SUPERANNUATION ASSIGNMENT
Task 1 – The Sandra and Henry Blake case study – superannuation benefit payments
• Read their case study and fact finder, then:
a. answer the six (6) questions your clients have about superannuation benefit payments
b. document the strategy you would recommend them
c. complete a cash flow table documenting their financial position should they take your advice.
Task 2 – The Faraz and Aisha Gita case study – superannuation death benefit payments
• Read their case study and fact finder, then:
a. answer the four (4) questions your clients have about superannuation death benefit payments
b. document your recommendations.
Task 1: Benefit payments
The Sandra and Henry Blake case study – superannuation benefit payments
Henry and Sandra Blake have decided that they need some financial planning advice as Henry has recently had to commence a new job at a much reduced income level. As their financial planner they have told you that they are concerned that the new income may not be adequate to meet their current lifestyle requirements. Henry has taken on this new job so that he can look after Sandra. Sandra has been diagnosed with a serious but not terminal illness and will need to be cared for, for a period of time. Following due protocol, you met and provided them with the information they needed, and then in a second meeting you collected information on their current financial situation and their needs and objectives. Table 2 records your clients’ personal details.
Note: Full details of their financial situation are at Appendix 2. You will need to refer to that data to answer the questions for this task.
Table 2 Personal details
Client 1 Client 2
Title Mr Mrs
Surname Blake Blake
Given & preferred names Henry Sandra
Home address 20 Bannockburn Dr, Beaumont Hills, NSW. 20 Bannockburn Dr, Beaumont Hills, NSW.
Business address n.a. n.a.
Contact phone (02) 5544 7766 (02) 5544 7766
Date of birth 18 December 1949 12 June 1956
Sex ? Male Female Male ? Female
Smoker Yes ? No Yes ? No
Expected retirement age When Sandra reaches age 65 Age 65
The cash flow tables
Based on the information they provided, you completed a fact finder and then developed the two (2) cash flow statements on the following pages to document the couple’s change in financial situation.
Note: You can verify the accuracy of the two (2) cash flow statements by referencing the full details of your clients’ financial situation in Appendix 2. You will need to refer the data presented there to answer the questions for this task.
Income, tax and cash flow – Henry’s previous employment
Tax calculation Client 1 Client 2 Combined Comments
Income from employment
Salary or Income from employment $145,000 $70,000 $215,000
Salary sacrifice
Salary after salary sacrifice $145,000 $70,000 $215,000
Rental income
Unfranked dividends
Franked dividends $5,022 $5,022 $10,044 Distribution from Tax Effective Share Fund
Franking (imputation) credits $1,663 $1,663 $3,326
Interest
Other income (e.g. taxable benefits, trust income, investment income)
Capital gains < 1 yr
Capital gains > 1 yr
Tax-free component of capital gains
Assessable income $151,685 $76,685 $228,370
Deductible expenses $250 $250 $500 Accountant’s fees
Donations $610 $610 $1,220 $1,200 p.a to the National Breast Cancer Foundation
$10 bucket donation
Income Protection Insurance
Business Overheads Insurance
Other
Taxable income $150,825 $75,825 $226,650
Tax on taxable income $43,752 $16,190 $59,942
Non-refundable tax offsets (e.g. LITO/SAPTO) $172 $172 Net Medical Expenses Tax Offset (see note below)
Medicare levy $2,262 $1,137 $3,399
Medicare levy surcharge
Franking rebate $1,663 $1,663 $3,326
Refundable rebates and offsets
Total tax $44,351 $15,492 $59,843
Cash flow – Henry’s previous employment
Cash flow Henry Sandra Combined Comment
Salary less any salary sacrificed amount $145,000 $70,000 $215,000
Non-taxable income Nil Nil
Rental income n.a. n.a.
Dividends received $5,022 $5,022 $10,044
Interest Nil Nil
Other income (e.g. taxable benefits, trust income, investment income) Nil Nil
Total income received before tax $150,022 $75,022 $225,044
Investment expenses Nil Nil
Expenses
Mortgage Nil Nil
School fees Nil Nil
Utilities n.a. n.a. Paid as part of the expenses through
credit card
Personal insurance Nil Nil
Car insurance $1,600 $1,600 $3,200
Home Building and Contents Insurance $750 $750 $1,500
Health insurance $2,520 $2,520 $5,040 $420 per month
Living expenses $51,000 $51,000 $102,000 $8500 per month
through credit card
Holidays $10,000 $10,000 $20,000
House maintenance n.a. n.a. Paid as part of the expenses through
credit card
Motor vehicle n.a. n.a. Paid as part of the expenses through
credit card
Other
$610 $610 $1,220 Donations
$250 $250 $500 Accountant’s fees
$12,000 $12,000 $24,000 $2000 per month investment
$6,720 $6,720 $560 per month out of pocket medical expenses
Total expenses $78,730 $85,450 $164,180
Total income received before tax less total expenses $71,292 $-10,428 $60,864
Total tax payable from tax table above $44,351 $15,492 $59,843
Total net cash flow $26,941 $-25,920 $1,021
Income, tax and cash flow – Henry’s new employment
Tax calculation Client 1 Client 2 Combined Comments
Income from employment
Salary or Income from employment $73,000 $70,000 $143,000
Salary sacrifice
Salary after salary sacrifice $73,000 $70,000 $143,000
Rental income
Dividends $5,022 $5,022 $10,044 Distribution from Tax Effective Share Fund
Franking (imputation) credits $1,663 $1,663 $3,326
Interest
Other income (e.g. taxable benefits, trust income, investment income)
Capital gains < 1 yr
Capital gains > 1 yr
Tax-free component of capital gains
Assessable income $79,685 $76,685 $156,370
Deductible expenses $250 $250 $500 Accountant’s fees
Donations $610 $610 $1,220 $1200 p.a to the National Breast Cancer Foundation
$10 bucket donation
Income Protection Insurance
Business Overheads Insurance
Other
Taxable income $78,825 $75,825 $154,650
Tax on taxable income $17,165 $16,190 $33,355
Non-refundable tax offsets (e.g. LITO/SAPTO) $920 $920 Net Medical Expenses Tax Offset (see note below)
Medicare levy $1,182 $1,137 $2,319
Medicare levy surcharge
Franking rebate $1,663 $1,663 $3,326
Refundable rebates and offsets
Total tax $16,684 $14,744 $31,428

Cash flow – Henry’s new employment
Cash flow Henry Sandra Combined Comment
Salary less any salary sacrificed amount $73,000 $70,000 $143,000
Non-taxable income Nil Nil
Rental income n.a. n.a.
Dividends received $5,022 $5,022 $10,044
Interest Nil Nil
Other income (e.g. taxable benefits, trust income, investment income) Nil Nil
Total income received before tax $78,022 $75,022 $153,044
Investment expenses Nil Nil
Expenses
Mortgage Nil Nil
School fees Nil Nil
Utilities n.a. n.a. Paid as part of the expenses through
credit card
Personal insurance Nil Nil
Car insurance $1,600 $1,600 $3,200
Home Building and Contents Insurance $750 $750 $1,500
Health insurance $2,520 $2,520 $5,040 $420 per month
Living expenses $51,000 $51,000 $102,000 $8500 per month
through credit card
Holidays $10,000 $10,000 $20,000
House maintenance n.a. n.a. Paid as part of the expenses through
credit card
Motor vehicle n.a. n.a. Paid as part of the expenses through
credit card
Other
$610 $610 $1,220 Donations
$250 $250 $500 Accountant’s fees
$12,000 $12,000 $24,000 $2000 per month investment
$6,720 $6,720 $560 per month out of pocket medical expenses
Total expenses $78,730 $85,450 $164,180
Total income received before tax less total expenses $-708 $-10,428 $-11,136
Cash flow Henry Sandra Combined Comment
Total tax payable from tax table above $16,684 $14,744 $31,428
Total net cash flow $-17,392 $-25,172 $-42,564
Current superannuation, rollovers, insurances, etc
Superannuation
Member Henry Sandra
Fund name EANWB Retail Super Fund EANWB Retail Super Fund
Date of joining fund 1 July 1992 (service date) 1 July 1992 (service date)
Type of fund ? Accumulation Defined benefit ? Accumulation Defined benefit
Pension Pensioner Pension Pensioner
Contribution
(e.g. 5% of salary) SG By employer By yourself SG By employer By yourself
Current value of your superannuation fund $567,000
$332,000
Amount of death and
disability cover $710,000
$520,000
Is there provision for you to top up or salary sacrifice? ? Yes No ? Yes No


