Join our investing community

Kaplan SRP Assignment - Question 1

Discussion in 'Financial Planning' started by slk, 26th Feb, 2012.

  1. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    Using 2011/2012 tax rates plus medicare levy.

    My total tax payable calculated was $23,698.5

    (1701 + 2709 +1402.5 + 17886)

    Did anyone else get this? thanks in advance.
     
  2. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Hi Slk,

    I must admit I didnt get anywhere near that?!

    Is this the question about the tax on the various payments Michael receives?

    If so, I had his superannuation down as tax free as he is over 60.
    His ETP should be taxed at 30%, then annual service and long service leave should be at MTR.
    However I also calculated that the 2 payments for annual and long service on top of his income would take him into the next tax bracket taking his MTR from 30% to 37%, so not exactly easy to work out. I had one at 30% and one at 37% and just covered it off in the notes.

    Anyone else??

    Thats sounds more complicated on paper than it did in my head - sorry!!
     
  3. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    Question 1

    Hi nobel383,

    thanks for commenting.

    you brought a great point to my attention that i missed, you're right, unused annual leave and unused long service leave is 100% included in assessable income (p.4:33 of notes) and would bring Michael's MTR to 37%.

    This would bring tax on unused annual leave to $2,079 and unused LSL to $3,696.

    ETP payment cal is given in notes on p.4:29 under life benefits.. except i used FY12 rates so 15% on first $165k and 45% on balance. I do not believe this affects assessable income nor does MTR play a role.

    Lump sum payments is only tax free (over 60) on the TAXABLE component. (p.4:3) with 15% up to cap and 45% thereafter.

    So total taxable payable is $25,063.5

    Let me know what you think.

    Cheers
     
  4. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    Question 2, part a and b

    Did anyone think to index/add CPI to the annual capital amount required to achieve preferred lifestyle??

    p.6:5 refers to inflation being a factor affecting the amount a client will have to retire on but I haven't seen any calculations/ other mentions on this throughout the rest of the assignment..

    Am i over thinking it?
     
  5. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Hi!!

    Yeah thinks that looks good - 15% on ETP as under the cap

    Other service bens taxed at MTR.Dont think you can get a 'correct' answer without doing a full cashflow and tax statement as some of it will be taxed at 30% and some 37%. I have just explained it with a sidenote. As all of it will not fall under 37%, only a few thousand dollars.

    Superannuation - the fund is a taxed fund and the taxable component is 80% and tax free 20%. Tax free component is always tax free and the taxable component is tax free over 60 which Michael is - on the table on page 4:3

    Not sure if that's what you were saying? But my calculation doesnt have any tax deducted for superannuation as I have interpreted that from the notes. However I stand to be corrected!!

    Hope that helps a bit

    Noble
     
  6. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Great minds!!!

    I was just about to put this one to you. I have heard of people using discount methods, simple methods etc

    In reality you would defo need to include a rate for inflation on their $50k as it is over 25 years!! However that brings in loads of other factors such as growth rates in retirement etc

    I think I am just going to use a simple method and discuss their ability to invest into some sort of equity income fund which looks to growth the income and capital over time to mitigate the effects of inflation...Although need to think this through a bit? So frustrating!!

    Anyone else got any thoughts.......

    Cheers

    Noble
     
  7. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    I see what you're saying.. and i do think you're right. what do you think the untaxed element on that table refers to then?

    WIth Michael's MTR, the calculation will be based on the fact no strategy has been implemented to reduce his MTR (to bring him down to 30%).. is this what you mean by cash flows?

    re: question 2

    i think i will do simple FV.. but yeah it affects every other calculation.. I think we have to take into account growth rates for super, but then what about the interest and dividends? assume no change to the given rate p.a.? then we're only doing some and not all....
     
  8. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore


    Hi

    If you read the paragraph above the table headed 'Taxable Component' it identifies things as Public Sector Funds as in this category and explains what the 2 different components could include.

    Hope that helps a bit

    Cheers

    Noble
     
  9. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    thanks! i get it now!
     
  10. mike007

    mike007 New Member

    Joined:
    4th Mar, 2012
    Posts:
    1
    Location:
    canberra, act
    Superannuation and retirement May 2010

    Hi everyone,

    I was wondering if anyone would be able to help me with mainly question 6 of Superannuation and retirement planning assignment. It is due in a few days and I'm having difficulties with this question and was hoping for some guidance. This is my last module so would be happy to assist with other modules.

