reduce child support payments

Reduce Child Support Payments

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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

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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

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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.