Superannuation Taxation Details
Henry Sandra
Current value $567,000
$332,000
Tax free component $175,000 $178,000
Taxable Component:
Taxed element $392,000 $154,000
Untaxed element $0 $0
Preservation:
Preserved $567,000 $332,000
Unrestricted non-preserved $0 $0
Restricted non-preserved $0 $0
Contributions:
Non-concessional contributions:
Year 1 $0 $0
Year 2 $0 $0
Year 3 $0 $0
Year 4 $0 $0
Concessional contributions:
Year 1 SG only SG only
Year 2 SG only SG only
Year 3 SG only SG only
Year 4 SG only SG only
Note: The fund rules of the EANWB Retail Super Fund will allow a member to be in accumulation and pension phase at the same time.
Life insurance details
Life insured Owner Policy type Company Policy number Death benefit Comments Annual premium
Henry EANWB Retail Super Fund Life EANWB 234u024 $710,000 Within superannuation $8400
Henry EANWB Retail Super Fund TPD EANWB 234u024 $710,000 Within superannuation any occupation $18,000
Sandra EANWB Retail Super Fund Life EANWB 45276 $520,000 Within superannuation $1440
Sandra EANWB Retail Super Fund TPD EANWB 45276 $520,000 Within superannuation any occupation $3060

Nominated Beneficiaries:
Name Binding Non-Binding
(Yes/No) Trustee discretion
(Yes/No)
Yes/No Amount
Henry – Beneficiary is Sandra Yes 100% No No
Sandra – Beneficiary is Henry Yes 100% No No



Is there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No N Details



Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No N Details



Needs and objectives
Details Comments
Maintain previous net income level To maintain their net income levels at the level prior to Henry commencing his new role
Maintain superannuation balances If possible, to try and maintain superannuation balances. However, willing to reduce superannuation balances to maintain previous net income level
Reduce taxation
Implications on TPD If Sandra becomes TPD due to her current illness, both now and in the future
Proposed superannuation balances Estimate of Henry and Sandra’s superannuation balances when Sandra reaches age 65
Task 1 questions
Henry and Sandra had a number of questions in regard to superannuation benefit payments. You are to answer the questions, as their financial planner, taking into account their personal details. Remember, many clients may not be familiar with the superannuation system and may ask questions that are technically incorrect. You are to determine if the question asked is incorrect and if it is you are to correct Henry and Sandra, providing the correct information and an answer to their question.
Note: Full details of their financial situation are in Appendix 2. You will need to refer to that data to answer the questions for this task.
Henry and Sandra’s questions
Question 1
Sandra asks, “What are our options for accessing our superannuation if we are still working?”

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Question 2
Sandra then asks, “What are the alternative methods of how we can take out our superannuation to supplement our income and what the ramifications of these methods are?”

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Question 3
Henry asks, ”As I understand it, if we are able to withdraw our funds from superannuation we will be heavily taxed. What are the tax implications for Sandra and I for receiving a one off payment?”

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Question 4
Sandra asks, “If Henry and I both commence income streams why are they different in the amounts of income we can receive and the tax payable?”
Answer here
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Question 5
Henry has noticed on his and Sandra’s superannuation statements that they have taxable and tax free components. Henry asks,
“If Sandra and I can take any amounts from our superannuation from the tax free portions, and not pay tax on them, what happens to the taxable portions?”

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Question 6
Henry asks, “If we are able commence an income stream part way through the year how does the minimum income stream amount work?”

Assessor feedback:

