Case Study: When Heart Problems lead to Tax Problems

The Situation

John had a small business as a truck driver and courier. He has a Partner who doesn't earn a lot of money. Unfortunately due to stress and over work John had a heart attack. He was off work for 3 months and now has to be careful how many hours he works. John works as a Sole Trader.

The Problem

The business has been very tight financially even before a heart attack  limited his ability to work. Now his Tax is behind including his GST and BAS.  John has been putting things on credit cards to survive and has loans on his trucks and business. He is now behind with all loans and the debts are now above what his new income is.

The Money Reality

John has a joint mortgage with his partner. His house is worth $550,000 and he owes $400,000.

Mortgage Payment is $461 per week

He also has a truck loan of $30,000 on a truck worth $50,000 and his partner owns a car.

Truck Payment $173 per week

He now has $20,000 worth of Credit Card Debt. A personal loan for $10,000 and a Tax Debt Totalling $14,000. All running very late.

John has only been back at work for 3 months, he really wants to keep his house and business.

His Total Costs Averaged by week

DescriptionCost
Truck Payment/ Fuel /Truck and business  Insurance/Tyres/Servicing/Accounting $743 per week
Mortgage Payment/Home  Insurance / Rates/ Home Maintenance     $641 per week
Living Cost Both Partners including Partners car                                                                 $558 per week
Unsecured cards and Loans repayments                                                                               $208 per week
Tax repayment plan as suggested by Tax department                                                        $250 per week

Johns  total  weekly income is now only $2000 and he needs to allow for GST and income  Tax out of that. John needs to put away $332 for Tax and GST. So really his Nett income is only $1668 per week

Johns Partner is earning $480 per week so the Business and family only has an income of $2148 per week or $2480 including Johns Tax.

Even though they are now back at work they are still falling behind $252 per week or over a $1000 per month

FDHs Solution

We suggested John prioritise his home loan and Truck payments till we could sort out his unsecured Debts and Tax.  We suggested to John to see if he could extend his truck lease another 18 to 24 months to lower the payments. His new Truck payment is now  $151 per week

After 4 weeks John had caught up with his home loan and is now on time.

We took the Tax and Unsecured Debts and put them in a Debt agreement.

His payment is now $160 per week for this

His new Budget is

DescriptionCost per week
Truck Business $720
Mortgage Home Costs   $641
Living Costs Both Partners  $558
Unsecured Debts  and Outstanding Tax $160
Put aside Tax and GST Liability $332
Total Budget if John sticks to plan $2411
Total Business and Family income $2480

 

 

John and his partner are back in a manageable position. Hopefully John will recover fully and be able to increase his income in a couple of years,

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