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 and other income (in brackets)
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) $70 000
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) $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) $10 000
Total liabilities $1 500 000
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
|
$1200
|
$1500
|
|
Child care expenses
|
$0
|
$6000
|
|
Donations
|
$500
|
$0
|
|
Living costs
|
$18 000
|
$18 000
|
|
Expenses (not including interest) related to holiday home - Total of $15 000 (normal expenses, not improvements or capital expenses)
|
|
|
|
Expenses (not including interest) related to investment property-
Total $9 000 (normal expenses, not improvement or capital expenses)
|
|
|
|
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 PAYGtax 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.