    Cheers!
     
  11. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    Question 6

    hey mike how did you go?

    This is what i'm thinking..

    1. CMT of $175K NCC into Karen's super

    2. Withdraw all but a buffer amount ($50-100K) from Michael's super and also NCC this into Karen's super. THis way they have spare cash they can access at any time to fund the lack on income vs expense with a tax free lump sum withdrawal and cover the $25K emergency cash barrier. Also make sure there is enough for the 3 years Karen is still working until she can access her super funds upon retirement.
    This will also reduce assessable income for centrelink test but more importantly reduce deemed income and maximise aged pension (compared to if they NCC the 175k into Michael's super)

    3. Karen to full sal sac and start TTR to reduce tax payable to nil for next 3 years. keep in mind she will receive imputation credits from her equity portfolio which will offset tax payable. i left shares outside of super to avoid capital gains implications..

    4. when karen retires, both to do full rollover into pension and withdraw the minimum amount required and to fund difference with lump sum withdrawals as these are tax free up to $165k pa.

    thoughts anyone or alternative strategy suggestions?
     
  12. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Hi

    I have spent the last few days on this now and it is driving me mental!!! Hopefully I had a lightbulb moment today and will finish it tomorrow.

    The thing that has frustrated me is their lack of Age Pension when Karen retires and all the assets come in to play!! Their assets when they both retire all but wipe it out!! Am I missign something? I got a joint pension of $102.00 each member of the couple fortnightly?? It means I am now about $2k short of their income. Think I am gonna play around with the assumptions to cover it!!

    Very similar to above but my calculations were that they cant afford to do $175k and still leave $55k for new car and emergency fund, so I have rec'd $140k. Have included ETP and employment payment in that too.

    Ah well - try again tomorrow!!!

    Cheers

    Noble
     
  13. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Annoyingly I have just realised I have not included the returns from their shares which when I do brings the figures together!!! Only 2 days wasted on this trying to fudge figures around to make up the additional gap!!!

    Right, let get it done and sent in!!!

    Cheer

    Noble
     
  14. slk

    slk SLK

    Joined:
    20th Jul, 2011
    Posts:
    13
    Location:
    Sydney, NSW
    question 2, part a and b

    I have luckily had access to a crash course in cash flow modelling using Xplan and though it has helped me pick up the mistakes, it is also equally confusing with data input and scenarios...

    Using FV annuity calc and the cash-flow modelling, I was able to calculate a part a) total capital required to be approximately $1,642,000 and part b) the total income (with CPI and growth) to be $925,000 creating a gap of approximately $717,000.

    Is that similar to what you calculated? I think a previous forum stated that a gap of anywhere between 600-800K is acceptable. Perhaps that's the difference between indexing expenses and including growth rates..

    Also I retract what I previously said about a full salary sacrifice for Karen.. I think only a partial salary sacrifice to bring her anywhere between $18K - $37k would be acceptable. Reasoning being there's no further benefit once in the 15% MTR range to contribute into super and that you would lose the $6,000 tax free threshold you get outside of super..

    I'm not seeing the point to commence a TTR pension as expenses can be funded with lump sum withdrawals from Michael's super.. but I'm worried that if I don't include a TTR into question 6, I could be penalised as previous students who failed mentioned they didn't do a TTR...

    Does anyone have any input as to whether a TTR pension IS necessary or not????????
     
  15. noble383

    noble383 Member

    Joined:
    11th Jan, 2012
    Posts:
    12
    Location:
    Singapore
    Hi SLK

    I think 600k-800k is hugely out!!! If you just do a 5% return on $600k alone that is $30,000 per year!! They only want $50k in total?

    I had them about $26k out which was met by a TTR and Age Pension. Not sure how you calculated the shortfall but I just did a table starting with $50k increasing it by 3% per year which is your $1.6m total needed approx and then adding an appropriate discount rate over the 24 years. I think I did a discount rate of 4% which was about a $26k shortfall in today's terms.

    My advice is to do manual tables - it takes ages but you can see it coming together. So one column for fund value, one for withdrawal of income, one for tax on growth (before TTR), one for tax on conts (after TTR) growth at assumed rate and then a final fund value for 24 years they need.

    You should see how long the money will last for doing the table. I think there are online calculators you can use but for the sake of 30 mins and a nice table in your report its worth it.

    Im back at it tomorrow to finish it off so give me a shout if Ive just talked nonsense!!

