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Bob and Jenni Lee seek your advice in relation to superannuation and remuneration strategies. Bob retired on 1 August 2012 and Jenni has continued to work on a part-time basis, 4 days a week. Bob received from his employer a final salary of $6,000 gross but also accumulated Long Service Leave and Annual Leave of $56,000. His only other income is a 50% share of the rental profit from their investment property of $12,000.
Jenni’s income for the year is a 50% share of rental income, gross salary of $36,000, a capital gain of $38,000 made on the transfer of $138,000 of shares to their self managed superannuation fund, dividend income from her JB Were margin loan and also income from shares she inherited from her mother.
Estimate of their 2012-2013 income is:
Bob Jenni
Salary 62,000 36,000
Rent 6,000 6,000
Capital Gain on transfer of shares
To SMSF 38,000
Investment income from
share that were inherited 70,000
Investment income from 22,000
Margin loan
Total 68,000 172,000
Less super contribution 0 20,000
Taxable income 68,000 152,000
Jenni had $20,000 in a bank account earning interest and that was contributed to the superannuation fund pre-1 July 2012.
Additional Information and questions to be answered:
• Calculate the tax payable for both Bob and Jenni and in particular any rebates or offsets that may be available to them both.
• Can Bob make a substantially self employed contribution to super? Bob is 67 but does not plan to work at this stage although he has been offered part-time employment. How could he meet the work test to contribute to super after 1 July 2012?
• They already have $1.4m in super. What are the taxation consequences if Bob was to withdraw $1 million out of the fund to invest in a motel complex in Fiji? Could this investment be made directly by the super fund?
• Jenni will be 59 in January 2013. Does this make any difference to the amount that she could contribute to the super fund?
• How will the money paid for unused long service leave and annual leave be treated for income tax purposes?
• Provide brief advice as to how their finances could be restructured so as to be more tax effective.
Required:
Advise Bob and Jenni as to the issues raised above.
The purposes of this assessment task:
1, to expose you to a taxation law problem
2, to develop your ability to analyse taxation law
3, to develop your powers of written communication
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