Australian Finance Case Study

Assessment task Question 1: 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 married couple Peter (age: 34) and Meg Morrow (age:36). Meg is an ex-Olympian and is pursuing a career in sports consultancy after retirement from active sports she is employed as sports consultant with Melbourne office of a US global sports, other events and talent management company. The couple had their first child Tim 3 years ago. The couple used a major portion of the saving to pay off the mortgage loan taken for self-occupied home. Peter switched to part-time work to care for their child. He works as a part-time coach with a local footy club. Name Expected Gross annual salary 2019. 2020 Peter Morrow $30,000 Meg Morrow $182,000 Asset and Liabilities Assets (Ownership) Home and Contents (Joint) Rental Property (Meg) 845,000.00 390,000.00 Cars (Joint) Toyota Rav4 (2016) BMW X3 (XDRIVE 301) (2018) 28,000.00 71,000.00 15,000.00 as on 30/6/2020 Bank Account: Commonwealth Bank Savings Account (Joint) Investments: Colonial First State Wholesale Equity Income Fund (Meg) 13,000.00 5,000.00 Polynovo Ltd (ASX: PNV) (Meg) Costa Group Holdings Ltd (ASX: CGC) (Meg) Superannuation- (Meg) Superannuation- (Peter) 20,000.00 410,00.00 560,000.00 Liability (Ownership) Mortgage (Meg) Credit cards (Joint) Includes the annual interest cost 351,000.00 6,500.00 Amount p.a. $500 Income Income type (ownership) Joint saving bank account of Peter and Meg with commonwealth Bank: Interest 1.5% p.a. Colonial First State Wholesale Equity Income Fund (Meg) Polynovo Ltd Shares- Dividend - (Meg) $2,500 Costa Group Holdings Dividend - (Meg) Rent from rental property (Meg) $1,491 + $639 Imputation credit $882 + $378 Imputation credit $17,940 p.a. In the past meg's father, who was a tax consultant, use to advise the couple on tax planning. Since the death of Meg's father 2 years ago, the couple has just availed the services of local accounting firm for lodging of their tax return. Meg Morrow borrowed $361,000 to purchase a rental property built-in 2006 on advice of her father. The annual insurance, rates and costs to maintain the property is $3,900 p.a. and interest costs on his loan will be $24,000 for the year. The Morrow couple would like to know their net earnings after paying tax for the year ended 30th June 2020. They would also like advice on how to reduce their tax liability in the future. 10 months ago, Meg invested in equity. She bought 12,500 shares of Polynovo Ltd at 40 cents per share and 2,500 shares in Costa Group Holdings Ltd at $8.00 per share. She is stressed that the Costa Group Holdings Ltd share is currently trading at $4 and is not expected to do better in the coming 1 year. She wants to sell her Polynovo Ltd shares (expected sale price $2.00 share) to lock in her profit and has come to you for advice. She does not expect any significant change in the share price of both the firms in the coming 1 year. A year ago, the couple decided to pay an annual donation of $2000 to registered Charity. This paid from the account of Peter. Expenses for the year ended 30th June 2020: Itemised expenses per annum: Travelling to and from work-$2,500 (Meg) and $1,100 (Peter) Sportsmen association membership fees $1,200 (Meg) Donations to registered Charity $2,000 (Peter) Required: A. Calculate Peter and Meg's after-tax income for the year ended June 30th, 2020. For the purpose of calculation, the assume the figures are of the year 2019-20. Explain how Alex and Rachel 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 30 June 2020. B. Calculate Rachel's capital gains liability if she were to sell her Polynovo Ltd shares. Assume that Rachel will sell her shares and advise her on a strategy she could use to minimise her possible capital gain. Also, show the effect this strategy (calculation) would have. c. You observed that Meg's father has used "Negative gearing" as a tax-saving strategy for the couple in the past. Please explain this to the couple, bringing example from their tax calculation. Assessment task Question 1: 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 married couple Peter (age: 34) and Meg Morrow (age:36). Meg is an ex-Olympian and is pursuing a career in sports consultancy after retirement from active sports she is employed as sports consultant with Melbourne office of a US global sports, other events and talent management company. The couple had their first child Tim 3 years ago. The couple used a major portion of the saving to pay off the mortgage loan taken for self-occupied home. Peter switched to part-time work to care for their child. He works as a part-time coach with a local footy club. Name Expected Gross annual salary 2019. 2020 Peter Morrow $30,000 Meg Morrow $182,000 Asset and Liabilities Assets (Ownership) Home and Contents (Joint) Rental Property (Meg) 845,000.00 390,000.00 Cars (Joint) Toyota Rav4 (2016) BMW X3 (XDRIVE 301) (2018) 28,000.00 71,000.00 15,000.00 as on 30/6/2020 Bank Account: Commonwealth Bank Savings Account (Joint) Investments: Colonial First State Wholesale Equity Income Fund (Meg) 13,000.00 5,000.00 Polynovo Ltd (ASX: PNV) (Meg) Costa Group Holdings Ltd (ASX: CGC) (Meg) Superannuation- (Meg) Superannuation- (Peter) 20,000.00 410,00.00 560,000.00 Liability (Ownership) Mortgage (Meg) Credit cards (Joint) Includes the annual interest cost 351,000.00 6,500.00 Amount p.a. $500 Income Income type (ownership) Joint saving bank account of Peter and Meg with commonwealth Bank: Interest 1.5% p.a. Colonial First State Wholesale Equity Income Fund (Meg) Polynovo Ltd Shares- Dividend - (Meg) $2,500 Costa Group Holdings Dividend - (Meg) Rent from rental property (Meg) $1,491 + $639 Imputation credit $882 + $378 Imputation credit $17,940 p.a. In the past meg's father, who was a tax consultant, use to advise the couple on tax planning. Since the death of Meg's father 2 years ago, the couple has just availed the services of local accounting firm for lodging of their tax return. Meg Morrow borrowed $361,000 to purchase a rental property built-in 2006 on advice of her father. The annual insurance, rates and costs to maintain the property is $3,900 p.a. and interest costs on his loan will be $24,000 for the year. The Morrow couple would like to know their net earnings after paying tax for the year ended 30th June 2020. They would also like advice on how to reduce their tax liability in the future. 10 months ago, Meg invested in equity. She bought 12,500 shares of Polynovo Ltd at 40 cents per share and 2,500 shares in Costa Group Holdings Ltd at $8.00 per share. She is stressed that the Costa Group Holdings Ltd share is currently trading at $4 and is not expected to do better in the coming 1 year. She wants to sell her Polynovo Ltd shares (expected sale price $2.00 share) to lock in her profit and has come to you for advice. She does not expect any significant change in the share price of both the firms in the coming 1 year. A year ago, the couple decided to pay an annual donation of $2000 to registered Charity. This paid from the account of Peter. Expenses for the year ended 30th June 2020: Itemised expenses per annum: Travelling to and from work-$2,500 (Meg) and $1,100 (Peter) Sportsmen association membership fees $1,200 (Meg) Donations to registered Charity $2,000 (Peter) Required: A. Calculate Peter and Meg's after-tax income for the year ended June 30th, 2020. For the purpose of calculation, the assume the figures are of the year 2019-20. Explain how Alex and Rachel 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 30 June 2020. B. Calculate Rachel's capital gains liability if she were to sell her Polynovo Ltd shares. Assume that Rachel will sell her shares and advise her on a strategy she could use to minimise her possible capital gain. Also, show the effect this strategy (calculation) would have. c. You observed that Meg's father has used "Negative gearing" as a tax-saving strategy for the couple in the past. Please explain this to the couple, bringing example from their tax calculation