12 Tax saving tips for you and your family in 2022

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12 Tax saving tips for you and your family - Save money on your taxes 

All families experience many life-changing events, from marriage and children through divorce, retirement, and eventually death.

And there are tax implications in practically every one of these scenarios.

The Australian tax system provides a variety of income tax incentives such as credits, refunds, offsets, and bonuses, to assist families. Some people have mixed feelings about applying for government assistance. But don't be afraid to claim your rightful portion. After all, the government isn't shy about taxing you!

Tax evasion and avoidance are unethical methods of lowering your tax liability. Tax minimization and tax planning are legal techniques to lower your tax bill.

This article examines the tax benefits accessible to families, the particular issues to be aware of and some basic tax savings measures for your family.

To be eligible for any tax concessions, you, your spouse, and your children will need a tax file number (TFN) if they have income, superannuation, or investments.

12 Tax saving tips for you and your family

How to save tax on your investments?

Below are 12 tax saving tips for you and your family that you should know -

Tip 1 - Marriage

Couples who will marry typically ask accountants two questions:

  • 'Are there any tax repercussions once we tie the knot?' 
  • 'Should we start filing joint tax returns?'

Your wedding day is a memorable occasion. You won't have to worry about taxes in the months leading up to your wedding. You do not need to file a joint tax return unless you do business together. 

Interest, dividends, and rental properties are all documented individually in your different tax filings.

You must show your new spouse on your tax return and reveal his/her taxable income each year.

Risk - 

When calculating Family Assistance Office benefits such as child care rebates and family tax benefits, the combined income of married couples is taken into account if you don't have private health insurance. An extra 1% Medicare levy is charged if you earn over $1,800,000 combined, increasing to 1.5 per cent for couples earning more than $280,000.

If you choose to change your name, you can inform the tax office - 

  • By calling 13 28 61
  • Via mail after completing the Change of Individual Details form (NAT 2817) 
  • Online using your myGov account at www.my.gov.au Ascertain that it is connected to the ATO.

Your Australian full birth certificate, Australian marriage certificate, or Australian change of name certificate will suffice. According to the ATO, the spouse term has been broadened to include both de facto and registered couples.

For tax reasons, people in same-sex relationships have been treated the same as heterosexual couples since 1 July 2009. The Australian Taxation Office (ATO) has listed some of the tax breaks now available to same-sex couples, including 

  • Medicare levy reduction or exemption 
  • Medicare levy surcharge
  • Dependant (invalid and caretaker) tax offset 
  • Senior and pensioner tax offset
  • Spouse super contributions tax offset 
  • Capital gains tax primary residence exemption

It's not uncommon for a couple to have separate primary residences that they bought before they met. However, for capital gains tax (CGT) purposes, spouses are only allowed one principal residence exemption. If both members of a relationship own a primary residence, they must do one of the following:

  • Choose one home for the exemption.
  • Divide the CGT exemption evenly between the two homes.

For the period before the pair is regarded as spouses, both residences will be completely exempt from CGT if they meet the requirements for the principal residence exemption. However, only one exemption is available when the couple is married, albeit it might be split across the two homes.

Example:

In 1992, Mary purchased a home. She remained there until she married Matthew in 2006 when she moved into his house, which he had bought in 2000. Because they choose to designate Matthew's property as their primary residence, Mary's home will be subject to CGT beginning in 2006.

She won't have to pay CGT on any capital gains she made in the 14 years before marrying Matthew.

Tip 2 - Splitting the income

Income splitting is a one of the top tax-planning strategies that is also one of the simplest to adopt. There are a few easy tactics you can apply, and they all revolve around you and your spouse's marginal tax rates, both now and in the future. 

The table below shows the individual tax rates, excluding Medicare and other levy contributions.

Tax rates for individuals excluding levies (2021-22)

The idea is to strive to level couples' incomes to pay the same marginal tax rate. While you can not transfer your earnings (such as your salary) to the other partner, you can transfer passive income from investments, provided the assets are held in the name of the lower-earning spouse.

Wealthy business people often pay the highest tax rate (47 per cent plus Medicare levy) on interest or dividend income, while their wives don't use their $18,200 tax-free level. With the $1.7 million transfer balance cap on superannuation, spouses can split contributions to maximize their respective thresholds before retirement.

Tax savings tip:

Invest under the name of the lower-earning spouse to take advantage of reduced tax rates (significantly the first $18,200, which is tax-free). Put all passive deductions, such as charity gifts, in the higher-earning spouse's name, as they may get up to 47% back.

A low-income investor has the best tax outcome. They might earn up to $21,884 tax-free, get imputation credits refunded, and pay fewer capital gains tax.

Example:

An investor paying the top marginal tax rate of 47% would pay $23,500 in tax and Medicare levy on a $100000 capital gain on an asset held for more than 12 months. A $100,000 capital gain would cost an investor with no other income $7467, a savings of $16033.

Risk -

You may lose any tax benefit from transferring an income-producing asset between spouses if CGT is due on assets purchased after 19 September 1985.

Transferring an income-producing item to your spouse may require a professional valuer. It is because the transaction is neither independent nor arm's length. Either party could influence or dominate the other in this transaction.

If you don't have a spouse or are both in the highest tax rates, consider starting an investment company taxed at a flat rate of 30%.

Tip 3 - Dependant (Invalid and Carer) Tax Offset

The dependant (invalid and carer) tax offset (DICTO) is only accessible to taxpayers who have a dependant who cannot work due to a caregiver responsibility or disability.

The DICTO has harmonized the following tax offsets: 

  • Invalid spouse 
  • Carer spouse 
  • Housekeeper 
  • Housekeeper (with child) 
  • Child housekeeper 
  • A parent or a parent-in-law

If you meet the following criteria, the ATO may consider you eligible for the DICTO:

  • You help to support your spouse financially. 
  • Your dependant was compensated in some way:

- an invalidity service pension, disability support, or a special needs disability support

- a carer allowance for a 16-year-old kid or sibling

  • Your taxable income as the primary wage earner was less than $100,000
  • The adjusted taxable income of your dependent was less than $11,546
  • You and your dependents lived in Australia.

You can claim the maximum dependant (invalid and carer) tax offset of $2,816 if you meet the requirements above and your dependant's adjusted taxable income was $285 or less, and you maintained him or her for the entire year.

Risk -

If your dependant's adjusted taxable income exceeds $282, the DICTO is decreased by $1 for every $4.

Tax savings tip:

If you contributed to the maintenance of more than one dependant throughout the year, if you had various spouses during the year, you may be eligible for more than one DICTO payment.

Your 'adjusted taxable income,' as defined by the ATO, is the total of the following amounts, less any child support you have paid:

  • Modified fringe benefits 
  • Tax-free pensions or perks
  • Unreported foreign income on your tax return 
  • Reportable super contributions 
  • Total net investment loss for both financial and rental properties

Example:

Saxon and Marlene are married. Marlene cannot work and does not receive a salary or wage money. They own rental properties as well as a stock portfolio. Saxon has also agreed to contribute a portion of his salary to his retirement fund. After deducting a total net investment loss of $18,000, his taxable income is $130,000. He has $17,000 in reportable super contributions. Saxon's taxable income after adjustments is $165,000 ($130,000 + $18,000 + $17,000). Saxon is not qualified for the dependant (invalid and carer) tax offset since his adjusted taxable income is above the income threshold ($100,000).

Tip 4 - Children

Wages from after-school employment are considered excepted income and are taxed at the general adult rates regardless of your child's age. Minors do not enjoy the same tax-free thresholds on 'eligible income' as adults. The table below shows minors' taxable income tax rates.

Tax on eligible income for minors

Minors under 18 are taxed at the highest marginal rate for 'eligible income' exceeding $416 per year.

Your child will pay regular rates on excluded income and the higher rate on qualified income.

Example:

On 30 June, Louie turns 17. Part-time work netted him $8,780. He also received $920 in gift-money interest. So, he has an excepted income of $8780 and a tax-free threshold of $18200. His $920 interest income is taxed at higher rates.

A child is eligible for an ATO TFN from birth. If your child is under 16 (at the start of the calendar year) and doesn't provide their TFN to the bank or share registry, there will withhold 45% tax on interest profits over $420 and unfranked dividends. 16-year-olds have a $120 threshold.

