Reference no: EM133240478

Ted is an investor and has purchased an IIP for the original price of $873.27869470369.

Customers pay $873.27869470369 to buy an IIP. The IIP will pay out $37 at the end of each year for 11 years The IIP will pay out a further single payment of $1,000 after 11 years There are no further payments after this single payment at time 11.

1. Suppose Ted holds on to the IIP for the full 11 years. Ignoring time value of money, what is the profit he receives on an IIP? (This can be regarded as profit for tax purposes).

2. Ted's tax rate is 30%. The full amounts of the level annual payments from the IIP are taxable. What is the total tax Ted pays on the level annual payments?

3. If the final single payment exceeds the original price paid, the difference between the two is called a "capital gain" for tax purposes. Conversely, if the original price exceeds the final single payment, this is called a "capital loss".

For this investment, only 50% of the capital gain is taxable. Calculate the tax that Ted pays as a result of the single payment. Give your answer in dollars, to the nearest cent.

(Note: we have implicitly used the "CGT discount" rule in Australia for investments held for more than 12 months in this question)