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Distribute to your Children Under 18 – Tax Planning Strategies to action prior to 30 June

Tax planning strategies before 30 June - distribution

How does this distribute to your children strategy work?

 

Discretionary Trusts are great for Young Families in Business as they give you… you guessed it, DISCRETION.

In fact they’re more well known as Family Trusts.

They give you discretion about who pays tax, how much they pay and potentially when it’s paid.

So let’s combine the power of discretionary trusts with the fact the you have a bunch of little ones running around the house!

The example we’ll use is where your taxable income is $200,000.

Remember all those dirty nappies, sleepless nights & Saturday morning sports events?  

Well the ATO is about to reward you for being a busy parent juggling a family and a business!

Option 1 (Without Tax Planning):  Pay in your own name

The tax rate in your own name would be at individual rates, of up to 47%.

So you’d be up for $67,547 Tax.

Ouch!

Option 2 (With Tax Planning):  Use your Discretionary or Family Trust to distribute $416 to each of your Children under 18.

Let’s say we you have 3 little ones under 18...  

  • That’s $416 to little Johnny.
  • Another $416 to baby Sarah.
  • And a final $416 to Mikey aka “Wreck It Ralph”.

With 3 kids, you’d reduce your taxable income by $1,248 which would means you’d save $586 in tax, when compared to paying in your own name.

What do you need to implement this strategy?

  • A Business.
  • A Discretionary or Family Trust.
  • Kids under the age of 18.
  • A chat with an Inspire Chartered Accountant - www.calendly.com/inspireca.
  • To take action prior to 30 June.

FAQ’s: Distributing income to your Children.

Why $416?  Seems low...

Many years ago, this used to be a few thousand dollars for each child.

The ATO has reduced the limit over the years, and it now sits at $416 per child.

What about Children OVER the age of 18?  Can I distribute to them too?

In most cases, yes - which (depending on their circumstances) massively increases the tax savings! #FistPump

My wife is pregnant and baby is due after 30 June, can I still flick $416 to the bun in the oven?

Nice try… but no.

They have to be born before 30 June to count.

Do step kids count?

Yes.  

Most trust deeds will allow this if you’re married or in a de facto relationship with their mother or father.

We have adopted children, do they count?

Yes - so long as they legally your children.

Do I have to actually give them the $416?  They  already cost me more than that a week!

The fact that you’re already supporting them more than $416 in the year, means that you have already given the money to them (or paid for expenses on their behalf worth more than $416).

So you don’t need to give them $416 in pocket money! Phew!...

So you’re telling me, if I have 15 children, I could bring my taxable income down by 15 x $416?

Yes, that’s right.

Tax free income of $6,240.  (A saving of $2,933 in the example above!)

 

NEXT STEPS:  You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.