Andrew Walters wants to understand the tax implication of the following situation and is

seeking your advice regarding what changes to his arrangements, could reduce his tax

liability. Discuss the implications of these changes and reference your answer with

appropriate sections, rulings, cases etc., where relevant

a. Andrew is a 28-year-old Sales Manager working for Greyhound Home Builders Pty Ltd

and in receipt of a salary package of $110,000 + Superannuation + a car allowance of

$10,000 in FY 2020. There will be no change in his salary package in FY 2021.

b. He is undertaking a Diploma in marketing course at a cost of $ 5000 per semester for

4 semesters commencing from 1 Feb 2020. His expenses on books, stationery and

travel to course would total to $1,000 per semester. He is able to undertake studies

only during the first semester of the year and will take 4 years to complete the course.

c. Andrew is currently using his own car to travel to onsite sales offices and claimed the

car expenses from his tax return. The car costs him $7,000 per year. Andrew has

maintained a log book and has determined that his work-related use of the car amount

to 60% of the usage and the rest 40% was private.

d. The employer will provide a salary sacrifice facility. Andrew is looking to buy a new car

at a price of $25,000 and take a novated lease which will cost him $10,000 per annum.

e. Andrew reckons that the split between work related and private use of new car will

be same as the old one. (The log book maintained is still valid)

f. Andrew has recently acquired his home and incurs an interest cost of $14,000 per

annum on his (interest only) home loan.

g. His fianc Rebecca (currently not living together) also owns her first home and her

home loan outstanding amount is $100,000 with and interest rate of 4%. Rebecca's

annual income as an office administrator is $70,000.

h. Rebecca and Andrew are planning to get married in October 2020. They will move in

together from June 2020 and are confident that they will have a tenant in the rental

property by 1 July.

i. After Andrew and Rebecca get married and start living together, they understand that

they cannot have 2 main residences and need to choose which is going to be their

main residence.

Hence, they are planning to rent one out. As Rebecca's property is much newer than

Andrew's they are planning to move into Rebecca's property and rent Andrew's

property. Andrew's property can fetch a rental of $300 per week and other annualexpenses (other than interest) on the property would be Rental agent fee of $936 all other

expenses of $2,648, per annum.

Andrew has taken an interest only loan and it costs him $14,000 per year. On the other

hand, if Rebecca's property is rented it can fetch a rent of $480 per week. Her expenses

including mortgage interest would amount to $5,000 per year.

j. Neither Andrew nor Rebecca has a private health insurance policy. And they are both

not interested in one until they get close to age 31. Andrew is aware that he needs to

take out Private health insurance before he is 31 if he wants to avoid the age base

premium increases.

You are required to discuss/calculate the following:

1. Calculate Andrew's Taxable income for FY 2020 and FY 2021 (based on renting out

Andrew's property), and the tax liability complete with Medicare Levy and Medicare

Levy Surcharge (if applicable) (16 marks)

2. Explain the consequence of Andrew salary sacrificing for a new car. (3 marks)

3. Tax consequences in relation to Medicare & Medicare Levy surcharge and Private

Health insurance policy for both after they are married. (3 marks)

4. Explain the consequence if they decide to rent Rebecca's property as it could fetch a

higher rent. (3marks)