Your strategy recommendations
As part of a Statement of Advice (SOA) a financial planner must justify their strategies by showing how they meet their clients’ needs and objectives. In this case study Henry and Sandra have the following needs and objectives:
• maintain their previous net income level
• if possible to maintain their superannuation balances
• reduce taxation
• proposed superannuation balances when Sandra reaches age 65
• implications if Sandra becomes TPD now or in the future.
You must provide the following information to Henry and Sandra addressing these objectives:
a. how to maintain their previous net income level
b. if possible, how to maintain their superannuation balances
c. how to reduce taxation
d. what the proposed superannuation balances might be for when Sandra reaches age 65.
Use the templates on the following pages to provide your responses.
Additional information:
Each one of these needs and objectives must be addressed and justified in the strategies used. Further, if it is recommended that these can be satisfied by using the superannuation benefits of one member of the couple, the report must also include why the second member of the couple’s superannuation benefit is untouched or retained as is.
For the projections of their superannuation balances when Sandra reaches age 65 you are to assume
a realistic rate return of a balanced fund based on your recommendations as if your strategies
were adopted.
Current and previous tax and cash flow statements have been provided as part of the case study. For your discussion with Henry and Sandra, you must also produce a similar cash flow statement that shows their tax and cash flow situation if your strategies were adopted.
Given the state of Sandra’s health, she is interested in finding out what the implications would be if she received the superannuation benefit as a lump sum and an income stream now or in the future as a disability superannuation benefit. You can give her this information and included it as an appendix to your recommendations.
This information will include all calculations and taxation implications based on the current benefits Sandra has within her superannuation fund. You will need to make sure you have considered her insurance benefit as well.
Note: Full details of their financial situation are in Appendix 2. You will need to refer to that data to answer the questions for this task.

a. Use the space below to communicate to your clients how they can maintain their previous net
income level.
Answer here
Assessor feedback:

b. Communicate to your clients how they might be able to maintain their superannuation balances.
Answer here
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c. Explain to your clients how they might be able to reduce their taxation including the taxation implications for Sandra if she receives her superannuation benefits now, or in the future, after satisfying a condition of release.
Answer here
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d. What the proposed superannuation balances might be for when Sandra reaches age 65.
Answer here
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The cash flow table
Financial position after implementation of strategy
Note: The items listed in this template are indicative only and must be adapted to your clients’ personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.
Accurately completed cash flows are essential in the financial planning process to support recommendations. They are key to demonstrating your competency.
Tax calculation Client 1 Client 2 Notes
Income from employment
Salary
Salary sacrifice (state % if applicable)
Salary after salary sacrifice
Other income
Bank account interest (state % return if applicable)
Interest from other investments (state % return if applicable)
Share dividends (state % return if applicable
Imputation credits (state % return if applicable
Other income liable for tax (e.g. rental income)
Assessable capital gains
Total assessable income
Deductable expenses (e.g. rental repairs)
Taxable income
Income tax on taxable income (state tax rates and year applied)
less tax offsets (e.g. LITO/SAPTO)
plus Medicare levy
plus Medicare levy surcharge
less Imputation credits
less refundable tax offsets
Net tax payable


Family cash flow
Client 1 Client 2 Combined Comment
Cash flow calculation:
Salary less any salary sacrificed amount
Non-taxable income
(e.g. income from a superannuation pension for a person aged over 60, Family tax benefits, etc)
Interest income
Dividends received (excluding franking credits)
Other income
Total income received before tax
Investment expenses
Living expenses
Other expenses
Total expenses
Total income received before tax less expenses
Net tax payable from tax table above
Total net cash flow


Asset Owner Value Liabilities Net value Notes
Personal assets
Family home
Home contents
Car 1
Car 2
Other
Total
Superannuation
Client 1 superannuation
Client 2 superannuation
Total
Investment assets
Investment property
Savings account
Term deposit
Shares
Other
Total
Net worth

Liabilities
Loan Current debt Percentage deductible Interest only Repayment
Loan
Home loan
Investment property
Other
Total
Task 2: Death Benefit payments
The Faraz and Aisha Gita case study – superannuation death benefit payments
Faraz and Aisha Gita have decided that they need some financial planning advice following the death of a close family friend. As their financial planner they have told you that they are concerned that their superannuation benefits may not be going to the right people most effectively.
Following due protocol, you met with them, provided them with the information they needed and then in a second meeting collected information on their current financial situation and their needs and objectives. Table 3 records your clients’ personal details.
Table 3 Personal details
Client 1 Client 2
Title Mr Mrs
Surname Gita Gita
Given & preferred names Faraz Aisha
Home address 22 Culcreuch Cres, Kellyville, NSW 22 Culcreuch Cres, Kellyville, NSW
Business address n.a. n.a.
Contact phone (02) 7766 5544
(02) 7766 5544

