Gregory has recently signed a contract to purchase an investment property. The details of the contract are listed below:

• The agreed purchase price was $200000
• Gregory will make a cash deposit of 20% of the purchase price immediately using money from his savings
• The other upfront costs total $3500, also paid immediately using money from his savings

He will fund the remainder of the balance (the remaining 80% of the purchase price) using a mortgage from his local bank. The details for the mortgage are as follows:

• The bank charges interest on such investment loans at 3.5% p.a effective
• Gregory is required to make level end-of-period repayments over the next 25 years
• At the start of the loan (today), Gregory needs to choose between making fortnightly or monthly repayments. Whichever choice he makes, he is locked into this choice for the remainder of the term of the loan.

Gregory ends up choosing the monthly repayment option.

Gregory has also found a tenant for his property. The tenant has agreed to pay $1600 at the start of each month in rent, and has moved in today. The tenant is expected to stay at least for the coming year. Gregory also has to pay income tax at a rate of 30%.

g) The rent Gregory receives from this investment is taxable. As mentioned in lectures, the interest on his mortgage is tax deductible. What this means is that the tax Gregory needs to pay at the end of the year is calculated by taking the total rent he receives and deducting interest expenses (principal repayments are not tax deductible).

Calculate the amount of tax that Gregory needs to pay. Assume that the first year of Gregory's investment perfectly coincides with a financial year. (2 marks)

Note: In reality, there are many other tax deductions an investor such as Gregory could claim, but for the purposes of this question, only consider the interest expenses for tax deductions.