Children with less than $41 in assessable income don't need to file. If an investment firm or employer withholds tax from them, they must file a return to receive it.

Tax saving tip:

If your adult child works while attending university or TAFE, they may be allowed to deduct certain expenses if their course and income are sufficiently connected.

Some possible expenses include:

  • Computer, desk, and bookshelf depreciation
  • Magazines
  • Photocopying, printing costs
  • Stationery
  • Textbooks
  • Commute from work to school

They wouldn't be allowed to deduct HELP tuition or HELP debt repayments.

Earnings from a child's investments must be declared by the person who owns and controls them, not the person whose name they are held, regardless of whether the funds are used for the child's benefit.

Example:

Sarah opens a bank account for her 3-year-old. Samantha, by making an $8000 deposit. Sarah is the account's signatory and makes regular contributions and withdrawals to cover Samantha's preschool costs. The ATO would consider Sarah's money and tax any interest she earns.

If the funds in the account are birthday or Christmas gifts, pocket money, or savings from part-time jobs like newspaper rounds, and the child only utilizes them, the interest earned represents the child's income.

Risk - 

Children don't qualify for the low-income tax credit against interest income. You can use only excepted income to offset the refund.

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Tip 5 - New Parent Payments

There are government payments for parents.

Tip 5 - New Parent Payments

Paternity leave

Working parents of newborns or adopted children may be eligible for paid parental leave. The salary is for up to 18 weeks at the national minimum wage (currently $753.80 per week before taxes).

You can apply for paid parental leave three months ahead of time.

To qualify, you must have worked at least 330 hours in 10 of the 13 months before your child's birth, and your yearly earnings must be less than $150,000. Mothers can count paid parental leave from earlier deliveries as 'employment' under the work test.

1. Paid parental leave is taxed, and it may impact other government benefits, including child support, health care cards, and public housing. The Newborn Upfront Payment and Supplement, on the other hand, is not taxed and is not considered income for family assistance or social security.

2. Parents can't 'double-dip' in parental leave by receiving employer-funded benefits at the same or higher level as the government scheme. They'll only get the difference if employer-paid leave is less.

3. Family Tax Benefit Part A recipients may be entitled to a $570 Newborn Upfront Payment and $1709.89 for a Newborn Supplement (reduced to $1140.57 for future children), paid fortnightly over three months. They are not taxable.

Dad and partner pay

Working partners of children born or adopted after 1 January 2013 may be eligible for 'dad and partner pay' It's a one-time payment of up to two weeks' minimum salary (currently $753.80 before tax).

To qualify, you must have worked at least 330 hours in 10 of the 13 months before giving birth, and your yearly earnings must be less than $150,000.

Full-time, part-time, casual, seasonal, contract, or family business workers are eligible. You can't work or take paid leave during "dad and partner pay".

Tax saving tip:

Families may also be eligible for paid parental leave and the Family Tax Benefit.

The qualified partner must file claims. You can claim dad and partner pay three months in advance or a year after birth or adoption. 

Services Australia administers and pays this entitlement, so employers are not compelled to pay it.

Tip 6 - Child care subsidy

Child care is the highest expense for parents of young children. If your child attends government-approved child care, you may qualify for the Child Care Subsidy (CCS). 

Family Assistance Office accepts benefit applications. What you get depends on how much care you use, your income, why you use it and how many kids you have.

Tax saving tip:

If you have already identified yourself as eligible for the Child Care Subsidy. You can file a lump-sum claim with the Family Assistance Office if you have not received it. You must do this within two years after the end of the financial year for which you are filing a claim.

As shown in the table below, families with combined adjusted taxable earnings under $70,015 will get a Child Care Subsidy of 85% of the hourly cap, dropping to 20% for families with incomes over $344,305 with no subsidy for those over $354,305

Child care subsidy table

From 1 July 2022, the maximum child care subsidy will grow to 95 per cent for the second and subsequent children in child care, with no yearly cap, according to the government budget for 2021-22.

Child care hourly rate caps

To avoid the possibility of overpayment, Services Australia withholds 5% of your child care subsidy upfront due to the intricacy of fluctuating incomes. The Department will finalize your family's annual child care subsidy and pay any outstanding amount when filing your tax return.

