Trust Distribution Resolution

A missing trust distribution resolution can cost you a lot of extra tax. All just because of a missing piece of paper.

Trust Distribution Resolution

A trust doesn’t pay tax. The beneficiaries do. And if there are no beneficiaries, then the trustee pays the tax.

The problem is that the trustee pays tax at the top marginal tax rates (45%).  So never have the trustee pay the tax. But how?

You make sure that all trust income is distributed to beneficiaries on or before 30 June. And for that you need a trust distribution resolution before 30 June.

To help you with that, here is a sample text. Just copy and paste this trust distribution resolution – for a trust with a corporate trustee – and then adjust the details.

Quick disclaimer: We ain’t lawyers. So please just use this as food for thought and consult your lawyer.

—————————

Minutes of Trustee Resolution

The directors of

SAMPLE PTY LTD
ACN 123 456 789

Acting as trustee of the
SAMPLE FAMILY TRUST
Established by Deed dated 1 July 2017

Being John Sample (Chair) and Joanne Sample
Present at the location and as of the date noted below

Resolved in favour that the trust income for the current financial year, if any, as determined by the trustee in accordance with the deed, be distributed as follows:

1 – JOHN SAMPLE To receive 50% of ordinary trust income and any capital gains and proceeds from any sale of capital gassets.

2 – JOANNE SAMPLE To receive 50% of ordinary trust income and any capital gains and proceeds from any sale of capital gassets as well as 100% of any residual trust income (if any).

The Chair instructed the Secretary to do all things necessary to give effect to the resolutions passed at the meeting. There being no further business the Chair declared the meeting closed.

Signed as a true and correct record on 30 June 2025 at 10 Sample Road SAMPLETOWN NSW 1234.

—————–

And then you sign. That’s all. Do this on or before 30 June and it will save you a ton of tax each year.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

NSW COVID-19 Support

Get the NSW COVID-19 support payments you need.

NSW Covid-19 Business Support

Times are tough. Lockdown starts to bite. The first couple of weeks were ok – we all thought it would be over quickly. But now things are really turning south. You need help – fast. The good news is that there is money to help you. Not much, but hopefully enough.

There are four support payments on the table. Business Grant – JobSaver – Micro-Business Grant – and – Disaster payment. 

Setting the scene

It is an either-or proposition. You have the Business Grant and JobSaver on one side if your business sales are over $75,000.

And then you have the Micro-Business Grant on the other side if your business sales are between $30,000 and $75,000.

The disaster payment is completely separate from all this and has nothing to do with your business. The disaster payment goes to you as an individual employee who lost work hours.

So if you are an employee of your company, then you might be able to double-dip. Your business might get the business grant and JobSaver while you as an employee might be able to qualify for the disaster payment.

If you are a sole trader, unfortunately, there is no double-dipping since it is all just you. So you go for either or.

NSW 2021 COVID-19 Business Grant

Covers the first three weeks of the lockdown from 26 June to 17 July 2021. It is a three-tiered payment of $7,500, $10,500 or $15,000 depending on whether your turnover dropped by 30%, 50% or 70%. Your annual turnover must be $75,000 or more. Applications close on 13 September 2021.

NSW 2021 COVID-19 JobSaver

Starts from week 4 of the lockdown, so from 18 July to the end whenever that will be. JobSaver pays at least $1,500 per week or 40% of your weekly payroll based on your March 2021 BAS if employing or $1,000 per week if non-employing. You must have had a 30% drop in sales and your annual sales must exceed $75,000. Applications close 18 October 2021.

NSW 2021 COVID-19 Micro-business Grant

Starts from week 1 to end of the lockdown and pays $1,500 per fortnight. You qualify if you had a 30% drop in sales and your annual sales must be between $30k to $75k. Applications close 18 October 2021.

Disaster Payments

Disaster payments have nothing to do with your business. They go to you as an individual employee. Payments started low but are now $450 and $750 if you lost less or more than 20 hours of work respectively. You apply through Centrelink.

Does that make sense? Please call me if you are not sure how to go from here.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Child Maintenance Trusts

Child Maintenance Trusts Save Tax

Child maintenance trusts save tax but at what costs?

Child Maintenance Trusts

There are two reasons why child maintenance trusts are not that popular, even though they can save you a lot of tax.

Save Tax

Let’s say you pay $40k in child support for two children per year. If you earn more than $180k per year, this means that you need to earn $80k each year to pay $40k in tax and $40k in child support.

A child maintenance trust let’s you scrap those $40k in tax. So then you just pay the $40k in child support and no tax. And your two children don’t pay any tax either if this is their only income. So zero tax all the way through.

Sounds good, right? But …this tax saving comes at a huge cost. You lose two things:

1 – Loss of Capital

Let’s assume a 5% return. For the trust to earn $40k a year, you need to hand over $0.8m. These $0.8m are gone. Unlikely that you ever see that money again. They will go to your children at vesting. So you end up paying child support plus the $0.8m.

2 – Loss of Leverage

If you are the payer, you have one draw card to secure regular access to your children – apart from going to court: Regular payments.

By handing over all of the money in one go, you lose that leverage.

If you are denied access to your children, you could – in theory – retaliate by not paying out trust distributions, but then you don’t just have the other parent chasing you, You also have the ATO to deal with.

Trade Off

Despite all this, a child maintenance trust might work for you if you are certain that access to your children won’t be an issue.

You can trade a child maintenance trust against lower ongoing payments. So you negotiate lower child support payments and in return pay a certain amount into a child maintenance trust.

Summary

Child maintenance trusts are not that popular because you lose capital and leverage. But they might still work for you if you can reduce ongoing payments accordingly.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Carryforward of Concessional Contribution Caps

Carryforward of Concessional Contribution Caps

The carryforward of concessional contribution caps gives you time. It gives you time to decide.

Carryforward of Concessional Contribution Caps

It used to be a decision at the last minute. Do you top up or not?

If you don’t top up, you leave your concessional contributions at the superannuation guarantee (SG) that came with your wages.

If you do top up, you increase your concessional contributions to the relevant cap and claim a tax deduction for that top up. 

Whether you do or don’t used to be a last minute decision. It was a use it or lose it. But it no longer is. At least for five years it isn’t. You now have five years to decide.

Let’s start from the beginning.

Concessional Contribution Cap

You have a cap on concessional contributions each year. The cap is:

2018/19 – $25,000
2019/20 – $25,000
2020/21 – $25,000
2021/22 – $27,500
2022/23 – $27,500 (estimate)

This cap includes any superannuation (SG) guarantee you received. SG is the super your employer pays for you in line with your wage or salary. 

Tax Deduction

Concessional contributions are called concessional because somebody gets a tax deduction for these contributions. For SG your employer gets the tax deduction. For any top up you do.

Excess Contribution Tax

Nothing stops you from contributing more than these caps. But if you do (without a relevant rollforward), then you pay excess contribution tax.

Sometimes it makes sense to pay the additional excess contribution tax, but usually it doesn’t.

But you might not even have to, since there is the rollforward.

Rollforward

It used to be that if you didn’t use up a cap, you lost it. So if you didn’t make any concessional contributions in 2017, that unused cap was lost. But not anymore.

From 1 July 2018, you can rollforward any unused contribution caps for up to five years.

So in 2021/22 you could make a concessional contribution of $102,500 and claim a tax deduction for the full amount. Or if you wait another year until 2022/23, you could claim $130,000. Of course assuming you received no other concessional contributions in those years, so neither SG nor personal.

However, if you wait until 2023/24, then you lose the 2018/19 cap, since you are out of the 5 year period. 

So you have five years to decide, but at the end of the fifth year it is back to: Use it or lose it.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

work from home expenses

Working From Home Expenses

Working from home expenses reduce your tax debt.

Working From Home Expenses

Claiming working from home expenses saves you tax and hence money. For your 2021 tax return you have three options to claim working from home expenses.

1 – Simplified Method

Under this method you claim 80 cents per hour for every hour you worked from home.

The good thing about this method is that you don’t need

a) a dedicated workspace and
b) any receipts. Just working from home is enough.

The bad thing is that you can’t claim anything else. The 80 cents covers everything.

This method finished on 30 June 2021. So you can still use it for your 2021 tax return, but after that no more. 

2 – Fixed Rate Method

Under the fixed rate method you claim 52 cents per hour for your workspace. And then you claim a proportionate amount for your internet, phone, stationary, computer in addition to this.

The good thing about this method is that it might give you a higher deduction than the simplified method, but whether it does or not of course depends on the amount of your expenses. 

The bad thing about this method is that you must have

a) a dedicated workspace and
b) receipts for everything you charge in addition to the 52 cents per hour. 

3 – Actual Cost Method

The good thing about the actual cost method is that it might give you the highest deduction of all, depending on your actual cost and the proportionate size of your workspace.

The bad thing is that you need

a) a dedicated workspace and
b) receipts for everything.

For all three methods you need diary evidence to prove the hours you worked from home. So a timesheet, roster, diary or just a list where you write down the hours you worked from home, but this is easily done.

Rent and Mortgage Interest

One tricky question is always rent or mortgage interest, because they are big ticket items about a lot of money.

If you rent your place, can you claim a part of your rent or – if you own your home – part of your mortgage interest, council fees and house insurance?

The answer for employees is No. If you are working from home as an employee and so you have work-related expenses, you can’t claim rent but just the running costs for your work space, so electricity, gas, furniture and stationary etc. 

But the answer is possibly Yes, if you run a business at home or from home and your home is your only place of business. If you own your home, there is the risk that you might lose your CGT main residence exemption, but the risk might be lower than you fear. 

Just give me a call on 0407 909 779 if you want to discuss how to maximise your tax deductions.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

reduce child support payments

Reduce Child Support Payments

How do you reduce child support payments?

Reduce Child Support Payments

There are two scenarios where you really need to reduce child support payments you pay.

You struggle to make ends meet and child support pulls you down even further.

Or you would much rather spend the money on your kids directly rather than handing the money over to somebody else.

How many options you have to you reduce child support payments depends on the type of arrangement you have with the other parent.

Child Support Agreement

With child support agreements there is little room to move.

Your payments are usually fixed, so you pay a fixed amount each month. And an agreement often covers the payment of school fees and private health insurance, resulting in higher payments than under an assessment.

Changing a child support agreement is difficult. You need to come to a new agreement with the other parent or obtain a court order to change to a child support assessment.

But if you have a valid reason – redundancy, unemployment, health issues etc – you got a chance at court.

Child Support Assessment

You have a lot more room to move with child support assessments. There is more you can influence.

Services Australia determines your child support assessment based on a complicated formula that takes each of your taxable incomes (+ adjustments) and nights spent with the children into account.

So there are five ways to influence those two factors.

Five Ways That Work

1 –  Increase Care

The more time you spend with your children, the less you pay. And the more memories you create together.

2 – Work Less

The less you work, the less you pay. And the more time you have to spend with your children and look after yourself.

3 – Run Your Own Business

There is a lot you can do when you run your own business. Talk to your accountant or call me at numba.

4 – Move to an Island

An extreme solution and not for everyone. If you move to a country Australia doesn’t have a social security agreement with (Cook Islands, Samoa, PNG, Yukon or Israel), Services Australia can’t reach you. The question is just what happens when you come back to Australia later on.

5 – Work for Cash

Working for cash is illegal and we don’t recommend it, but it is a way to reduce child support payments.

So this is what works. And here is what doesn’t work.

Three Ways That Do NOT Work

If you are subject to an assessment, there is no point doing the following three to reduce child support payments.

1 – Salary-Sacrifice Super

Salary-sacrificing super has no effect on your child support payments, since any salary-sacrificed amount is added back as an adjustment.

2 – Investment Loss

Investment losses have no effect either, since they are also added back as an adjustment. 

3 – Moving to a Reciprocating Country

Australia has reciprocating arrangements with most countries, so Services Australia will still be able to enforce your payment obligations if you move.

Summary

So in a nutshell you decrease your child support payments by working less and spending more time with your children.

Does this make sense? Please call me if you get stuck.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Tax When You Buy Overseas Shares

Tax When You Buy Overseas Shares

How to avoid additional tax when you buy overseas shares?

Tax When You Buy Overseas Shares

You can join a global trading platform and within seconds you own a share of Apple, Google or Tesla. But what are the tax implications?

If you get this wrong, you will end up with a lot more tax to pay, also called withholding tax leakage.

So let’s say that you buy $1m worth of Tesla shares – either as an individual, trust or company – and that they pay you a $100,000 dividend. Just dreaming.

So let’s start with you having bought the shares as an individual

Individual

You are entitled to $100,000 of dividends. This is your income.

But the dividends are subject to a withholding tax of 15%, so you receive $85,000 in your Australian bank account.

In your individual tax return you include income of $100,000. At the top marginal tax rate of 45% your tax liability is $45,000.

But you already paid $15,000 withholding tax. And so you receive an offset for this money. Meaning you don’t have to pay it again.

And so you pay $30,000 in Australian tax. With the withholding tax you paid this gives you an effective tax rate of 45%.

Trust

If you bought the shares through your family trust, the same applies. If the trust distributes the $85,000 to you, you recognise the $100,000 as income plus a foreign income tax offset (‘FITO’) of $15,000.

As before your tax liability at the top marginal tax rate is $45,000. Less the FITO you pay $30,000 in top up tax in Australia, giving you a 45% effective tax rate.

Company

As before, the $85,000 arrive in your company’s bank account. The company recognises income of $100,000 and so has a tax liability of $25,000 at a company tax rate of 25%.

But the company receives a FITO for the withholding tax, and so the company only pays $10,000 in top up tax and still has $75,000 in the bank

And so all is well. Until the company wants to distribute the $75,000 to you. Now you run into issues.

Because you only get a franking credit for the Australian tax your company paid, but not for the withholding tax.

And so the dividend of $75,000 only arrives with a franking credit of $10,000, not $25,000.

So you recognise income of $85,000. At a marginal tax rate of 45%, the tax liability is $38,250. But you have a $10,000 franking credit, so you only pay $28,250. So in total you paid $15,000 withholding tax plus $10,000 corporate tax plus $28,250 individual tax = $53,250, giving you an effective tax rate of 54.25%.

So when you buy overseas shares through a company, you pay almost 10% more tax on overseas dividends than if you had received those as an individual or through a family trust.

Does this make sense? Please give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Tax When You Expand Overseas

Tax When You Expand Overseas

What happens to your tax when you expand overseas?

Tax When You Expand Overseas

There are two things you need to look out for around tax when you expand overseas. And these are GST and income tax. 

GST

When you sell things overseas, these sales are usually GST-free in Australia.

However, the other country might charge GST on your products. And they charge this GST in one of three ways:

1 – If you sell via a platform like Shopify or Amazon, the platform will charge the overseas GST.

2 – If your product exceeds a certain value, the other country will hold your shipment until your customer pays the overseas GST. 

3 – And if total sales in that country exceed a certain threshold, your Australian or overseas company – depending on who makes the sales – is required to register for GST, charge overseas GST and lodge overseas GST returns. 

So that’s GST in a nutshell. Of course, the devil is in the detail, but this is roughly how it works in most countries.

Income Tax

In Australia you are taxed on your worldwide income, assuming you are a tax resident of Australia. 

But to what extent any overseas profit is taxed in Australia or overseas, depends on what you are doing overseas. So you face one of four scenarios.

1 – You have no presence in the other country – no staff, no stock, no office, no warehouse, no company or other entity, nothing. And so you pay no income tax over there. Everything is taxed in Australia.

2 – You have an entity over there that will pay that country’s tax just like anybody else. When you now distribute these profits back to your Australian entity, there is no further tax. So your business only pays tax once on these profits. 

3 – You have no entity over there but a presence – be it staff, inventory, wharehouse, office or something else. And so you have a so-called permanent establishment. And this permanent establishment lodges tax returns and pays tax over there just like a real entity. Any profits sent back to Australia come with a credit for any tax paid overseas, so your business only pays tax once.

4 – You have an entity over there but are able to argue that this entity is an Australian tax resident and has no permanent establishment in the other country. It used to be that you only need central management and control in Australia for this to work. But now you also need your core operations in Australia. And that makes scenario 4 beyond the point now and infeasible.

Double Taxation

Why would you even be interested in scenario 4 if it was still feasible? Because scenario 2 and 3 have one big drawback if you operate through an Australian company – double taxation.

When you distribute the overseas profits to you as the sole shareholder, there is no franking credit attached to the extent the Australian company didn’t pay Australian income tax.

The foreign income tax paid doesn’t give you franking credits. And so you pay tax again on the overseas profit at your marginal tax rates. If …..

Ways To Avoid Double Taxation

If there is an overseas profit. And if you actually distribute those overseas profits to the individual shareholder.

The Australian entity can on-charge any expenses it incurred for the overseas entity (plus margin) in form of management fees. That might already reduce the overseas profit to nil or at least significantly reduce it. But make sure you can justify these charges. The overseas tax collection agency might look at your transfer pricing.

And you don’t have to distribute the overseas profits anyway. If you want to keep some profits in the Australian entity to fund further expansion, you keep the overseas profits and pay the Australian profits out and hence no double taxation either.

Permanent Establishment

Whether you have a permanent establishment (‘PE’) in the other country is not always easy to tell. There is a lot of grey. But here are a few clear indicators.

Using a 3PL service doesn’t create a PE, but using your own warehouse does.

Having independent contractors doesn’t create a PE, but having dependent contractors or staff does.

Using a shared office from time to time while you travel doesn’t create a PE, but having a permanent office does.

The rest depends on the double tax agreement between Australia and the other country and a few other things.

Summary

So when you want to expand overseas, look at GST and income tax. And give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.