    Good luck

    Noble
     
  16. rb88

    rb88 New Member

    Joined:
    11th Mar, 2012
    Posts:
    1
    Location:
    QLD
    Hi... i am re submitting mine and I completely screwed up question 6,use this as a template I was provided.
    The following headings should be used as a guide to completing this question.

    Assumptions:
    Provide assumed rates of return you will use in your report for both existing and recommended investments, e.g. expected income on their superannuation funds, expected income on any investments current or recommended. These assumptions must be realistic and have a reasonable basis.

    Goals and objectives:
    Goals and objectives should be specific, e.g. retire at 65 on $50,000 p.a. Read the case study carefully to ensure all the goals and objectives have been covered.

    Risk profile:
    Briefly discuss the client’s risk profile and how your recommendations fit in with their profiles.

    Recommendations for goals and objectives:
    Ensure the following points are included:
    • All goals and objectives are addressed, e.g. emergency funds, cars, holidays etc., and that you make recommendations concerning their achievement.
    • Explain the advantages and disadvantages of your recommendations.
    • Explain how your recommendations will enable the clients to meet their goals and objectives.
    • Discuss strategies formulated in Questions 2 & 3 to be used in your recommendations
    • Consider social security

    Be specific in your recommendation, e.g. how much to put in/withdraw and when.

    Calculations:

    • Provide a cash flow table showing their current situation.
    • Provide a cash flow table showing their situation after your recommendations, (Below is a sample cash flow table that can be used).
    • Provide social security calculations, income and assets test, in table format, for current and in the future. Please review Module 5. NOTE: Shares must be calculated at current market value.
    • Provide cash flow tables showing growth of their investments, both inside and outside superannuation. (The FIDO managed funds calculator can be used to calculate your projections – Parallels H-Sphere -> Publications and resources -> Calculators).
    Sample cash flow table.
    Income and expenses
    Before recommendations After recommendations Notes
    Salary
    Salary sacrifice
    Social security income
    Salary after salary sacrifice
    Franked dividends
    Franking credits
    Interest
    Capital gains <1yr
    Assessable income
    Taxable income
    Tax
    Medicare levy
    Medicare levy surcharge
    Franking rebate
    Low income tax offset (LITO)
    Other rebates and offsets e.g. SATO
    Total tax
    Income after tax = assessable income – total tax

    Position at retirement:

    What income streams from superannuation are available to the clients? Which do you recommend? Why have you chosen these particular products? What other income and/or benefits are they likely to receive in retirement? Have their achieved their goals and objectives?

    Risk management:
    Discuss their risk management situation and make recommendations.

    Estate planning:
    Discuss their current estate planning situation and make recommendations.
    • Include superannuation in your recommendation.
     
  17. student2011

    student2011 New Member

    Joined:
    28th Sep, 2011
    Posts:
    1
    Location:
    sydney
    Srp q6

    I have the exact same feedback..Look like it's the same examiner! Wonder why don't they include this template in the first place then??

    The comments are also vague - not much instructions on how to correct it...Struggling through!

     
  18. finplan111

    finplan111 New Member

    Joined:
    7th Mar, 2012
    Posts:
    2
    Location:
    Brisbane, QLD
    hi, how are you going with Q6? Ive done the calculations and recommendations for the straegies to be used until karen reaches 65. Do you know how to calculate the income and asset test when she retires aswell?? this is such a difficult queston! thanks
     
  19. SantoshPoudyal

    SantoshPoudyal New Member

    Joined:
    11th Apr, 2012
    Posts:
    2
    Location:
    NSW
    kaplan SRP Assignment--Help Required

    Hi,
    I have just started my SRP assignment and completed question 1 a and b. I am struggling with question 2 onwards. Nothing is clicking in mind how to proceed further..getting frustrated. :confused:
    It would be great if someone help me how to find the total capital couple will need to achieve their preferred life style and finding the gap.

    Santosh Poudyal
     
  20. Kojack

    Kojack New Member

    Joined:
    14th Mar, 2011
    Posts:
    2
    Location:
    Sydney
    How are you going with SRP assignment?? I have had the same feedback as the above... stock standard response yet with no real feedback as to how to fix it. There is so many variables in this course and if you can provide back up to a question, you pass. Some have passed implementing a TTR strategy and others have passed not implementing one.

    Anyone wanna brainstorm ideas? Direct message me. I have completed all other modules also.