Services Australia says you may be eligible if you:

  • Had a 13-year-old child, not in secondary school
  • Ensure that your children under the age of seven either meet or have an exemption from the government's immunization requirements.
  • Used lengthy daycare, family daycare, in-home care, outside school hours care, vacation care, and occasional care.

Work/training/study tests are required to claim up to 100 hours of CCS per child each fortnight. Services Australia pays the reimbursement weekly or biweekly based on your service provider's electronic child care attendance data. 

In rare cases, the Child Care Subsidy might be paid even if your child is absent from child care. If you pay for child care, you can get paid for up to 42 absences each year. You can take these absences for any cause.

Risks -

  • It's vital to estimate your family income for the Child Care Subsidy conservatively. If you overestimate it, you may have to pay back some or all of what you got over the year (even after Services Australia withheld 5%).
  • If your children (up to 19) don't meet immunization requirements, you won't be eligible for Child Care Subsidy. Your child must be immunized entirely on a catch-up plan or exempt to get these tax benefits. Conscientious objection is not an exemption category, although medical exemptions such as medical contraindication, natural immunity, or participation in vaccine research are.

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Tip 7 - Earner with low income

Low-income earners, such as part-timers, can get tax breaks.

Tip 7 - Earner with low income

Low-income tax offset

LITO is a tax rebate for low-income individuals. In 2021-22, the LITO will give low-income individuals (earn less than $37500) $700 in tax rebates. The offset is decreased by 5 cents each dollar over $37500 up to $45000. 

The offset is reduced by 1.5 cents for every dollar beyond $45 000 before disappearing at $66667. 

You must file a tax return to qualify for LITO. The ATO will immediately apply the offset to your assessment if you're eligible. Unearned income earned by minors isn't eligible for the LITO.

Tax saving tip:

After the LITO of $700, low-income individuals can earn $21884 tax-free. If your partner isn't working, you can save $10,723 in tax by sharing income.

Change in rule -

The 2021-22 federal budget reinstates LMITO. The LMITO (low and middle income tax offset) is a $255 tax rebate for low-income individuals. The offset increases by 7 cents every dollar to $48,000 and stays at $1080 up to $90,000. If your taxable income surpasses $90000, the offset is lowered by 1.5 cents per dollar until it reaches $126000.

Co-contribution to Superannuation

If your superannuation balance is under $1.7 million and your income is under $41,112, the government will match your post-tax contribution of $1000 by 50% with $500.

At $56,112, the super co-contribution fades out (3.333 cents each dollar).

Spouse superannuation tax offset

If your spouse's assessable income and reportable fringe benefits are less than $40,000, you can claim a $540 rebate on superannuation contributions

18% of the lesser of:

  • $3000 decreased by $1 for every dollar your spouse's salary and benefits exceed $37,000
  • spouse contribution total

According to the ATO, tax offsets and tax deductions are not the same. Tax offsets are deducted from your taxable income, whereas tax deductions are deducted from your assessable income. It is utilized in the tax calculation. So, regardless of your taxable income, each $1 of tax offset means you pay $1 less tax.

Offset for low-income superannuation

The government would contribute up to $500 yearly to the superannuation accounts of workers with adjusted taxable incomes. This income is up to $37,000 to avoid tax on superannuation guarantee contributions.

Low-income health care card

Over eight weeks, your weekly gross income must be below specific restrictions to qualify for a low-income health care card. A single person without children can earn up to $636 per week (or $1094 for a pair). It rises to $1,094 per child ($1,128 per couple) and $34 for an additional child. There is no requirement to pass an assets test.

Tip 8 - Tax offset for seniors and pensioners

Seniors or pensioners may qualify for an offset to earn more before paying tax and the Medicare levy. Under the pension age (now 66, rising to 67 in 2023 and 70 by 2035), you can earn up to $21,884 tax-free. 

