Darren Leong, aged 38, lives in a HDB Executive Apartment. Besides the HDB executive apartment, Darren owns the following assets as shown below: WEALTH GROUNDING - FOUNDATIONAL PART HDB Executive Apartment Car Purchase Price $280,000
Original Mortgage $196,000
Current Mortgage Balance $135,000
Fair Market Value $735,000
Other Assets Savings Account Balance $3,000
Fixed Deposit Account $4,500
Growth Stock Unit Trust – Market Value $65,000
Personal Property $9,000
Credit Card Outstanding Balance $7,000
Question 1 (WEALTH GROUNDING – FOUNDATIONAL PART)
(a) (i) What is Darren’s total investment asset to net worth ratio?
(ii) What are the TWO (2) primary considerations in determining Darren’s ability to handle debt?
Tax Planning
1. About 8 years ago, Darren bought a $150,000 5-year limited-pay whole life plan. The annual premium for his plan was $19,500 p.a. The Cash Value of his plan is $48,750.
2. Darren has put in place a Hospital Income Insurance Plan that is designed to pay him a daily cash benefit of $250 up to 180 days per hospitalization and for 1000 days per lifetime. The premium for the Hospital Income Insurance plan is $1,975 p.a.
3. Darren recently bought a Disability Income Insurance policy with a sum assured equal to 70% of his monthly salary, i.e. $5,250 which is 70% of ($5,000 +$2,500). The deferred period is 6 months in the event that he is disabled and the Disability Income Insurance policy covers him up to the age of 65 years. The annual premium for his plan is $10,800 p.a. 4. Darren rents out one common room to Mr Leow for $850 per month. Mr Leow has gone overseas for 6 weeks and will return in early January 2017. Mr Leow said that he would pay the rent for December 2016 and January 2017 upon his return.
(i) Describe the difference between a tax deduction and a tax rebate.
(ii) State the year of assessment Darren needs to declare the rent income.
(c) What type of insurance policies can Darren claim against his Life Insurance Tax Relief?