Figures 2015/16 | 1 Personal tax rates 2015/16 Tax payable (resident) 1 Tax payable (nonresident) $0 - $18,200 Nil 32.5% $18,201 - $37,000 19% $5,915 + 32.5% $37,001 - $80,000 $3,572 + 32.5% $12,025 + 32.5% $80,001 - $180,000 $17,547 + 37% $26,000 + 37% $180,001 + $54,547 + 47% 2 $63,000 + 47% 2 1 Plus Medicare levy. 2 Includes Temporary Budget Repair levy. Minor tax rates Eligible Taxable Income (ETI) 3 Tax payable (resident)4 $0 - $416 Nil $417 - $1,307 68% of excess over $416 $1,308+ 47% 5 of entire ETI 3 3 Includes 'unearned income' such as dividends and interest, but excludes income from sources such as business, employment and deceased estates (as well as income from the reinvestment of these amounts). 4 Medicare levy may also be payable. 5 Includes Temporary Budget Repair levy. Temporary Budget Repair levy From 1 July 2014, the Temporary Budget Repair levy of 2% applies to that part of an individual's taxable income in excess of $180,000 pa. The levy is applicable on top of marginal tax rates. Taxable income levy payable $0 - $180,000 Nil $180,000 + 2% It also applies to other types of income or entities that are subject to the highest marginal tax rate. With the exception of excess foreign tax offsets the Temporary Budget Repair levy cannot be reduced by non-refundable tax offsets. The levy commenced on 1 July 2014 and ceases on 30 June 2017. 2 | MLC Facts and Figures 2015/16 Single taxable income 1 Family taxable income 1 $0 - $20,896 $0 - $35,261 Medicare levy Nil $20,897 - $26,120 $35,262 2 - $44,076 3 10% of taxable income between thresholds $26,121 + $44,0773 + 2% Taxpayers eligible for Senior and Pensioner tax offset $0 - $33,044 $0 - $46,000 Nil $33,045 - $41,305 $46,001 2 - $57,500 3 10% of taxable income between thresholds $41,306 + $57,501 3 + 2% 1 Taxable income excludes the taxed element of a super lump sum received between preservation age and age 59 which does not exceed the low rate cap. 2 The lower income limit increases by $3,238 per dependent child. 3 The upper income limit increases by $4,047 per dependent child. Medicare levy surcharge (2015/16)4 Income 5 single Income 5 families 6 Medicare levy surcharge 7 $140,001 > $280,001 1.5% 4 The income threshold will be frozen for the 2015/16, 2016/17 and 2017/18 financial years. 5 Income is taxable income, reportable fringe benefits, total net investment losses, reportable super contributions less the taxed element of a super lump sum received between preservation age and age 59 which does not exceed the low rate cap. 6 Family threshold increases by $1,500 for every child after the first child. 7 Applies to income as defined in footnote 5. MLC Facts and Figures 2015/16 | 3 Tax Medicare levy (2014/15) Tax offsets (2015/16) Tax offset Max offset Shade-out taxable income Rate of reduction Low income $445 $37,000 - $66,667 $0.015 per $1.00 Seniors and Pensioners tax offset 1 Single $2,230 $32,279 - $50,119 $0.125 per $1.00 Couples (each) $1,602 $28,974 - $41,790 $0.125 per $1.00 1 Offset is calculated on taxable income, adjusted fringe benefits, reportable super contributions and total net investment losses. Corporate tax rate Company type Tax rate applicable Other than small business 30% Small business 28.5% Non-resident Withholding tax rates Type of payment Non-tax treaty country Tax treaty2 country Unfranked dividends 30% Generally 15% Interest 10% Generally 10% Royalties 30% Generally 10% Franked dividends 0% 0% 2 These are the general rates. Refer to the specific tax treaty for confirmation. Note: Special withholding rules apply to distributions from managed investment trusts to nonresidents. 4 | MLC Facts and Figures 2015/16 Asset acquired Individual Company To 19/9/1985 Nil Nil 20/9/1985 to 21/9/1999 1 Tax on 50% of nominal gain or tax on 100% of real gain (CPI frozen at 30/9/1999) Tax on 100% of real gain (CPI frozen at 30/9/1999) From 22/9/19991 Tax on 50% of nominal gain Tax on 100% of nominal gain Asset acquired Complying super fund To 21/9/1999 1 Tax on 2 /3 of nominal gain or Tax on 100% of real gain (CPI frozen at 30/9/1999) From 22/9/1999 1 Tax on 2 /3 of nominal gain 1 If the asset was held for 12 months or less, the full nominal gain is taxable. Note: The 50% CGT discount is not available to non-residents on taxable gains on assets acquired after 8 May 2012. MLC Facts and Figures 2015/16 | 5 Tax Capital Gains Tax (CGT) CGT Small Business Concessions1 Eligibility - basic conditions Selling assets of business Selling shares/membership interest 1. $6 million Net Asset Value Test or Aggregated Turnover Test 2 1. $6 million Net Asset Value Test or Aggregated Turnover Test 2 2. Active assets test 2. Active assets test 3. CGT Concession Stakeholder or 90% Small Business Participation Test met ITAA97 s152-10 to s152-60 1. $6 million Net Asset Value Test For individual taxpayers3, sum the net CGT assets of: Individual Except: Personal use assets Family home Superannuation Life policies + Connected entities Company (if 40% voting rights or right to 40% of income or capital) 4 Unit trust (if right to 40% income or capital) 4 + CGT affiliate 'Connected' business assets only. Ignore nonbusiness assets Discretionary trust (if individual or CGT affiliate paid 40% of income or capital 5 or influence over trustee test met) 1 These rules are complex. For further information, refer to the ATO's Advanced Guide to CGT Concessions for Small Business 2013/14 (NAT 3359). The small business entity must meet the $2 million Aggregated Turnover Test. 3 This test must be performed separately for each individual claiming the exemption. 