When you reach pension age, you may be entitled to access more generous tax-free thresholds, known as the senior and pensioner tax offset (SAPTO). The table below displays SAPTO thresholds.

threshhold for SAPTO1

Tax saving tip:

Senior Australians who earn less than $32,279 for singles (or $28,974 for couples) do not pay income tax. Senior Australians who draw income from a share portfolio are encouraged to file a tax return because they will receive a refund from their excess franking credits.

Using SAPTO and LITO, a single person can earn up to $32,279 (or $28 974 for a couple) in non-super income without paying any tax. Taxed superannuation benefits are tax-free.

Senior Australians over the age of 65 but still working can keep more of their pension through the Work Bonus incentive if they have earnings. The Work Bonus permits a qualified senior to earn an additional $300 per fortnight before their pension rate is affected. 

Single retirees can earn $478 per fortnight (including $300 from Work Bonus and the $178 income test exemption) and still receive the maximum pension rate. 

They can save any unused portion of the $300 fortnightly Work Bonus exemption amount to $7,800 in a Work Bonus income bank. The amount in the income bank is not restricted in time; if it is not used, it can be carried forward to future years.

Tax saving tip:

Seniors who aren't eligible for a pension owing to income or assets may still be eligible for a Commonwealth Seniors Health Card if they continue to live in Australia and their adjusted taxable income is below:

  • Single: $55,808
  • Couples: $89,290
  • Couples separated by illness, respite care, or incarceration: $111,616 

Tip 9 - Government benefits

With so many forms of government benefits, it's no wonder some families are confused and don't claim what they're entitled to. Most benefits are means-tested, so they decrease as income rises.

If unsure, overestimate your annual income. If you've spent the money, it's hard to refund Centrelink.

Tip 9 Government benefits

Family Tax Benefit - Part 1

This benefit helps raise children and full-time students under 18 years old. In addition to family income, the number and ages of your dependents affect the benefit amount. It's only paid until your teen's senior year.

Family Tax Benefit - Part 2

This benefit helps families with one main income if the primary earner makes less than $100,000. Before the benefit is reduced, the lower-earning parent can earn up to $5,767. Family Tax Benefit Part 2 diminishes when the secondary earner earns more than $28,671 per year.

Parental payment

Primary caregivers receive this payment. It's income and asset-based.

Payment to Jobseekers

If you're unemployed, between 22 and the Age Pension age (currently 66), or sick or injured and can't work, you may be eligible for the JobSeeker Payment from Services Australia. 

Maximum fortnightly payments range from $620.80 for single jobseekers without children to $850.20 for single significant careers. A waiting period of 1 to 13 weeks will exist, depending on how many liquid assets you have. You will be ineligible for the Jobseeker Payment if your other income or assets exceed certain thresholds.

Income Verification

If your other income is less than $150 a fortnight and your partner makes less than $1,124, you may be eligible for the entire Jobseeker Payment. 

It fades out once you hit an income cut-off ($1217 if single with no children, $2321 if single with a dependent kid and no mutual obligation requirements).

Assets Evaluation

Single homeowners must have assets worth less than $268,000, with a couple's total assets worth $401,500. Non-homeowners' thresholds rise by $214 500 ($482 500 for singles and $616 000 for couples).

Allowance for youth

Youth Allowance is a government payment for 16-to-24-year-old students, apprentices, and job seekers. It's based on the teen's and parents' income. 

The allowance is taxable and must be reported. Youth Allowance beneficiaries can't deduct study-related expenses.

National Insurance Scheme for the Disabled

People aged 7 to 65 with a permanent intellectual, physical, sensory, cognitive, or psychosocial disability may qualify for National Disability Insurance Scheme funding (NDIS). The NDIS has teamed with early childhood partners around the country to offer the Early Childhood Early Intervention programme.

Transition to work

Transition to Work helps young job searchers ages 15 to 24 who aren't studying or working. Eligibility is limited to those without a Year 12 (or equivalent) or Certificate III.

Pension loan programme

Suppose you or your partner are eligible for the Age (or Disability Support or Widow B) Pension and own Australian real estate. In that case, you can apply for a non-taxable loan if you require extra income for a short time or indefinitely. The debt can't exceed 1.5 times the maximum fortnightly pension. The 2021-22 government budget suggested a no-negative-equity loan guarantee and a 0.5-times upfront lump amount payment.