Date of birth 1 August 1951 20 November 1955
Sex ? Male Female Male ? Female
Smoker Yes ? No Yes ? No
Expected retirement age When Aisha reaches age 65 Age 65
Based on the information you collected from the couple over your meetings with them, you populated the tables on the following pages in relation to their superannuation.
Current superannuation, rollovers, insurances, etc
Superannuation – Transition to Retirement
Member Faraz Aisha
Fund name AI Retail TTR Super Fund EANWB Retail Super Fund
Date of joining fund 1 July 1992 (service date) 1 July 1992 (service date)
Type of fund Accumulation Defined benefit Accumulation Defined benefit
? Pension Pensioner ? Pension Pensioner
Contribution
(e.g. 5% of salary) By employer By yourself By employer By yourself
Current value of your superannuation fund $510,000
$332,000
Amount of death and
disability cover Nil Nil
Is there provision for you to top up or salary sacrifice? Yes ? No Yes ? No

Superannuation Taxation Details – Transition to Retirement
Faraz Aisha
Current value $510,000
$332,000
Tax free component $150,000 $178,000
Taxable component:
Taxed element $360,000 $154,000
Untaxed element $0 $0
Preservation:
Preserved $510,000 $332,000
Unrestricted non-preserved $0 $0
Restricted non-preserved $0 $0


Nominated Beneficiaries – Transition to Retirement
Name Binding Non-Binding
(Yes/No) Trustee discretion
(Yes/No)
Yes/No Amount
Faraz No No Yes
Aisha No No Yes



Is there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No N Details



Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No N Details




Superannuation – Accumulation
Member Faraz Aisha
Fund name EANWB Retail Super Fund EANWB Retail Super Fund
Date of joining fund 1 August 2006 (service date) 1 July 1992 (service date)
Type of fund ? Accumulation Defined benefit ? Accumulation Defined benefit
Pension Pensioner Pension Pensioner
Contribution
(e.g. 5% of salary) ? By employer ? By yourself ? By employer ? By yourself
Current value of your superannuation fund $107,000
$25,000
Amount of death and
disability cover $640,000 $480,000 (death only)
Is there provision for you to top up or salary sacrifice? ? Yes No ? Yes No
Note: It is assumed that the respective superannuation funds are claiming a tax deduction for the insurance premiums.


Superannuation Taxation Details – Accumulation
Faraz Aisha
Current value $107,000
$25,000
Tax free component $30,600 $9,600
Taxable Component:
Taxed element $76,400 $15,400
Untaxed element $0 $0
Preservation:
Preserved $107,000 $25,000
Unrestricted non-preserved $0 $0
Restricted non-preserved $0 $0
Contributions:
Non-concessional contributions:
Year 1 $5,000 $9,600
Year 2 $5,000 $4,000
Year 3 $5,000 $4,000
Year 4 $5,000 $4,000
Concessional contributions:
Year 1 $25,000 $25,000
Year 2 $25,000 $25,000
Year 3 $25,000 $25,000
Year 4 $25,000 $25,000


Nominated Beneficiaries – Accumulation
Name Binding Non-Binding
(Yes/No) Trustee discretion
(Yes/No)
Yes/No Amount
Faraz No No Yes
Aisha No No Yes



Is there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No N Details



Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No N Details



Needs and objectives
Details Comments
To pay their death benefit in accordance with their wishes Faraz and Aisha would like 70% of their superannuation benefits to be paid to the surviving spouse with the remainder paid equally to their children
Task 2 questions
Faraz and Aisha had a number of questions in regard to superannuation death benefits. You are to answer the questions, as their financial planner, taking into account their personal details in the case study. Remember, many clients may not be familiar with the superannuation system and ask questions that may be technically incorrect. Respond to the questions asked by Faraz and Aisha. You are to determine if the question asked is incorrect and if it is you are to correct Faraz and Aisha, providing the correct information and how this relates to them.
Note: Full details of their financial situation are in Appendix 3. You will need to refer to that data to answer the questions for this task.
Faraz and Aisha’s questions
Question 1
Faraz discusses his friend’s experience with their superannuation death benefit and the various options they were offered. Faraz asks, “Why is it that a death benefit paid out as a lump sum seems to be more than what would be received in the superannuation fund if the death benefit is paid as an
income stream?”

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Question 2
Aisha comments that they see their children Vihaan, Prisha and Kyra as equals to each other and asks, “Why is it that Vihaan and Prisha would have less options and treated differently to Kyra if they receive a death benefit from our superannuation funds?”

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Question 3
Aisha asks, “What are the tax implications if our children receive a death benefit as an income stream?”

