Fins 2643 Potential Questions

Topics: Tax, Taxation, Taxation in the United States Pages: 10 (2940 words) Published: May 24, 2013
Week 5: Home Ownership

1) When it comes to investing in property, it is generally a huge decision to be made by Australian households. What are the important factors that a person needs to consider before going ahead with such purchase?

* Costs: on-going costs such as council rates, maintenance costs agency costs etc Taxes, such as CGT, GST, stamp duty
Price of the property
* Possibility of capital growth
* Address: social network advantages
* Macroeconomic circumstances: interest rate, property price etc * Income level: liquidity

2) What are the advantages and disadvantages of investing in property? Despite economic downturn in recent periods, there are various incentives provided by federal and state government in supporting housing property in Australia. Discuss.

* Pros: 1) CGT main residence exemption
2). Possibility of substantial capital growth
3). A good address can open social doors
4) high collateral value
5) lifestyle
6) hedge against rental expense

Cons: 1) Price risk
2). Interest rate risk
3) liquidity risk
4) high costs
* Incentives provided: main residence CGT exemption; CGT 50% discount for holding property>1 yr; Various types of mortgage available; First Home saver accounts(government co-contributes equal to 17% of ur contribution)

3) Most Australian households invest in property through direct investment which is generally illiquid. What are the alternative ways to gain exposures in property?

* Except for Direct ownership, other forms of property investments include: 1) shared direct ownership. 2) listed property trusts 3) unlisted property trusts 4) listed property companies 5) a superannuation fund

4) Compare and contrast between investing in property with respect to other asset classes?

* The main purpose of investing in property is occupancy, income and growth. Do comparison with shares(less risky), Fixed income assets( higher potential of capital growth), derivates( more stable)

Week 7: Taxation

1) Explain the distinction between the cash accounting and accrual accounting methods for the assessment of tax. Refer in your answer to which businesses might use either method and why some businesses might prefer to use the cash accounting method.

* Cash accounting: income is assessable only when received, outgoings and losses are only able to be offset against income when actually paid. * Accrual Accounting: Income is assessable once the transaction happens even if money hasn’t been paid yet.

Users of cash accounting method could be wage earners, because they do not want to incur tax too early, for example, if an employee uses the accrual accounting method, he will incur taxes as soon as he signs a working contract with his employer which states his annual salary amount.

2) Briefly discuss the structure of constructing the elements of the taxation equation? In providing financial planning advices, what are the typical elements that should be taken into consideration to reduce clients’ tax liability?

* Taxation equation: Assessable Income – Allowable deductions= Taxable Income Taxable income - Tax offsets + Medicare Levy – PAYG = Net tax payable Financial planning advices to reduce clients’ tax liabilities: 1) Clients had better hold the purchased assets for at least 1 yr to gain the 50% CGT discount. 2) There are many other types of assets that are CGT-exempted: Main residence, personal motor cars, gambling wins, charity etc 3) Clients had better incur more expenses that are tax-deductible, which means the costs satisfy the positive limbs( loss or outgoing is incurred in producing assessable income or necessarily incurred in carrying on a business.), must not fall in negative limbs( an outgoing must not be for personal reasons, must not be a capital outgoing, must not be non-assessable purposes or...
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