Risks - 

  • The principle of the Pension Loans Scheme is accruing interest at a rate that is much greater than what banks lend at (currently 4.5%). While we are all aware of the advantages of compound interest while saving, there is a significant disadvantage when there is no minimum return to the government because interest is paid on interest over time.
  • The maximum amount you can gift to a friend or relative under the gifting regulations is $10,000 every financial year and $30,000.00 over the previous five years. Under the assets test, any excess funds are added back to your assets.

Senior card

Each state and territory offers a free Seniors Card that gives travel concessions and discounts at participating businesses. To qualify, you must be a state resident, 60 or older, and not working more than a defined number of hours per week (less than 20 in NSW and 35 in Victoria and Queensland).

Other family advantages are - 

  • Supplement for single-income families
  • Stillbirth compensation
  • Rent help
  • Scheme to help underprivileged youngsters
  • Payment for caregivers
  • Paying for education
  • Payment for a stillborn child

Tip 10 - Family Breakdown

While we all want the perfect marriage and live happily ever after, over one-third of marriages end in divorce in Australia. The tax system offers provisions to help separate families financially. These rules cover CGT, superannuation, and child- and partner-support income.

Tip 10 - Family Breakdown

Asset transfer

You are usually subject to CGT when you sell an asset bought after 19 September 1985. When you transfer assets to your spouse due to a breakup, it is considered an "automatic rollover", and you do not have to pay CGT. Except for the family home, which is exempt, any subsequent asset disposal will trigger the CGT laws.

Transferring property to your ex-spouse by court order after a divorce is tax-free.

A capital gain or loss occurs when the asset is sold, and the spouse who received it (the transferee spouse) will make the gain or loss when the item is sold.

Risk -

If you and your spouse divide your property privately or informally, marital or relationship breakdown rollover does not apply.

Transfer of superannuation

Divorcing couples roll over their superannuation. This rollover split doesn't need to wait until retirement because the money isn't being released.

Payment for child and spouse support

Child or spousal support payments are not included in your taxable income but are included in your adjusted taxable income for tax offset purposes. Child and spousal support payments aren't tax-deductible.

ATO works with CSA to:

  • Provide child support agency with information to calculate payments
  • Encourage tax filings
  • Tax returns can help collect child-support debt.

Some feel enforceable financial agreements violate the purpose of marrying based on love and trust, yet seeking legal advice could prevent a bag egg. Divorce may be costly. Before creating any agreement, consult a lawyer.

Tax Saving Tip:

While it's tempting to defer filing income tax returns for a few years to avoid increasing child support, you could miss out on other benefits (like tax refunds and government subsidies) or incur ATO late lodgment penalties.

Tip 11 - Taxes on Death

Taxes, death, and taxes on death are the only things that are certain in life. Australia has no gift or inheritance tax. But don't be fooled: certain transactions that occur due to a person's death are subject to taxation.

Tip 11 - Taxes on Death

Date of death return

Executors must finalize the deceased person's tax affairs, including any outstanding tax returns.

The 'date of death return' covers the period from the previous 1 July to the date of death. It should cover all assessable income and tax-deductible costs up to death.

The primary individual tax rates apply to the final tax return, Medicare levy, and Medicare levy surcharge, with the total tax-free threshold. Any mandatory HELP or SFSS repayments are also included, but outstanding HELP debt is eliminated.

Tax Saving Tip:

Ordinary and capital losses lapse with death and cannot be carried forward. If possible, use capital losses to sell appreciated assets before death.

Returns from deceased estates

Trust returns include post-death income and deductible costs. You must file tax returns until the estate is entirely administered and no longer earning money. For the first three tax returns, no-beneficiary estate income is taxed at individual rates with the entire tax-free level. There's no Medicare levy. 

In the fourth and subsequent years, the concessional period ends and progressive trust tax rates apply, as shown below.

Deceased estate tax

To file a tax return for a deceased estate, you'll need a new tax filing number.

Beneficiaries

A beneficiary receives all or a portion of a deceased person's estate. Beneficiaries may have tax responsibilities based on any distributions they receive. If the trust's dividend includes:

  • Corpus. There is no tax to be paid.
  • Income. The beneficiary's marginal tax rate is applied.
  • Assets. On future disposal, capital gains tax may apply.

