Tutorial M07 Questions PDF

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Module 7 Retirement Planning and Superannuation T7.1

Retirement Funding Target [M2021 Case 1.1]

Married couple George and Tina are both 62 years of age and they have been working since their 20s. They have two financially independent adult children and the following joint assets: * $600,000 home (no mortgage) * $5,000 home contents * $10,000 car * $100,000 savings account * $300,000 superannuation ($180,000 for George and $120,000 for Tina) Tina recently received a $80,000 inheritance from her late aunt and this amount is included in the $100,000 savings account. The couple is now considering retiring in the next few years and using their assets to generate an annual income of $30,000 to cover their living expenses. George and Tina approach you, a financial planner, for advice on how they can best plan for their retirement. 1.

What other information would you like to obtain from George and Tina before you develop a financial plan for them?

2.

Discuss how George and Tina's desired annual retirement income compares with ASFA's benchmarked modest lifestyle budget for a couple aged between 65 and 85.

3.

How realistic are George and Tina's retirement objective based on their current financial assets? Discuss.

4.

Explain to George and Tina how the Age Pension and the Work Bonus Scheme may assist them with their retirement income goal.

5.

Identify and discuss 3 types of risks that George and Tina may face when planning for their retirement.

Retirement System and Policy T7.2 Why Superannuation? [M2021 8.1] Given that we have the age pension in Australia, why do we need superannuation? T7.3 The System [M2021 8.3] What is the three pillars policy? What tax incentives drive the third pillar? T7.4 SIS Act [M2021 Q8.4] Superannuation in Australia is primarily regulated by the Superannuation Industry (Supervision) Act 1993. What are the key underlying principles upon which this Act is based?

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T7.5 Regulators [M2021 Q8.5] Distinguish between the roles of APRA, ASIC and the ATO with respect to the regulation and control of the superannuation industry. T7.6 Defined Benefit Scheme [M2021 Q8.6] Why has there been a shift away from defined benefit schemes and towards accumulation schemes in Australia? T7.7 Unfunded Superannuation Schemes [M2021 Q8.8] Distinguish between funded and unfunded superannuation schemes. How will the commitments to unfunded schemes be met? Superannuation Rules T7.8 The Three Stages [TJ Q12.5] Discuss the three stages of superannuation. T7.9 The SG obligation [M2021 Q8.20] Akmal believes that his employer has not contributed enough in SG payments. The table below shows what Akmal has earned over the last financial year. If we assume a SG rate of 10%, how much should the employer contribute? Earnings for ordinary hours of work overtime pay over award payments loadings for night shift annual leave loading Christmas bonus Total

$40,000 $6,250 $3,320 $4,800 $500 $1,000 $55,870

T7.10 Concessional and Non-Concessional Contribution [M2021 Q8.10] What is the difference between a concessional and a non-concessional contribution? What are the different tax consequences when these contributions enter the superannuation fund? T7.11 Tax saving from concessional contributions [M2021 Q8.15] Claudia is self employed and earns $200,000 per year. If she makes a concessional contribution to superannuation of $8,000 how much tax will she save? T7.12 Eligible spouse rebate [M2021 Q8.16] Carol’s assessable income and reportable fringe benefits of $38 800. Her spouse Sam makes a non concessional contribution of $3,000 on her behalf. What tax rebate is Sam entitled to?

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T7.13 Excess concessional contributions – accumulation [M2021 Q8.18] Justin is 29 and earns $110,000. As part of the applicable industrial award his employer contributes an amount equal to 11% of his salary to his nominated superannuation fund. Justin would also like to salary sacrifice into superannuation. What is the maximum amount that Justin can sacrifice and still stay within the concessional contribution limit? T7.14 Government co-contribution – an efficient co-contribution amount [M2021 Q8.23] Audrey earns $44,837 per year and wants to make the smallest non concessional contribution possible and still get the maximum government co-contribution payment available. How much will she need to contribute? T7.15 Employee vs Contractor [M2021 Q8.11] Why is it important to distinguish between an employee and a contractor? How do we distinguish between them? T7.16 Superfund Investment Objective [M2021 Q8.12] Each investment choice within a superannuation fund must have investment objective which must be supported by investment strategies. What are the key investment strategies which must be ad dressed?

T7.17 Investment Restrictions [TJ Q12.4] Describe the rules that permit a superannuation fund to make investments with related parties. Markets T7.18 Superfunds’ Fee [M2021 Q8.14] Distinguish between direct and indirect superannuation fees. In the longer term which fees are likely to have the most impact on the amount accumulated? Why might an individual ‘choose’ a fund that has higher indirect fees?

T7.19 Impact of fees on amount accumulated [M2021 Q8.17] Jiang has received his Choice of Superannuation Funds form from his employer. He is undecided whether to contribute to the FlexE Superfund or the PeqSA Superfund. He believes that both funds are very similar and that the only significant difference between them is the FlexE Superfund has an ICR of 0.9% whilst the PeqSA Superfund has an ICR of 2.2%. If Jiang was to contribute $5,000 per year for the next 20 years and the investment return for each fund was 7% per annum before the application of the ICR what would be the future value of Jiang’s superannuation in each fund? Advice T7.20 Advice [M2021 Q8.2]

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Feng, aged 38 has $250,000 to invest in order to help fund his retirement but is unsure as to how to invest the funds. Assume each of the following investments are returning 5% per annum— superannuation, share portfolio and rental property. How would you advise Feng? T7.21 Retail fund vs SMSF [TJ 12.6] Provide three advantages that a retail fund has compared with a self-managed superannuation fund. T7.22 Investment Restrictions [M2021 8.24] The trustees of Uripper Superannuation fund have made the following investment decisions. As Au ditor of the Uripper Fund advise the trustees as to whether you believe the decisions comply with the investment restrictions outlined Superannuation Industry (Supervision) Act 1993 and its associated regulations.

(a)

The trustees of the fund have bought a beach house for the exclusive use of members.

(b)

The trustees have acquired shares in Uripper Pty Ltd which amount to 40% of the total assets of the Uripper fund. Uripper Pty Ltd is owned by two of the members of the Uripper Superannuation Fund.

(c)

In order to fund a payout to a recently retired member the fund has borrowed $100,000 for a period of two years.

(d)

The fund has loaned Kita, who is a member of the fund, $200,000 to help fund a new business venture. The loan has been offered on commercial terms.

(e)

Masami, who is a member of the fund, has sold a parcel of vacant land to the fund at a price which is considerably below its market value.

T7.23 Determining the taxable income of a superannuation fund [M2021 8.25] During the financial year the Stone Masons superannuation fund receives the following amounts. The Stone Masons fund is a complying superannuation fund. Superannuation guarantee contributions Salary sacrifice contributions (includes $20,000 which are contributions received to pay for life insurance). Cash received from fully franked dividends Unfranked dividends Non concessional member contributions Income from investments overseas (includes $10,000 in tax withheld – the country has a reciprical tax agreement with Australia) Proceeds from sale of property (Cost $120,000 in 2010) Income from investments used to fund pensions

$500,000 $285,000 $61,000 $20,000 $180,000 $100,000 $310,000 $60,000

What is the assessable income of the fund and how much tax will be payable by the fund?

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