Solution
Robert answered on
Dec 24 2021
Task 1: Calculation of Surplus Cash Flows
Statement showing surplus cash flows:
Particulars Amount
Inflows:
Salary:
Robert 105,000.00
Paul 70,000.00
Dividend 1,500.00
Total Inflows 176,500.00
Outflows
Living Expenses 45000.00
Home Mortgage Repayments 30,000.00
Income Tax 31,052.00
Medicare 1747.50
Total Outflows 107,799.50
Surplus Cash Flows 68700.50
Statement showing Taxable Income:
Particulars Amount
Salary Income 175,000
Dividend 1,500
Less: Living Expenses (45,000)
Interest Expenses (250,000 x 6%) (15,000)
Taxable Income 116,500
Statement showing Income Tax and Medicare:
Particulars Amount
Taxable Income 116,500.00
$0 -$18,200 Nil
$18,201-$37,000 3,572.00
$37,001-$80,000 13,975.00
$80,001-$116500 13,505.00
Total Income Tax 31,052.00
Medicare Levy
(1.50% of Taxable Income)
1747.50
Task 2: Discussion of Investment Strategies
Robert and Paul are considering the following investment strategies to invest their surplus
cash flows:
a) Salary Sacrifice contributions to superannuation
) A non-superannuation investment portfolio
c) A geared investment portfolio
Let’s discuss each one of them separately
a) Salary Sacrifice contributions to superannuation
As the name suggests the employee sacrifices a part of his salary and make contributions
to superannuation funds. Such contributions are made after a valid agreement is made
etween the employee and employer to pay some part of the future before tax (gross)
salary or wages to the superannuation fund.
Advantages of this strategy-
1. Salary sacrifice to the superannuation fund is taxable @ 15%. This rate of tax is
lower in comparison to normal income tax rate.
2. Salary sacrifice amount helps in reducing the taxable income and increase the amount
of future savings.
3. Through this plan, amount is accumulated for future, making an individual
independent even after retirement.
4. Many benefits are being provided for this plan in every Financial Year as per the
changes made in the budget.
5. There are various Salary Sacrifice plans like NTGPASS, CSS etc. Made by
government so choice of fund can also be made.
Disadvantages of Salary Sacrifice Strategy-
1. Salary sacrifice policy is a future plan and can be utilised in future period only, it
can’t be made backdated, and so there is no cu
ent benefit from it.
2. Due to sacrifice of income for future period, the cu
ent income gets reduced so it is
not good for employees having need of income more than future benefits.
3. Tax benefit of salary sacrifice is available only to high income individuals and not to
the average income earners.
4. Tax rates are subject to Budget provisions so if the rates of tax get reduced the past
enefits will not be effective by the same rate.
5. Salary sacrifice agreement is need to be reviewed in every Financial year as per
changes made in budget.
Risk Associated with the Salary Sacrifice plan-
1. Using this strategy will reduce the tax rate but still tax is needed to be paid. So
investment should be made in a plan which is sustainable not the taxable.
2. Reducing your cu
ent income will increase your investment but in real sense the
value of investment will not increase. So it will accumulate money for future but cant
improve the quality of investment made.
3. There are various other plans available which can be used in comparison to this
method and provides better results.
4. These funds can be used only after retirement ant before in any case.
) A non-superannuation investment portfolio
A non-superannuation investment portfolio implies that investment is not made
directly from the salary income. It is a voluntary contribution made by an individual
as per his requirement and choice of fund without any obligation.
Advantages...