BACKGROUND.

Harsh and Julie called you one day and booked an appointment to review their retirement plan and investment portfolio. They heard about you through one of their friends who is one of your better clients. During the initial meeting, they explained that they are already working with a CFP professional $$ just like you $-$ from Royal Bank of Canada and they wanted a second opinion about their financial situation.

You are now meeting them for the second time. Julie tells you that she is the one that keeps track of the family finances and she pays all the household bills. She has prepared a Net Worth statement and a Cash Flow statement for you to get a better understanding about their current financial position. They are happy and surprised that you have provided them with a letter of engagement outlining your financial planning process and responsibilities for both parties. They explain that such a letter was not provided by their existing advisor.

PERSONAL INFORMATION

Harsh, $54$ years old and Julie, $36$ years old live in Brampton, Ontario. They are married and they have been together for the past seven years. They are both in excellent health.

This is Harsh$$s second marriage and Julie$$s first. Harsh is making regular spousal support payments to his ex$-$wife Kopal under an agreement they signed in September $2010.$ Harsh and Kopal did not have any children together. Harsh and Julie have a daughter, Crystal who is now $3$ years old. They pay $ $1,000$ a month to send her to a daycare center. They heard that the government of Ontario is bringing $ $10-$a$-$day day$-$care and they are very excited about that. They are wondering if you know if they can take advantage of this right now.

EMPLOYMENT INFORMATION

Harsh is a full$-$time business professor at the local community college earning $ $98,000.$ He says he is enjoying his research work there but the day$-$to$-$day teaching is starting to get to him. He would like to retire in about $6$ years. He thinks that in addition to the pension funds provided by the College, he has enough money set aside to provide him with the sort of lifestyle in retirement he wants.

Besides his regular employment, Harsh has published several books on the history of

FINA$704$ The Financial Planning Capstone Course

education. He receives royalties from his publisher and is often asked to contribute articles to national newspapers. This brings in an extra $ $900$ a month. When he retires from teaching, he hopes to spend more time doing this type of work $...$ between writing and appearing an expert on TV and radio, he should be able to earn $ $55,000$ a year.

Julie works for the local TV station $($City TV$)$ as a commissioned employee selling advertisements to local businesses. Instead of working at the offices of City TV$,$ she meets with clients at their offices or at her own home. She uses her own car to travel to appointments and he converted one of the rooms in their house into an office.

Julie$$s income varies from year to year. On average, she earns around $ $45,000$ as a base salary and another $ $20,000$ in commissions. She is very happy with her job saying that City TV offers her a benefits package including prescription drugs, paramedical services up to $ $1,500$ per year, subsidized meals at the cafeteria, access to a fitness center for free, and lots of free training courses.

REAL ESTATE

Harsh & Julie live in a house they purchase about seven years ago for $ $450,000.$ It is a big house with $10$ rooms. He says that after doing renovations and upgrades of about $ $100,000,$ he believes the current value of the home is around $ $900,000.$ They are currently making mortgage payments of $ $1,500$ a month, $ $1,000$ of which is interest.

Last year, a house close by was up for sale at a very low price, just $ $320,000.$ They decided to purchase the home as an investment and they started renting it to students attending the local college. They are making monthly mortgage payments of $ $1,600($$ $900$ is interest$),$ while they are bringing in about $ $3,000$ in rental income every month. They figure the property is currently worth about $ $ $450,000.$

TAXATION ISSUES

Harsh is unhappy that he is paying so much taxes to the government every year. He explains it is not just the income taxes, he is paying property taxes and also sales taxes $($HST$)$ on many of the things he buys. He is wondering I you have any ideas on how to reduce their annual tax bill. Also, he has heard if the term marginal tax rate and he does not understand what it means.

CURRENT INVESTMENTS

The College has a defined contribution pension plan which is managed by the ALPHA insurance Company. Harsh has a total of $ $325,000$ in his RRSP with the following

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holdings.

$ $130,000$ in Alpha Canadian Balanced mutual fund, MER $2\mathrm{.}3\%$

$ $85,000$ in Alpha Canadian Small Cap mutual fund, MER $2\mathrm{.}5\%$

$ $110,000$ in Alpha Canadian Dividend mutual fund. MER $2\mathrm{.}1\%$

Harsh also own