Presented by

Suite 2501, Level 25, Westfield Tower 1 520 Oxford Street, Bondi Junction NSW 2022

Phone: 02 9389 1859 Fax: 02 9389 1857

Website: www.strategic-medico.com.au

Page 2 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Dear John and Mary,

Thank you for the opportunity to review your finances. You have indicated an interest in better

utilising your income to build secure wealth for you and your family. This paper is a cash flow

statement and represents cash flow in a range of scenarios that you may consider.

Cash flow is very important and is a key in developing an effective strategy in relation to your property and finances.

Index

This paper is broken down into 3 main sections. Introduction …………………………………………………………………..……………………………..………………. Page 3 Borrowing Capacity………………………………………………………………………………………….…………….. Page 4 Financial Strategy Staging……………………………………………………………….………………………………. Page 5

Stage 1: Present Cash Flow………………………………………………..…………………………..…… Page 5

Stage 2: Refinance residential debt at 90% LVR……………………………………..….……….. Page 6

Stage 3: Option 1: Transfer North Sydney into SMSF………………………………………..…. Page 7 Stage 3: Option 2: Acquire North Sydney and Serviced Apartment into SMSF….........

Page 9

Comments regarding the structuring of your finances……………….………………..….……………… Page11

Page 3 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Before I get to our evaluation, I would just like to clarify some of your financial details. Financial Details

John you are employed as a Medical Practitioner receiving income of $700,000pa

Mary you are employed as a Dentist receiving income of $120,000pa

You have set up an SMSF which currently has a balance of $240,000

You have cash savings in your personal name of $50,000

You own your home in Sydney, NSW currently valued at $900,000 with a facility of $400,000 against it.

You have a Residential Investment in Brisbane, QLD currently valued at $460,000 with a facility of $390,000 returning a rental of $420/week

You have a Residential Investment in Adelaide, SA currently valued at $360,000 with a facility of $391,000 returning a rental of $400/week

You own a Commercial Property in North Sydney, NSW currently worth $560,000 with a

$520,000 facility against it; you currently occupy this property utilising it as a surgery for your medical practice.

All of your current lending is with the Commonwealth Bank at a rate of approx. 5.5% across all facilities

Objectives

Transfer of Commercial Surgery into SMSF.

Purchase Serviced Apartment in Darwin; purchase price $265,000 yielding 6.75% by an annualized rental of $17,888

Page 4 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Before we present the options mentioned above, we would just like you to understand your maximum borrowing capacity in your personal name:

There are two qualifying factors (a) income and (b) Your deposit, both are taken into consideration and the lower of the two determines what the maximum price is of the

property you are able to purchase.

(a) Based on your income and existing debts you are able to afford a home loan up to the value of $5,600,000 for investment purpose.

(b) When you wish to borrow, the bank generally lends 80% against the value of residential property without attracting the cost of Lenders Mortgage Insurance, given that you are a Medical Practitioner some lenders have a special policy permitting up to 90%. Given your current portfolio of residential properties (excluding your North Sydney property); this would permit lending of up to $1,548,000

Page 5 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Stage 1: Present Cash Flow Your current investment property portfolio is incorporated into your taxable income as follows:

John Mary

Income $ 700,000.00 $ 120,000.00

Rental income $ 21,320.00 $ 21,320.00

Interest $ 35,777.50 $ 35,777.50

Misc. Costs $ 4,000.00 $ 4,000.00

Taxable income $ 681,542.50 $ 101,542.50

The above figures have then been applied to your present cash flow: Income Estimated Tax Net

John $ 681,542.50 $ 290,464.26 $ 391,078.24

Mary $ 101,542.50 $ 27,040.86 $ 74,501.64

Total $ 783,085.00 $ 317,505.13

Cash flows after tax $ 465,579.88

Home Loan Repayments $ 22,000.00

Disposable income $ 433,579.88

Within your present financial situation; your joint disposable income is $433,579pa.

Below is an estimation of the costs associated with purchasing the Serviced Apartment. These estimates will subsequently be applied to the projected financial scenarios.