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Question 4
Faraz asks, “If there is a difference in the way a death benefit is paid and taxed for our children
why can’t we wait until Kyra turns 18 and is independent before a death benefit is paid to
all the children?”

Assessor feedback:

Your strategy recommendations
As part of a Statement of Advice (SOA) a financial planner must justify their strategies by showing how they meet their clients’ needs and objectives.
Faraz and Aisha would like to have their superannuation benefits paid in accordance with their wishes in the event of their death. They would like to have 70% of the superannuation benefits paid to the surviving spouse with the remainder paid equally to their children.
In addition, Faraz and Aisha would like to know the following:
• the full tax implications of their death benefits if the benefit was paid to each other in the event of one spouse predeceasing the other
• the tax implications if they decide to pass their full benefits to their children.
To meet Faraz and Aisha’s needs, your recommendations will need to address the following:
a. how they are to achieve their desired death benefit structure
b. what the process is to achieve this structure
c. the tax implications of the proposed structure, including all tax calculations on all benefit payments
d. details of other death benefit payment options including all tax calculations on all benefit payments
e. the tax implications if the full death benefit is paid to their children.
You will need to demonstrate that you have considered any insurance implications in your recommendations. Use the templates on the following pages to provide your responses.
a. Use the space below to communicate to your clients how they can best achieve their desired death benefit structure.
Answer here
Assessor feedback:

