ACCY963 - CASE STUDY — T3 2017
CASE STUDY
Jordan and Cameron are a married couple. Jordan works in IT and earns $180 000 p.a. The company he works for also pays for his family's private medical insurance, $4 000 p.a. and provides him with a car for private use which is estimated to be worth $20 000 p.a. He works from home and only occasionally goes in to the company office in the city. Cameron works as a marketing executive and earns $120 000 p.a.
They have two children (both living at home) — Miranda, aged 22, undertaking graduate studies at university as a full fee paying student and also working on a casual basis earning $300 per week; Cate, aged 18, undertaking a HECS supported undergraduate degree full time, is not working but is financially supported by her parents.
Jordan and Cameron have accumulated share and property portfolios and seek advice from you in respect of calculating their tax liabilities. They have not taken any interest in their financial affairs to date but want to take a more active role in this now.
The couple provides the following information:
1. Balance sheet, other income and interest expenses
Assets
Home and contents $1 000 000
Cars $60 000
Holiday house (rental income this financial year $4000) $500 000
Investment property (rental income this financial year $22 000) $900 000
Bank account (interest earned this financial year $2 000) po ooq
Share portfolio (fully franked dividends of $20 000 paid this financial year) $530 000 - -----.;
Superannuation- Jordan (after-tax return of $80 000) $1 200 000
Superannuation- Cameron (after-tax return of $60 000) $ 800 000
Total assets 5 060 000
Liabilities and interest expenses
Mortgage on home (interest paid this financial year, $12 000) 0 ( 0 c ' • $350 000
Mortgage on investment property (interest paid this financial year, $56 000) $700 000
Mortgage on holiday house (interest paid this financial year, $32 000) $390 000
Bank loan on share portfolio (interest paid this financial year $3 500) $50 000
Credit card (interest paid this financial year $1 500) ( AO Aeck 17,04 $10 000
Total liabilities $1500 000
Comment [CO Students need to know that earnings include what they get In hand and also what has been taken out for tax so this is not to be put in
Comment [)G2]: I guess this Is the term deposit?
Comment [C5]: Again, this Is not relevant for tax reasons
Comment [C3]: Doesn't matter- not relevant
Comment PG4]: Does this bank account amount include interest Income?
Comment pG6]: Can you specify whether this loan policy only requires interest repayment or it also asks for the repayment of principal (which is not mentioned in the table)?
Also with the following loans. Hi Jimmy, this will not be relevant and only add more words- for tax all that is relevant is what tax is paid (not earned- interest must be paid) for tax reasons.
Page 1 oft
ACCY963 Case Study Trimester 3, 2017
.
2. Other expenditure
In addition to their interest and loan repayments, the couple incurred the following expenses during the year:
Expenditure Cameron Jordan
Work related expenses $1000 $2200
Travelling to and from home r co. tic (644 6 le ) _ $1200 $1500
Child care expenses 4 (11 4,1r/ i f ei fr) 1P ) $0 $6000
Donations $500 $0
Living costs vi Ca tial 01-cri) le )._ $18 000 $18 000
Expenses (not including interest) related to holiday home - Total of $15 000
Expenses (not including interest) related to investment property-Total $9 000
Tax agents' fees $700 $900
3. Additional information
• All of the assets are jointly owned in the names of Jordan and Cameron of except for the share portfolio which is in the name of Cameron only.
• The share portfolio was acquired for $200 000 in 2002.
• Cameron has a carried forward capital loss of $7000 relating to some shares she sold 3 years ago.
• The investment property is available for rent all year and this year, due to a change in tenants, it was rented out for 10 months.
• The holiday home was available for rent for nine (9) months of the year but was only rented out for five (5) months.
• Jordan's employer deducted $58 000 as PAYG tax while Cameron's employer deducted $35 000 as PAYG tax.
REQUIRED
1. Calculate the net tax payable/refundable for the current year for both Jordan and Cameron and justify any inclusions other than their salaries.
2. As Jordan works from home, he is wondering whether he can get his younger daughter Cate, who is a full time student and not otherwise employed, to carry out some minor administrative work for him as a personal assistant for two hours a week. He would like to pay her $200/hr or $400/wk. This would reduce his taxable income and, in Cate's hands, the income would attract very little, if any, tax. Advise Jordan in this matter.
Page 2 of 2
ACCY963 Case Study Trimester 3, 2017
Comment PG7]: Similar to the above table, are these loan repayments or just general expenses (for renting)? The students should know (assumed knowledge which is relevant for them to have), by now that payment of a loan is not an expense.