Serviced Apartment Darwin $ 265,000

Stamp Duty $ 10,000

Misc. Costs $ 5,000

Total Cost $ 280,000

Page 6 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Stage 2: Refinance residential debt at 90% LVR

Given that you are a Medical Practitioner, certain lenders have a special lending policy

permitting you to borrow up to 90% LVR against residential property without attracting the cost of Lenders Mortgage Insurance. Below is your current property portfolio in your personal

names:

Market Value Current loan LVR Rent

Echidna Close, Sydney, NSW $ 900,000.00 $ 400,000.00 44%

Brisbane QLD $ 460,000.00 $ 390,000.00 85% $ 21,840.00

Para Park SA $ 360,000.00 $ 391,000.00 109% $ 20,800.00

North Sydney NSW $ 560,000.00 $ 520,000.00 93%

Total $ 2,280,000.00 $ 1,701,000.00

$ 42,640.00

After refinancing your residential debt at 90% LVR your portfolio would appear as follows:

Market Value Current loan LVR Rent

Echidna Close, Sydney, NSW $ 900,000.00 $ 810,000.00 90%

Brisbane QLD $ 460,000.00 $ 414,000.00 90% $ 21,840.00

Para Park SA $ 360,000.00 $ 324,000.00 90% $ 20,800.00

North Sydney NSW $ 560,000.00 $ 520,000.00

Total $ 2,280,000.00 $ 2,068,000.00

$ 42,640.00

After clearing your existing residential facilities you will be left with residual funds of $367,000. $2,068,000 - $1,701,000 = $367,000

Page 7 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Stage 3 – Option 1: Lend residual funds from personal name and residual balance from SMSF

to transfer North Sydney property into SMSF

Using the $367,000 residual funds from refinancing in the previous stage along with the existing balance of your SMSF of $240,000 you can pay down the facility against your North Sydney property which can affect a transfer of the property to your SMSF with minimal stamp duty cost (approx. $50). Please consult with your account to confirm both the exact cost and whether your property is eligible for this concession and confirmation of the capital gains implications of

this transaction.

The effect of transferring your commercial property out of your personal name upon your taxable income will be as follows:

John Mary

Income $ 700,000.00 $ 120,000.00

Rental income $ 21,320.00 $ 21,320.00

Interest $ 21,477.50 $ 21,477.50

Misc. Costs $ 2,000.00 $ 2,000.00

Taxable income $ 697,842.50 $ 117,842.50

Applying this to your cash flow in your personal name the effect will be as follows: Income Estimated Tax Net

John $ 697,842.50 $ 298,043.76 $ 399,798.74

Mary $ 117,842.50 $ 33,316.36 $ 84,526.14

Total $ 815,685.00 $ 331,360.13

Cash flows after tax $ 484,324.88

Home Loan Repayments $ 22,000.00

Disposable income $ 462,324.88

In this scenario your disposable income in your personal name will increase by $28,745pa in comparison to your current situation.

Page 8 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Below is an indication of the effect on your SMSF cash flow of transferring in the North Sydney property:

Income

Maximum Permissible SMSF contribution $ 50,000.00

Proposed rental income $ 44,800.00

Total $ 94,800.00

Deduction

Interest on $367k Loan @ 5% $ 18,350.00

Depreciation (0.5%) $ 2,800.00

Maintenance Costs $ 4,000.00

Total $ 25,150.00

Annual audit fee $ 2,500.00

Taxable Super Fund income (Positive) $ 67,150.00

Actual cash flow before tax $ 69,950.00

Income Tax $ 10,072.50

After tax cash flow $ 59,877.50

We have assumed your business will be paying a standard commercial rental of 8% of the property value per annum on the property whilst it is within the SMSF, which would supplement the cash-flow as listed above, if this is the case the SMSF would generate an annual surplus of $59,877

Page 9 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Stage 3 – Option 2: Utilise Loan from Personal name to SMSF to purchase Serviced Apartment and use residual funds in conjunction with Commercial Loan to transfer North Sydney to

SMSF

In order to acquire both your North Sydney property and the prospective Serviced Apartment

Investment into your SMSF you would need to lend the $367,000 funds into your SMSF for the purpose of purchasing the Serviced Apartment Investment at a total purchase cost of $280,000.

The residual $87,000 and your current SMSF balance of $240,000 would then be used in conjunction with a Commercial Loan of $193,000 to purchase your North Sydney property from

your personal name into the SMSF.

