Working with the family trust
Illustration: Rocco Fazzari
I am self-employed through a family trust. Money in the trust deposited in a bank account gives a low interest rate compared with personal deposits. Can I borrow money from the trust and put it in the bank as a personal deposit, then transfer the higher-interest amount back to the company? The way my bank accounts are set up, it can be done but I wondered whether it was legal.
Yes you can, but consult your accountant before doing so. I don't know the details of your balance sheet but, in the worst-case scenario, the tax office could deem the loan to be an unfranked dividend to you. The other downside is that the interest would be taxable in your hands, so consider putting the deposit in the name of a family member with a low tax rate. A simpler strategy may be to negotiate with your bank manager.
I have been working from home as a machinist for a company for the past 10 years. I go on the aged pension shortly and apparently income earned this way is not eligible for the $250 a fortnight allowance. The company I work for is happy to change my work status to part-time casual on wages, but I would continue working from home using my own sewing machines. Would this make me eligible for the allowance?
Centrelink advises that your question highlights the distinction social security law makes in what is considered employment income and what is considered business income. The work bonus applies to gross employment income. However, in some cases, someone who thinks they're self-employed may be considered to earn employment income and therefore be able to take advantage of the work bonus. Each case is assessed on its merits, so talk to the financial information people at Centrelink.
My wife and I recently sought advice as we have reached retirement age and the adviser asked why we were paying compulsory superannuation contributions with after-tax dollars. I was informed that compulsory super contributions may be paid with pre-tax dollars, attracting only 15 per cent tax, as opposed to paying the marginal tax rate. At the time that salary sacrificing was introduced, taxpayers were made aware of the benefits of using pre-tax dollars to pay voluntary contributions to super, but I don't recall any advice that we could use pre-tax dollars to pay the compulsory super contribution. When did the Australian Taxation Office introduce the rule that allows pre-tax dollars to pay compulsory super contributions? How do employees find out if they are paying their compulsory super contribution with pre- or post-tax dollars? How do they go about changing to pre-tax dollars if they are currently using post-tax dollars? Why has this been kept so secret?
There is nothing secret about it - salary sacrificing with pre-tax dollars has been a highly publicised strategy for years. Keep in mind, too, that under the superannuation guarantee legislation, 9 per cent of the gross amount (that is, pre-tax) of ordinary earnings must be paid to a superannuation fund. However, under an industrial agreement, there can be a requirement to pay either pre-tax or post-tax contributions. For example, some defined benefit funds require a certain amount of pre-tax or post-tax contributions in order to receive final superannuation benefits. For a detailed understanding of your situation, the trustee of your fund should be able to explain it to you.
I am 60 and expect to be made redundant next year, and do not expect to be able to find another job. I have some super and $90,000 in term deposits and want to reduce tax. If I started a self-managed super fund, would I have to wait until I am 65 to access it? If I accessed it before then, would I have to declare that I was no longer working, and would I have to exhaust all my super before I could claim a Newstart Allowance if I were unable to get another job? Would the costs of a SMSF offset any tax benefits?
If you are made redundant after age 60, you can access your superannuation immediately but you would need to take advice and proceed carefully. If you started an income stream from your super, the whole balance would be assessable by Centrelink and this could have an adverse effect on your Newstart Allowance. Currently, money in super is not assessed by Centrelink until the member reaches pensionable age, but there is also a liquid assets waiting period of 13 weeks - there is also an income maintenance period, which means you probably will not be eligible for Newstart in the early stages.
The simplest way for you to save tax would be to keep as much money in super as possible. The same legislation applies to retail super funds and self-managed super funds, so the question is what you would gain by starting your own fund. On the information supplied, there appears to be no benefit to you in doing this. I appreciate this is all quite complex, so make sure you involve your adviser every step of the way.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: email@example.com.
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