b. Describe the process that will have to be undertaken to achieve this structure.
Answer here
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c. Describe the tax implications of the proposed structure and include all tax calculations on all
benefit payments.
Note: When answering this question assume date of death is 1 July 2013.
Answer here
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d. Communicate to your clients details of other death benefit payment options including all tax calculations on all benefit payments.
Answer here
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e. Explain to your clients the tax implications if the full death benefit is paid to their children.
Answer here
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Appendix 1: Case study 1
Case study 1 – Henry and Sandra Blake
The first meeting
Henry and Sandra arrive at your office for the meeting. After greeting and offering them a cup of tea you confirm that they received your package of documents and that they have completed them.
You then take them through the key elements of the FSG and explain your role and capacity in assisting them with their planning needs. You make sure that Henry and Sandra are comfortable with that information before you proceed to the next step.
Collecting the data
During the meeting, you learn the following information about Henry and Sandra through a process of thorough and polite questioning. From time to time they provide you with a relevant document to confirm their financial situation.
Current situation
Henry, born 8 December 1949, is married to Sandra, born 12 June 1956. Henry and Sandra have
two children, a son named Arthur, aged 28, and a daughter Chloe, aged 26, both of whom
are independent.
Henry and Sandra own their own home, valued at $600,000, and do not have any outstanding mortgage, which was paid out eight years ago.
Sandra is employed full-time as a marketing manager earning $70,000 p.a. plus Superannuation Guarantee (SG) paid into a retail superannuation fund that she has chosen. She has some health isSandras, potentially serious but not terminal. Her out of pocket health expenses are on average $560 per month.
Henry has recently resigned from a national sales manager role as the travel has stopped him from assisting Sandra with her health isSandras. However, he has commenced a new role as a full-time sales representative for another agricultural supplies company. His salary as a national sales manager was $145,000 p.a. and on taking the new role his salary dropped to $73,000 p.a. His new employer pays SG contributions into a retail superannuation fund that he has chosen. Henry intends to remain in this role until Sandra retires in about eight years.
Henry and Sandra have full health insurance.
They have two cars, a 2007 Toyota Corolla, currently valued at $11,000 and a 2007 Volkswagen Golf valued at $16,000. Both vehicles are fully comprehensively insured.
Henry and Sandra have been making regular investments in an Australian tax effective share fund since the “Tech-Bubble” of 2001. They initially made a $1000 investment and have been making regular investment of $100 investment each month until they repaid their mortgage. Since then they have been investing $2000 per month. They have not been making any reinvestments. The current value of the fund is $216,000 and they are happy to maintain it and do not want to touch their capital. However, due to their concerns with their income requirements they would consider stopping the $2000 per month investment.
Superannuation
Henry has $567,000 in his retail superannuation fund. The benefit if fully preserved and is made up of:
• $392,000 taxed element of the taxable component
• $175,000 tax free component.
Henry’s service period commenced on 1 July 1992.
Sandra has $332,000 in her retail superannuation fund. Her benefit is fully preserved and is made up of:
• $154,000 taxed element of the taxable component
• $178,000 tax free component.
Sandra’s service period commenced on 1 July 1992.
Both Henry and Sandra’s employers will allow salary sacrificing to superannuation without impacting
on any other employee benefits and will maintain their SG contribution based on their pre-salary sacrifice income.
Both Henry and Sandra are invested in balanced funds within their superannuation funds.
Henry and Sandra are happy with their current superannuation funds and the underlying investments they are invested in. They do not wish to receive advice in regard to changing their funds or investment profile.
Insurance
Henry and Sandra have their life insurance and total and permanent disability insurance owned by their superannuation funds. Henry’s sum insured is $710,000 of death and total and permanent disability (TPD) insurance and Sandra has $520,000 in death and TPD insurance. The total and permanent disability benefit on this policy is “any occupation”.
As mentioned above, Henry and Sandra’s cars are fully comprehensively insured with a total annual premium of $3200 p.a.
Henry and Sandra also have home building and contents insurance cover including legal liability cover for a premium of $1500 p.a.
Henry and Sandra have adequate family private health insurance cover with a premium of $420 per month. This premium includes any Private Health Insurance Rebate.
Henry and Sandra are happy with their current insurance arrangements, including the premiums they are paying, the sums insured, and the policy ownership structure. They have specifically requested that they do not require any advice on their insurance matters.
Investments
The only investment Henry and Sandra have is their EANWB Australian Tax Effective Share Fund currently worth $216,000. They do not reinvest any of the distributions they receive. They receive $10,044 in distributions p.a. with franking credits of $3326.
They also make a regular $2000 per month investment into the EANWB Australian Tax Effective Share Fund.
Henry and Sandra are happy with their EANWB Australian Tax Effective Share Fund and to maintain their $216,000 investment. However, they would consider stopping the $2000 per month investment to assist with their income requirements.
Henry and Sandra also have a savings account with an average balance of $5000 that they use for emergencies. This ‘working account’, where their salary and wages are deposited does not earn
any interest.
Other information
Henry and Sandra have a credit card with a limit of $30,000 that they use for all their general expenses and entertainment. However, they never spend up to their limit and their average monthly expenses are $8500 per month, which they repay within the interest-free period.
Henry and Sandra go on regular annual holidays spending about $20,000 per trip.
Other expenses include a donation to the National Breast Cancer Foundation of $100 per month,
a tax deductible ‘bucket’ donations of $10 p.a. each to disaster relief funds, and accountant’s expenses of $500 p.a.
Needs and Objectives
During your conversation with Henry and Sandra it becomes apparent that their main objective is to maintain their net income levels at the level they were prior to Henry commencing his new role. However, they would like to try and maintain their superannuation balances and reduce taxation but would be willing to reduce their superannuation balances to maintain their income needs.