Loan from personal name to SMSF $ 367,000

Serviced Apartment Total cost $ 280,000

Residual Funds $ 87,000

Current SMSF balance $ 240,000

Cost to transfer North Sydney $ 520,000

Funds Required via Commercial Loan $ 193,000

In order to meet compliance with SMSF regulation the transaction would need to be structured

in the above format, the additional funds required provided through the commercial loan must be used only for the purchase of transferring the property from your personal name to Super. Both the $367,000 loan from your personal name and the $193,000 Commercial loan will be serviced out of the cash flow of your SMSF and not have an impact on your personal cash flow.

Page 10 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

In this scenario your cash flow within your SMSF would be as follows:

Income

Maximum Permissible SMSF contribution $ 50,000.00

Proposed rental income $ 62,688.00

Total $ 112,688.00

Deduction

Interest on $367k Loan @ 5% $ 18,350.00

Commercial Loan $193k @ 6.5% $ 12,545.00

Depreciation (0.5%) $ 4,125.00

Maintenance Costs $ 6,000.00

Total $ 41,020.00

Annual audit fee $ 2,500.00

Taxable Super Fund income (Positive) $ 69,168.00

Actual cash flow before tax $ 73,293.00

Income Tax $ 10,375.20

After tax cash flow $ 62,917.80

The cash flow inside of your SMSF would be sufficient to service the loan repayments and still maintain a surplus of $62,917pa which is $3,040pa more than the previous scenario without

the purchase of the Serviced Apartment Property.

Page 11 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

Your SMSF will generate enough income to service a loan of $560,000 and have a surplus disposable income of $62,917. If you were to utilise $60,000 pa of this surplus towards

additional repayments as demonstrated in the chart below, the SMSF will be able to pay off the

loan within just 7 years and save you $580,500 in Interest costs.

Page 12 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

In order to obtain lending to a Self-Managed Superannuation Fund there are several avenues

available. These include a combination of lending into your SMSF from your existing cash savings and/or borrowing against your equity and lending it into your SMSF. These need to be

discussed in more detail prior to making a decision on how you wish to proceed.

You should be aware of the following:

Borrowing within your superannuation:

When borrowing within Super; the finance is generally more expensive compared to traditional

mortgages. A very important point to keep in mind is that you may only borrow against the property within Superannuation post-purchase.

Another disadvantage is the complexity and the time it will take to get the loan approved, we

estimate based on other transactions it will take at least 2 weeks as opposed to 48 hours. However, borrowing inside SMSF with an offset facility does not drain your equity against your home which allows you to buy a property in personal names in the future if you wish to do so. Using Funds you currently have within you super: When considering borrowing within superannuation it is important to have sufficient liquidity, if

you borrow within super an offset account is very effective. Using all you cash reserves restricts you from having diversification within your fund. Borrowing against your equity: This is certainly the most cost effective method of borrowing as we can obtain highly competitive rates. You can then on lend these funds to your super (through a non-recourse self-financing loan) to help purchase the property. A major disadvantage is if you wish to upgrade you home in the near future or would like to buy any additional investment properties this can restrict you from doing so straight away.

Page 13 of 13

Suite 2501, Level 25, 520 Oxford Street, Bondi Junction NSW 2022 P 02 9389 1859 F 02 9389 1857

I hope this provides you with some insight on the strategic options that you have available.

There are numerous combinations that may be applied to obtain the Lending required.

Please feel free to call us on 02 9389 1859 so that we can review and proceed with the

implementation of an appropriate strategy.

In considering any new debt it is also essential to look at ways of minimizing your personal risk in order to protect your assets and having adequate insurances in place to safeguard from the

unexpected, this will ensure your hard earned wealth and investment stays progressively on track and most importantly provide peace of mind in knowing you and your loved ones are

protected. Whilst a limited extent of cover may be provided through superannuation or an employer, on many occasions this may prove to be inadequate. This may be a good opportunity to conduct a review to ensure you are adequately covered. We highly recommend that you speak with a financial planner in regards to this aspect.

Kind Regards,

Phone: 02 9389 1859 Fax: 02 9389 1857 Email: george@sfpa.com.au

You should take into account that the contents of this letter are of a general nature to enable you to better assess the alternatives available to you and that the contents hereof do not constitute investment advice.