The case study
Steve and Crystal Riley
You met Steve Riley when he came into your office last week. He had been mowing the grass in the park over the road and saw your business sign and came for a chat to see if you could help him and his wife.
He and Crystal live in a small rural community outside town and have been married for three years. Steve is aged 26 and is a horticulturalist with the local council. Crystal is aged 24 and a librarianhowever she is not working at present as she looks after their twins. Until the twins arrived their focus had been on working hard and saving for a deposit to buy a house. They rent a nice home on the edge of town and enjoy the scenic views over the hills.
Their landlord has approached them saying she wants to sell the house and will give them first refusal to purchase it. Steve’s parents have offered to help them with a loan.
They want some help in making a decision and understanding how it will all work.You give Steve your Financial Services Guide (FSG) and a fact find form and you agree to meet next week.
Question 2 a:
They are entitled to the following benefits:
FTBA energy supplement
FTBB energy supplement
Question 2 b
(i) Tax and cash flow statement: - Deficit position is approx. -$1000 to -$2200. LITO should be evident in tax calculation
(ii) Provide analysis in conclusions – more detail required to demonstrate the understanding of their financial situation.
Question 2 (d) :
Once the calculation on their Centrelink entitlement in Q2a,
there is a scenario they are no longer entitled to the rent assistance. Their cash flow deficit is around -$6,200 per annum.
The Centrelink benefit has not been adjusted for the loss of the Rent Assistance
Other expenses in relation to home ownership also need to be included (House Insurance and Maintenance costs)
Deficit position should be approx. -$6000 to -$8000
Analysis and conclusions
Comments might include; Income situation due to loss of Centrelink benefits, rent expenses replaced by mortgage repayments, extra costs of home ownership (rates and maintenance), deficit position, budget considerations, options for extra income.
In this study, the researcher shall discuss the benefits that Crystal would receive from Centrelink for family benefit. Initially, the calculation shall be made by considering the rules of Australian Human Service services. Furthermore, the researcher shall also discuss the benefits of Crystal for the families like Crystal.
As per the rule of Australian Department of Human Services, it has been found that Steve Riley and Crystal Riley would not get any payment from Centrelink. In this context, Ndikumana (2015) stated that the receipt of monetary payment from Centrelink relies upon having own house in Australia. The Riley family had no owned house property, and therefore the family received monetary payment from the government. In this context, it is to mention that the calculation of the amount to be received from the government is made by considering the family structure and the income of the family. Apart from the income and the family status, the department also considers the area of living. In this context, it is to mention that the family lives in rural area, which has also been considered while calculating the amount of payment to be made by Centrelink.
According to Skinner, Cook & Sinclair, (2017), the numbers of children in a family are also considered for allowing grant. Therefore, the information regarding the children has also been provided by the family for calculating the family to calculate the amount receivable from the government has also provided the payment from Centrelink.moreover, the existing revenue from Centrelink.
|Statement of Tax|| |
|Particulars||Total ($)||Steve ($)||Crystal ($)|| |
|Salary||53000 ||48000 ||5000 || |
|Interest ||788 ||394 ||394 || |
|Total Gross / Assessable Income||53788 ||48394 ||5394|| |
|Total taxable income||53788 ||48394 ||5394|| |
|Tax on total income ||$ 4,273||($ 3,572 added with 32.5 cents for each $ 1 over the amount of $ 37,000) $ 4,273||NIL|| |
| Add: Medical levy @ 2 %||$ 85 ||- || |
|Total taxable income||$ 4,358 ||$ 4,358 ||NIL|| |
|Statement of Cash Flows|
|Family cash flow||Steve Riley||Crystal Riley||Combined||Comment|
|Cash flow calculation:|
|Operating activity |
|Gross cash flow from operating activity ||48000||5000||53000|
|Discretionary: restaurants, gifts, holidays, etc.||1000|
|Weekly shopping ||30000|
|Mobile phones ||1500|
|Motor vehicle and fuel||10000|
|Total cash outflow||61200|
|Net cash used in operating activity ||-8200|
|Investing activity |
|Calculation of net wealth|
|Particulars||Steve Riley||Crystal Riley||Combined|
|Everyday bank account|| || ||$ 500.00|
|Steve’s ute|| || ||$ 4,000.00|
|Crystal’s sedan|| || ||$ 12,000.00|
|Home contents|| || ||$ 7,000.00|
|Bonus saving account|| || ||$ 22,500.00|
|Total assets || || ||$ 46,000.00|
|Less: Liabilities || || || |
|Credit card || || ||$ 2,500.00|
|Car loan || || ||$ 5,400.00|
|HECS|| || ||$ 12,000.00|
|Total external liabilities || || ||$ 19,900.00|
| || || || |
|Wealth || || ||$ 26,100.00|
Conclusions of the above statements
The above study discloses that the family has negative cash balance, as the cash flow statement of the family is -$7462. On the other hand, it has been found that the total tax payable for Mr. Steve comes to $ 4,358 (Morris & Wilson, 2014). However, it is to be noted that, since the total income of Mrs. Crystal is within $ 0 to $ 18,200, no tax is payable on that income. In addition to that, it is noted that, the total net wealth of Mr. Steve and Mrs. Crystal is $ 26,100.
|Statement of Cash Flows|
|Family cash flow||Steve Riley ($)||Crystal Riley ($)||Combined ($)||Comment|
|Cash flow calculation:|
|Salary ||$48000 ||$5000||$53000 |
|Centrelink||0 ||0||0||No further Centrelink |
|Interest ||$394 ||$394 ||$788 ||The interest is from savings fund.|
|Gross cash receipts ||$48394 || $22894||$53788 |
|Cash outflow |
|Discretionary: restaurants, gifts, holidays, etc||$3000 |
|Debt repayment||$3765 |
|Mobile phones and internet||$1500|
|Motor vehicle and fuel||$10,000|
|Mortgage repayment ||$18000 |
|Total cash outflow ||$ 49350|
|Net cash generated in the year for the company||$4438|
From the above cash flow of the family, the researcher has found that the net cash available of the family would be around $1938 per year after buying the house. On the other hand, it has also been identified that the family would not receive any amount from Centrelink. Hence, it can be said that the financial stability of the family would be affected by the purchase of the house.
In the cash flow of the family, it can be found that the weekly shopping expenses have declined due to the purchase of the house by the couple (Kawano & Slemrod, 2015). On the other hand, it can be said that the Centrelink receipts has become zero and therefore the family could have declined the weekly shopping expenses. Nevertheless, as the family has purchased the house property, the family would not require paying the rent. Instead of paying the rent, the company is required to pay the mortgage payment, which is $18000.
In the above calculations and discussions, it has identified that the family is not eligible for Centrelink receipts as per the rules in the Australia. As per the rule of Australian Department of Human Services, the quantity of the Centrelink receipts depends upon the payment of rent (Richardson et al. 2016). As the family is planning to acquire new house property, the family would not receive any amount from Centrelink. Hence, the amount from this source is zero. Furthermore, it has also been seen that the weekly shopping expenses has also decreased. As analyzed in the above part, it is to mention that the shopping expenses of the family have declined due to the reason of paying the mortgage repayments. Therefore, the family has not to pay the rent as before.
In light of the above study made it can be concluded that, since the family has opted for the option for buying the house they were renting, they no more can avail any benefit from the government in regards to payments of rents. In the discussion made above it is noted that, the financial stability of the house tends to get affected by the choice of buying the new house. Due to the arise of the present situation it is noted that the company can no more avail any benefits under the Centrelink.