TAXA3005 Superannuation and Retirement Planning

The Brief:

Jack, who was born on 3 March 1957, has been an employee of a major consultancy firm for ten years. The firm has experienced financial difficulties as a result of the economic downturn in 2022 so Jack has decided to retire.

Jack is married, and Jill, who was born on 19 August 1961 is not currently working.

A review of their financial position shows the following:

• Jack Superannuation (accumulation fund) $450,000
• Jill Superannuation (accumulation fund) $1,200,000
• Managed funds held outside superannuation (joint names) $120,000
  the rate of return on this investment is currently 3% pa = $3,600 pa
• Residence (owned as joint tenants for more than 10 years) $900,000
• Mortgage ($150,000)     $750,000 

Jack employer has offered a voluntary redundancy package to employees. An employee accepting the package cannot be reengaged for six months. The human resources manager has advised that the following entitlements would be paid under the redundancy package:

• Long Service Leave (pro-rata entitlement)                                                         $14,000
• Annual Leave (4 weeks)                                                                                         $7,000
• Redundancy payment (10 months salary)                                                          $67,000

                                                                                                                                               $88,000

Jack is currently on an annual salary of $84,000 pa. Based on annual expenditure, Jack and Jill estimate that they need an income of $75,000 pa, not including mortgage payments that are currently $2,500 pm or $30,000 pa.

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Jack has been working on a project that has been deferred for 12 months due to the economic downturn, and the Project Lead has asked whether Jack would be available to do some contracting work if the project recommences.

REQUIRED:  Jack and Jill have asked for your advice in respect of the following issues to help them to decide a retirement strategy:

1. If Jack were to take the redundancy package at the end of December 2022, what would the taxation treatment be in respect of each component of the redundancy package?

                                                                                                                             10 marks

2. What requirements need to be met for Jack and/or Jill to draw down on superannuation after Jack takes the redundancy package?

                                                                                                       5 marks

3. Are Jack and/or Jill entitled to the Age Pension and if so, how much would they be entitled to receive? Assume the Government announces that the Age Pension age is 65, effective from 1 July 2022. Do, es this change your answer and if so, how much would they then be entitled to receive? 10 marks

[Hint. Assume that the redundancy net amount is $80,000.]                                            

4. Based on your findings in relation to the above issues, will Jack and Jill have access to sufficient income to meet their ongoing expenses in the short to medium term? How would you recommend that they restructure their assets as Jack enters formal retirement?

                                                                                                                                   10 marks

5. Jack and Jill are planning to spend some time travelling around Australia. They have seen a motor home that would cost $250,000 and are seeking your advice on how to fund this purchase in the way that will minimise the effect on their retirement income.

                                                                                                                               5 marks

ADDITIONAL INFORMATION

Where you need further information you must identify the additional information required, the assumptions that you have made and how the advice would change if your assumption is not correct.

You are not required to write a formal letter of advice for this case study. You should provide a final list of your key recommendations

Your answers must be addressed for the 2022-2023 income year, unless otherwise specified.

You must cite relevant legislation, rulings and cases in your response, whenever necessary.