Due to Sandra’s health they wish to know what the implications are for her superannuation benefit if she becomes totally and permanently disabled now or in the future.
Finally, as they are within around eight years of their planned retirement date, they would like to know what would be the likely balance of their superannuation funds at the time Sandra reaches age 65.
Closing the interview
Before concluding your meeting, you review the information provided by Henry and Sandra to check that it is complete and accurate and ask if they have any questions.
Henry and Sandra are curious about receiving their superannuation benefits and the options that may be available and have a number of questions that sprang to mind during your meeting.
You advise Henry and Sandra of what happens next, and explain that with their agreement you will prepare a written report, based on the information they have just shared with you, which will include recommended strategies to assist them in achieving their financial goal of having adequate funds
for retirement.
Henry and Sandra agree to proceed to the next stage of the financial planning process, and you make an appointment to present the plan in a fortnight.
Appendix 2: Case study 2
Case study 2 – Faraz and Aisha Gita
The first meeting
Faraz and Aisha arrive at your office for the meeting. After greeting them and offering them a coffee you confirm that they received your package of documents and that they have completed them.
You then take them through the key elements of the FSG and explain your role and capacity to assist them with their planning needs. You make sure that Faraz and Aisha are comfortable with that information before you proceed to the next step.
Collecting the data
You learn the following information about Faraz and Aisha through a process of thorough and
polite questioning. From time to time they provide you with a relevant document to confirm their financial situation.
Current situation
Faraz, born 1 August 1951, is married to Aisha, born 20 November 1955. Faraz and Aisha have three children, a son named Vihaan, aged 24, a daughter Prisha, aged 21, both of whom are independent and a second daughter, Kyra aged 16 who is still at school.
Faraz and Aisha own their own home, valued at $600,000, and do not have any outstanding mortgage, which was paid out eight years ago.
Aisha is employed full-time as a marketing manager earning $70,000 p.a. plus Superannuation Guarantee (SG) paid into a retail superannuation fund that she has chosen.
Faraz is a full-time sales representative for an agricultural supplies company. His salary is $100,000 p.a. plus SG contributions into a retail superannuation fund that he has chosen. Faraz intends to remain in this role until Aisha retires.
Faraz and Aisha contribute any excess income into their respective superannuation funds as non-concessional contributions. In addition, they also salary sacrifice to superannuation.
Both Faraz and Aisha have transition to retirement income streams that they commenced when they turned 55. As they are still receiving employer contributions and making non-concessional contributions they both have benefits in the accumulation and pension phases.
Superannuation
Faraz currently has $510,000 supporting his transition to retirement account based pension in his retail superannuation fund. The benefit if fully preserved and is made up of:
• $360,000 taxed element of the taxable component
• $150,000 tax free component.
Faraz’s service period for this benefit is 1 July 1992.
Faraz has a second retail superannuation fund where he has his accumulated benefits. His accumulated benefit is $107,000 made up of $30,600 tax free component and $76,400 taxed element of the taxable component. In addition, this fund owns his insurance death and any occupation total and permanent disability insurance with a sum insured of $640,000. The service date for this fund is 1 August 2006.
Aisha currently has $332,000 supporting her transition to retirement account based pension in her retail superannuation fund. Her benefit is fully preserved and is made up of:
• $154,000 taxed element of the taxable component
• $178,000 tax free component.
Aisha’s service period commenced on 1 July 1992.
In the same retail fund Aisha has an accumulated benefit of $25,000 made up of $9600 tax free component and $15,400 taxed element of the taxable component.
In addition, Aisha has a death only life insurance benefit owned by her retail superannuation fund with a sum insured of $480,000.
Faraz and Aisha’s superannuation funds will allow binding death benefit nominations, however, Faraz and Aisha have not elected to use this as they don’t know what it is.
Both Faraz and Aisha salary sacrifice to superannuation and this does not impact on any other employee benefits and their Superannuation Guarantee (SG) contributions are based on their pre-salary sacrifice income.
In addition, any excess income is contributed to their respective superannuation funds as a non-concessional contribution.
Both Faraz and Aisha are invested in balanced funds within their superannuation funds.
Faraz and Aisha are happy with their current superannuation funds and the underlying investments
they are invested in. They do not wish to receive advice in regard to changing their funds or investment profile.
Insurance
Faraz and Aisha have their life insurance and total and permanent disability insurance owned by their superannuation funds. Faraz’s sum insured is $640,000 of death and ‘any occupation’ total and permanent disability insurance and Aisha has a $480,000 sum insured death benefit. Aisha does not have any total and permanent disability insurance.
Faraz and Aisha are happy with their current insurance arrangements, including the premiums they are paying, the sums insured, and the policy ownership structure. They have specifically requested that they do not require any advice on their insurance matters.
Needs and Objectives
During your conversation with Faraz and Aisha it becomes apparent that their main objective is to
make sure their superannuation benefits are paid to the right people in the event of either or both
of their deaths.
They have advised you that in the event of either of their deaths they would like 70% of their superannuation benefit to go to the surviving spouse with the remainder being paid equally
to their children.
In addition, Faraz and Aisha would like to discuss the full tax implications of their death benefits if the benefit was paid to each other in the event of one spouse predeceasing the other and the tax implications if they decide to pass their full benefits to their children.
Closing the interview
Prior to concluding your meeting, you review the information provided by Faraz and Aisha to check that it is complete and accurate and ask if they have any questions.
Faraz and Aisha are curious about superannuation death benefits and the options that may be available and have a number of questions that came to mind during your recent meeting.
You advise Faraz and Aisha of what happens next, and explain that with their agreement you will prepare a written report, based on the information they have just shared with you, which will include recommended strategies to assist them in achieving their financial goal of making sure the right people receive a superannuation death benefit most tax effectively.
Faraz and Aisha agree to proceed to the next stage of the financial planning process, and you make an appointment to present the plan in a fortnight.