A financial and taxation case study Assume:

You are a financial adviser and are approached by a married couple, Arcelia and James Fox. The following information is an extract of data you gathered as part of the fact-finding exercise during an initial client consultation with this couple:

James and Arcelia (both are 35 years old) live in an apartment in the Melbourne CBD. James works as a communications engineer and Arcelia is an Office assistant at a local public school. Arcelia is pregnant and they are expecting their first child 6 months from now.

The Fox couple intend to buy a house near Arcelias parents home in the southeastern suburbs. They intend to finance this with a 30-year mortgage. The present accommodation (the owned apartment in the Melbourne CBD) is to be rented.

10 months ago, James invested in shares. He bought 10,000 shares in Movonix at $2.5 a share and 2500 shares in Jogan.com Ltd at $16 a share. He Page 3 of 7 RMIT Classification: Trusted wants to sell his Movonix Ltd shares to lock in his profit and has come to you for advice. They intend to use this, and their term deposit with the bank, as margin money for the purchase of the house. He does not expect any significant change in the share price of both the firms in the coming year.

The couple intends to pay back their credit card debt before the financial year ending June 30th, 2021. This is to enable them to become eligible for a home loan from the bank in the future.

The family do not have any private health insurance.

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

A. Calculate Arcelia and James annual after-tax income for the year ended 30th June 2022. Also, explain how James and Arcelia could reduce their tax liability by splitting their income. Show the effect of this strategy if they had split income for this current tax year. provide a brief explanation of the concept of the splitting of income as an effective strategy for the couple.

B. I. Calculate Jamess capital gains liability if he were to sell his Movonix Ltd Shares. Assume that James will sell his shares. Advise him on a strategy he could use to minimise his possible capital gain. Also, show the effect this strategy and calculation would have.

II. Explain to the couple the benefit of purchasing private health insurance.

Current valuation $175,000.00 $6,000.00 Assets and Liabilities (as of 30th June 2022) Current Assets (Ownership) valuation Liability (Ownership) Home and Contents (Joint) $550,000.00 Mortgage Credit cards (Joint) Includes Cars (Joint) $35,000.00 the annual interest cost Bank Account: ANZ Savings Account (Joint) $15,000.00 Investments: ANZ Bank term deposit $80,000.00 (James) Jogan.com Ltd Shares 2500- (James) $15,000.00 Movonix Ltd shares 10000- (James) $100,000.00 Superannuation- (Arcelia) $160,000.00 Superannuation- (James) $300,000.00 Income type (ownership) Gross Salary- (James) Gross Salary- (Arcelia) ANZ Savings Account - Interest 3.00% (James & Arcelia) ANZ term deposit- Interest 4.50% (James) Amount $125,000 $40,000 $450 $3,600 $473 + $202 Imputation Credit $1,350 + $580 Imputation Credit Jogan com Ltd Dividend- Dividend $1.10 per share- (James) Movonix Ltd Dividend- Dividend $3.60 per share- (James) PAYG: James- $17,500; Arcelia: $3,350 Teachers' association Membership: $ 560. TAXATION Income Tax Rates Individual Tax Rates (Adult Australian Residents) - 2021/2022 Taxable income Marginal Tax Rate Tax Payable $0-$18,200 0% Nil $18,201 - $45,000 19% $0 + 19% on the excess over $18,200 $45,001 - $120,000 32.5% $5,092 + 32.5% on the excess over $45,000 $120,001 - $180,000 37% $29.467 + 37% on the excess over $120,000 $180,001 + 45% $51,667 + 45% on the excess over $180,000 The above rates do NOT include the Medicare levy of 2% Medicare Levy (for the year ended 30 June 2022)* Taxable Income Thresholds(individual) Medicare Levy Rate Up to $23,226 Nil $23,227-$29,032 10% of taxable income between thresholds Above $29.032 2% of taxable income *Please note that there are different income thresholds for families, seniors and pensioners. These are not required in this course. Medicare Levy Surcharge (for the year ended 30 June 2022) The Medicare levy surcharge (MLS) below applies to singles and families that do not have private health insurance Income Level Threshold Tier 1 Tier 2 Tier 3 Singles $90,000 or less $90,001 - $105,000 $105,001 -$140,000 $140,001 or more Families $180,000 or less $180,001 -$210,000 $210,001 -$280,000 $280,001 or more Medicare Levy Surcharge (MLS) 1.0% 1.25% MLS Rate 0.0% 1.5% Unearned Income $0-$416 $417 - $1,307 Over $1,307 Tax Rates for Minors - 2021/2022 Tax Payable Nil $0 + 66% of the excess over $416 45% of the total amount of unearned income Other Tax Rates - 2021/2022 Complying superannuation fund 15% Non-complying superannuation fund 45% +2% Medicare levy Company Tax 30% Turnover > $50 Million 25.00 % Turnover $50 Million 25.00 % Turnover