Risk -

Funeral costs are not tax-deductible and do not qualify for the medical expense tax credit.

Tip 12 - Family Trusts

Trusts manage and preserve family wealth. Income and capital can be dispersed among beneficiaries in the most tax-effective way. 

Beneficiaries have no legal right to trust assets until the date mentioned in the trust deed (for example, Billy is only entitled to the assets when he turns 30).

Tax-saving tip:

If you're concerned that some family members will "blow" all of the assets you've worked so hard to accumulate over the years, setting up a trust will provide you with some relief.

Trusts are great for beneficiaries who are hopeless with money, have a drug addiction, long-term health problems, or a potential relationship collapse. 

Protecting family assets from 'creditors and predators'. Two leading family trusts are:

Tip 12 - Family Trusts

Discretionary trusts

These are often established up to hold family members' property and money or run a business.

Testamentary trusts

These are made by a clause in a person's will but aren't established until after death.

A testamentary trust manages your family's money after death. While you won't be around to oversee the trust's management, you may be assured that the ATO won't financially harm your loved ones.

Testamentary trusts have several tax advantages, including the ability to tax distributions to minors at the lower adult rates.

Risk - 

The cost of forming and maintaining a trust might be substantial. The benefits of having a trust structure may outweigh the costs, especially if the assets involved are not valuable.

The trustee owns the trust property and manages it for the beneficiaries. The trustee must follow the trust deed and operate in the beneficiaries' best interests. In Australia, a trust can function for up to 80 years, but the trust deed usually allows the trustee to wind it up early if necessary. By 30 June of each year, you must document all distributions.

Trustees who have allocated net income 'on paper' to particular tax-advantaged beneficiaries (such as corporations) but have not physically received any payments from the trust are frowned upon by the ATO.

Using trusts to manage your wealth has several advantages, including:

Asset security

In certain circumstances, you may secure family assets from creditors and predators in the event of bankruptcy or insolvency.

Throughout Australia

A trust constituted under Australian law can operate in any country's state. If you have potential beneficiaries living abroad, you should get professional guidance before proceeding because there are several tax consequences to consider.

Adaptability

Trust deeds are versatile and can accommodate a wide range of beneficiary classes and investments. Thus various sources of money can be allocated to various recipients.

Little regulation

Trusts are not subject to the exact reporting requirements and obligations of corporations.

Minimization of taxes

Family members might receive income at a lower tax rate.

Tax-saving tip:

If you invest in a term deposit, consider having it mature after 30 June so that any interest earned is not taxed until the next fiscal year.

Bottom line

Physical and mental health care can contribute to a longer, better life, while financial preparedness can lower tax burdens. Everybody wants lower taxes. Learning ways to lower your taxable income will help you pay off debts and consolidate debts faster. 

FAQs

How does a family trust taxed in Australia?

There are two types of family trusts in Australia: discretionary trusts and testamentary trusts. Discretionary trusts are set up during a person's lifetime, while testamentary trusts are established through their will after they die. Both types of family trust are taxed differently. Discretionary trusts are taxed at the top marginal rate, plus a 2% surcharge. This means that if the trustee is a high-income earner, the trust will be subject to a higher tax rate than if it were an individual taxpayer. Testamentary trusts, on the other hand, are simply taxed at the beneficiary's marginal tax rate.

How can I make tax free money legally?

There are a few ways to make money without paying taxes on it. One way is to earn income that is not considered taxable. This includes interest from savings accounts, bonds, and certain kinds of dividends. Another way to make tax-free money is to participate in government benefit programs. You can also get tax breaks by investing in certain kinds of accounts, like 401ks or IRAs. Finally, you can also make money by selling items that are exempt from taxation, like artwork or antique furniture.

How can I save my maximum income tax?

There are a few different things you can do in order to save the most on your income taxes. One of the best ways is to make use of all available tax deductions and credits. You can also take advantage of retirement account contributions, and try to keep your taxable income as low as possible. You can also take advantages of -
Child care subsidy
Dad and partner pay
Paternity leave

Finally, be sure to file your tax return on time and in the correct format!

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