What is bill marginal tax rate

Assignment Help Finance Basics
Reference no: EM133059611

You are a financial planner who focuses on helping couples. Jasper (23) and Bill (25) live in Toronto and have come to see you regarding their decision on whether to buy a house or continue renting. Jasper and Bill have recently married, and they are thinking about adopting a child 8 years from now. They are currently renting a 2-bedroom condo in Toronto. The rental cost is $2,595 per month and this includes heating. They estimate heating is about $200 a month from 1st November to 30th May. Internet, electricity, mobile phones and other utilities cost them about $450 a month and they have tenants (home contents) insurance which costs them $500 per year. They spend about $180 a week on eating out and other living expenses come to about $250 a week. The apartment is good for now, but in 8 years, they will need to upgrade to a bigger house.

They want to buy a property now, live in it for the next 8 years to get on the 'property ladder' and then purchase something bigger. They have found a 2-bedroom apartment in midtown Toronto which costs $899,000. They estimate moving costs will be about $10,000 and legal fees will be another $5,000. The maintenance fees on the new property are $800 a month and annual property tax is $3,600 p.a. If they purchase this home, they will have to buy homeowners' insurance at a cost of $1,600 per year. Also, they want to renovate, when they move in, and this will cost them about $5,000.

Bill is more financially literate than Jasper, so he has invested their savings. He encouraged Jasper to open a TFSA and both have maximised contributions to the allowable TFSA limit. Their investments are currently in Canadian equity where they have purchased an All- Canadian Stocks Capital Growth Fund. Their portfolio does not pay dividends but increased in value by 7.9 % last year and is expected to do the same in the future. Bill and Jasper have saved $210,000 towards the purchase of their home. Bill is holding $105,000 in a non-registered investment account (the cost price was $100,000) and both, Bill and Jasper, are holding the remaining $105,000 in their tax-free savings accounts (cost price was $84,500).

Bill earns $110,000 per annum and his average tax rate 25%. Jasper earns $80,000 per annum; his average tax rate is 21%. They both have employer pension plans and these gross income amounts are after pension contributions. Bill is thinking about transferring all of the non-registered portfolio into Jasper's name to save on taxes because Jasper has a lower average tax rate. Jasper has two years left on a student loan and the payments are $350 a month. Jasper's car loan will mature in 3 years and the monthly payments are $300 a month until it is paid off.

Current mortgage rates at a bank are 2.24% APR, for a 5 year term with a 25 year amortization. The current rate of inflation is 3% and it is expected that all prices will increase at this amount. Assume future returns will continue at the same rate as past returns. Round all rate-based figures to 4 decimal places and round all money figures to the nearest dollar. Use tax information and financial regulations for the year 2021 in Ontario and assume that these will remain the same over the next 8-year period for your calculations.

Tasks:

1) What is Bill's marginal tax rate on capital gains? What is Jasper's marginal tax rate on capital gains?

2) Provide Bill with advice regarding his tax strategy of transferring assets to Jasper's name.

3) Calculate whether Jasper and Bill will be able to borrow the money under current lending criteria. Note the stress test.

4) Analyse whether Jasper and Bill should rent or buy the apartment.

5) Explain to Jasper and Bill two assumptions you have made in your calculations in question 4) and why these might not hold.

6) Explain to Jasper and Bill two costs that been omitted from the calculations in question 4) and why these should be considered.

Reference no: EM133059611

Questions Cloud

Why the r-squared for long : Why the R-squared for Long/Short (10-1) is -0.07 not 0.07?
Determining the firm revenue stability : Business risk is the chance that the firm will be unable to cover its operating costs and is affected by a firm's revenue stability and the structure of its ope
What are some impacts so far of evergrande financial trouble : What are some impacts so far of Evergrande's financial trouble? Your recommendation for stock market investors in the U.S. and globally
Discuss the conflict management style : What are the main challenges faced when working with multicultural teams - How intercultural communication can be affected by the cultural differences
What is bill marginal tax rate : 1) What is Bill's marginal tax rate on capital gains? What is Jasper's marginal tax rate on capital gains?
Explain how the investor is taxed : The investor sells the share in the fund during 2020 for $59 per share. Explain how the investor is taxed
Monthly interest rate computation : If the annual simple interest rates are i = 6 percent in the United States and iE = 4 percent in Germany. After one month using a monthly interest rate computat
What is the total amount : Suppose yamini $3,000 from her mother, agreeing to pay him back the $3,000 plus 5 percent nominal interest in 1 year. Assume inflation over the life of the cont
How much is the adjusted balance per book and bank : Agency Book Balance P11,043,540, Balance per Bank P10,225,850. How much is the Adjusted balance per book and bank

Reviews

Write a Review

Finance Basics Questions & Answers

  Views on religion-politics and medicine

Describe Symbolic Interaction Theory. Explain and discuss how it views a) religion, b) politics/economics, and c) medicine.

  Income statement with dividends and retained earnings

Is there a simple answer for constructing an income statement with dividends and retained earnings?

  What is the company net income

What is the company's net income? Assuming no changes to any of the Balance Sheet accounts, what is its net cash flow?

  What are pros and cons of real investments

What are Pros and Cons of Real investments - think about taxes, control, management, time commitment, space, etc.

  Creating a performance grading

To correct this situation, you will begin by creating a performance grading form that will be used to assess the front-line supervisor's performance. Create a form that includes areas the supervisors should be graded on and the relative weight or ..

  What factors are involved in this decision

A member of your board has asked if you have considered competitive bids for the distribution of your securities compared with a noegotiated contract with a particular firm. What factors are involved in this decision?

  Example of the experimental research strategy

Finally, Dr. Jones compared the activity level for the high-sugar group with the activity level for the low-sugar group. Explain why Dr. Jones' study is not an example of the experimental research strategy.

  What is the total amount paid by the corporation

If the spot rate at the time of maturity is £0.59, what is the total amount paid by the corporation if it acts rationally?

  Resistance to change is a principal reason for failure of

resistance to change is a principal reason for failure of change management programs. planning for resistance and

  Find the costs associated with hiring smokers

It can be argued that if the ban is implemented, businesses will find the costs associated with hiring smokers

  Flotation costs to use for its planned growth

How many bonds must be issued so that SSM has $92 million after flotation costs to use for its planned growth?

  Which of the following statements are correct

Which of the following statements are correct? If inflation is expected to increase in the future, and if the maturity risk premium is greater than zero, then the yield curve will have an upward slope If the maturity risk premium is greater than zero..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd