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FIN2IFP – INTRODUCTION TO FINANCIAL PLANNING

Semester 1, 2015
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Week 3

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3.2 John and Eve are looking to make a gift of $15 000 to help pay for the future education of each of their three grandchildren. Should the payment be invested in the names of the grandchildren or their parents? Discuss.

Placing funds in the name of minors can create substantial taxation penalties in relation to unearned income.
The first $416 earned is exempt from tax, however after this the thresholds are 66% to $1307, and 45% beyond this.
As the amount would likely earn more than $416 it is best invested in the names of the parents.

3.4 Amanda and Chen have a joint account with the Westpac Bank and own a portfolio of Australian listed shares. Chen works full-time and pays tax at the highest marginal rate; Amanda is at home with twin boys. What is the best way of organising their affairs to minimise tax? Chen is considering putting all their investments in Amanda’s name. Identify the benefits of doing so and any possible costs.

As the assets are currently in joint names earnings will be measured on a 50/50 split basis. This will result in Chen paying the full marginal tax rate of 45% on the dividend earnings. By transferring the funds into his wife’s full ownership, it will maximise the earnings of the investments.
Possible costs may come from transfer costs, there may also be potential CGT liabilities as the transfer will trigger a capital event.

3.9 Paul acquires a holiday home for an amount of $380 000 and borrows $200 000 at an interest rate of 7% p.a. His annual loan repayments to the bank amounts to around $18 000 including interest of $14 000. Paul rents the holiday home out to friends during the year over the Christmas and Easter periods and earns rental income of $9000. Is the rental income from the holiday house assessable?

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