4 Owned collectively by individual and CGT affiliates. 5 For any of the four financial years preceding the sale of the active assets. 2 6 | MLC Facts and Figures 2015/16 Company/trust + Connected entities + Connected individuals1 Company (if 40% voting rights or right to 40% of income or capital) 2 Except: Unit trust (if right to 40% income or capital) 2 Net value of company/trust assets Superannuation Personal use assets Family home Life policies Discretionary trust (if company/trust paid 40% of income or capital 3 or or influence over trustee test met) 1 By virtue of the 40% Collective Control Test. Includes CGT affiliates. Owned by first company or trust. For any of the four financial years preceding the sale of the active assets. 2 3 2. Active Assets test Selling assets of business Selling shares/membership interest Active asset if: Owned by entity and used in carrying on business by entity, connected entity, spouse, minor child or affiliate (includes goodwill). Active for the lesser of 7.5 years or 50% of its life. Active asset if: Company or trust is resident. Market value of underlying active assets, cash and financial instruments > 80% of total assets (for at least half of ownership period for shares/interest). 3. CGT concession stakeholder A CGT concession stakeholder of a company or trust is a significant individual or a spouse of a significant individual. Significant individual must satisfy the following: -- Company: holds at least 20% of votes or distributions of income orcapital. -- Unit trust: beneficially entitled to at least 20% of income or capital. -- Discretionary trust: entitled to at least 20% of distributed income or capital in year of disposal. Must be at least one significant individual just before the time of disposal. MLC Facts and Figures 2015/16 | 7 Tax If taxpayer is a company or trust, sum the net CGT assets of: Spouse must satisfy the following: -- Company: holds company shares. -- Unit trust: beneficially entitled to income or capital. -- Discretionary trust: beneficially entitled to income or capital. Eligibility - specific conditions '15 year' CGT Exemption1 Active assets are exempt from CGT if continuously owned for at least 15 years where they are disposed of in connection with retirement after age 55 or as a result of permanentincapacity. If an individual sells their shares or interest in an entity, or where a company or trust is selling a CGT asset, there must be a significant individual (not necessarily the same person) for a period totalling 15 years and the significant individual is > age 55 and retiring or is permanently incapacitated. Concession limited to stakeholders participation %. 1 This contribution can be applied towards the small business lifetime CGT cap of $1.395 million in 2015/16. ITAA97 s152-105 & s152-110 If not eligible for the '15 year' CGT Exemption, the small business owner may be able to claim the 50% Active Assets Reduction (see below) and the CGT Retirement Exemption (see page 9). 50% Active Assets Reduction A 50% exemption available to all small business owners on the disposal of active assets. Capital losses and the general 50% discount for individuals 2 (see page 5) must be applied first. Can elect not to claim this concession and instead use the CGT Retirement Exemption or Small Business Rollover relief. 2 Available to all individuals (sole traders and partners) and trusts. The asset, share or interest must have been held > 12 months. 8 | MLC Facts and Figures 2015/16 Tax CGT Retirement Exemption1 A $500,000 lifetime limit applies to this exemption. A written election must be made prior to lodging the entity's tax return. If 125% of the previous year's premiums should restart the 10 year period. This is effectively the growth in the value of the policy during the period when the policy is in force. ITAA36 s26AH MLC Facts and Figures 2015/16 | 9 Fringe Benefits Tax (FBT) FBT is a tax levied on employers on certain benefits provided to an employee (or their associates) at a rate of 49%1 on the taxable value of the fringe benefit. Certain work-related items provided to an employee may be exempt from FBT. Generally, the cost of such work-related items would otherwise be deductible to the employee. FBT exempt items (taxable value is nil, therefore no FBT is payable) Portable electronic device 2 Professional subscriptions and memberships Protective clothing 2 Complying self education expenses Salary packaging advice Complying childcare arrangements First $1,000 of total taxable value of in-house benefits 3 Super contributions to complying fund/RSA 4 Briefcase 2 Minor benefit exemption less than $300 6 Work related computer software 2 Concessionally taxed items (FBT is payable on the taxable value of benefit 5) Motor vehicle leases 1 Rate increased to 49% from 1 April 2015 until 31 March 2017. The exemption is limited to items primarily for use in the employee's employment and one item per FBT year for items that have a substantially identical function, unless the item is a replacement item. Examples of portable electronic devices include a mobile phone, calculator, personal digital assistant, laptop, portable printer and GPS navigation receiver. 3 If not part of a salary sacrifice arrangement. 4 Subject to 15% contributions tax. 5 Taxable value is generally less than the cost of providing the benefit. 6 This exemption only applies to certain fringe benefits that are provided on an infrequent and irregular basis. 2 10 | MLC Facts and Figures 2015/16 Certain non-profit employers such as tax-exempt charities are entitled to FBT concessions. No FBT is payable on the first $17,6671 (grossed-up taxable value) for each employee of a public hospital or ambulance service and $30,1771 (grossedup taxable value) for each employee of other public benevolent institutions and health promotion charities. The employer must still report the grossed-up fringe benefit amount on the employee's Payment Summary. Charities that want to access FBT concessions must be registered with the Australian Charities and Not-for-profit Commission (ACNC) as a charity endorsed by the ATO. 1 2 Thresholds increase from 1 April 2015 to include the Temporary Budget Repair levy. Rate increased to 49% from 1 April 2015 until 1 April 2017. Employment Termination Payments Employment termination payments contain two tax components: Tax Free - will usually be nil, but may include a 'pre-July 83 segment' (calculated at the date of payment) if the employee has pre-service and/or an 'invalidity segment' if the employee has ceased gainful employment due to illhealth 3 . Taxable - is the balance of the payment after taking the Tax Free component into account. 3 T wo legally qualified medical practitioners must certify that the employee is unlikely to be able to be gainfully employed in a capacity for which they are reasonably qualified by education, training or experience. MLC Facts and Figures 2015/16 | 11 Tax Exempt employers Life Benefit Termination Payments Must be taken as cash with the following tax treatment: Age at end of financial year Under preservation age Component Tax rate Tax Free Tax-free Taxable Preservation age and over Tax Free Taxable First $195,000 1 at 30% 2 Excess at 47% 2, 3 Tax-free First $195,000 1 at 15% 2 Excess at 47% 2, 3 1 Indexed to AWOTE in $5,000 increments. This is an annual limit which applies to all termination payments received in a financial year (or related to thatyear). Plus Medicare levy. 3 Includes Temporary Budget Repair levy. 2 ITAA97 s82-10 Note: Life Benefit Termination Payments (LBPTs) received for individuals with income above $180,000 (unindexed) will not receive the tax offset to limit the tax payable to 15% and 30%. Payments will be taxed at the person's marginal tax rate. Individuals who have income above $180,000 due to inclusion of LBTPs will only have the excess amount taxed at their marginal tax rate. This measure does not apply to genuine redundancy, invalidity or approved early retirement payments. This is also referred to the 'Whole of Income Cap'. Death Benefit Termination Payments The following tax treatment applies on death: Recipient Tax dependant - spouse, former spouse, child 1 member funds) A company can be a trustee of a SMSF where: all directors of the company are members of the fund each member of the fund is a director of the company, and no member of the fund is an employee 3 of another member, unless they are related. 3 Includes employment by related entities. 36 | MLC Facts and Figures 2015/16 Single member funds A company with one or two directors may also be trustee of the fund as long as the member is a director. Where the trustee company has two directors, the SMSF member cannot be an employee of the other director unless related. SISA s17A Super investment rules Complying funds must: satisfy the sole purpose test SISA s62 ensure all transactions are at arm's length SISA s109 not borrow (limited exceptions) 1 SISA s67 not provide financial assistance to members or relatives SISA s65 not acquire assets from related parties 2 SISA s66 satisfy the in-house asset rules SISA s69-s85 ensure investments are consistent with the fund's investment strategy, and SISR 4.09 not use fund assets as security for borrowing. SISR 13.14 1 Subject to limited timeframes and a 10% cap of fund assets, trustees may borrow to meet benefit or surcharge liabilities. Also, subject to conditions, trustees may borrow to acquire allowable assets under a limited recourse borrowing arrangement (see page 38). 2 E xceptions to acquiring assets from related parties include: securities listed on an approved stock exchange business real property (up to 100%) for funds with