Trust distribution resolutionJoshua Hoehne

Trust Distribution Resolution

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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.

 

Child Maintenance Trusts

Child Maintenance Trusts Save Tax

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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.

work from home expenses

Working From Home Expenses

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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

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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.

minor benefit rule

Minor Benefit Rule

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The minor benefit rule is the one exception that turns a non-deductible contribution into a deductible one. 

Minor Benefit Rule

When you make a donation and you pay way more than the minor benefit you get back, then you obviously did this to support the charity. And that should be rewarded through a tax deduction. This is the essence of the minor benefit rule.

The tricky point is what makes a benefit a minor benefit. What means minor? That is the point the entire rule evolves around.

Recap

Here is a quick recap in case you haven’t read Tax Deductible Donation.

A donation is either a gift or a contribution. A gift is tax deductible if it meets the six conditions listed in s30-15 ITAA97 and TR 2005/13.

A contribution is usually not tax deductible, but there are two exceptions – the general deduction in s8-1 ITAA97 and the minor benefit rule. 

The general deduction in s8-1 (1) ITAA97 allows you to claim a tax deduction whenever you pay for something to gain assessable income. To get brand exposure or to buy donor data for example.

The minor benefit rule in s30-15 ITAA97 allows you to claim a tax deduction for a contribution if your contribution qualifies as a tax deductible gift without being a gift and – in addition – meets five other conditions.

Minor Benefit Rule

For your contribution to be tax-deductible after all, it needs to pass two tests. It needs to pass the test for a tax deductible gift. That is the first test. Let’s call it the gift test.

But instead of being a gift – the first condition for being a tax-deductible gift – it needs to pass the additional five conditions of the minor benefit rule. This is the second test.

Gift Test

The contribution needs to be LIKE a tax-deductible gift …apart from the fact that it isn’t a gift. So it must meet all the conditions a gift has to meet per s30-15 ITAA97 and TR 2005/13, except the first one about receiving nothing in return. Roughly speaking, a gift is tax deductible if it meets the following conditions. It must be

1 – a gift – skip this one – a contribution fails this one by definition;
2 – of money or property;
3 – of sufficient value;
4 – made voluntarily;
5 – with a tax receipt;
6 – to a recipient with DGR status.

This is the first test.

Minor Benefit Rule

The second test is passing the minor benefit rule. To pass the minor benefit rule:

1 – You must be an individual and not a company, trust or partnership.
2 – The event must be a fundraising event or charity auction.
3 – If you claim the price of a ticket, you can only claim up to two tickets.
4 – You must only receive a minor benefit in return for your contribution.
5 – The relevant charity must run less than 15 events of this type per year.

Minor 

The core essence of the minor benefit rule is that the benefit you receive is only…MINOR. The thinking is that if you get way less than you paid for, then you must have done this to support the charity. And that should be rewarded with a tax deduction. 

But what is a minor benefit? A benefit is minor if it is worth $150 or less and you pay at least 5 times more than what it is worth. So there are two criteria – market value and payment.

Market Value

The market value of the benefit must be $150 or less. 

This is important. It means that whenever you buy something at a charity auction worth more than $150, the auction item won’t qualify as a minor benefit. The same applies to the tickets for a fundraising event. If it is worth more than $150, no minor benefit.

But remember this is not about what you actually pay for the ticket or item. It is about what it is worth – the market value of your ticket to the event. And the market value of the auction item you successfully bid for.

Payment

You must pay at least 5 times more than its market value.

And this is just as important. It means that if the venue charges $100 per head, then you must pay at least $500 for the ticket for it to qualify as a minor benefit. And if an auction item is worth $50, you must pay at least $250 for it.

The argument is that if you pay 5 times more for what it is worth, you clearly pay the money for other reasons than the benefit you get back. Your intentions are clearly altruistic.

How To Determine Market Value 

A benefit is worth its market value, which is what you would have had to pay for the same good, service or event on the open market. And if there is nothing else like this, then a similar or comparable good, service or event (price or market comparison).

And if it is impossible to make a reasonable price or market comparison, then the market value is assessed based on cost. Take the actual cost plus notional costs plus a certain profit margin and you get the market value (cost-based approach). 

So the value of a benefit is assessed based on market value or cost. Since it is the charity issuing the receipt, they are the ones that need to ultimately work this out. 

Subsidised Benefits

What happens if some benefits are subsidised and the charity didn’t actually pay for these? Makes no difference. Any benefit is assessed based on its market value or cost, even if part or all of the benefit was actually subsidised by another donor.

Let’s say a donor picked up the tap at the charity Gala dinner. So the charity only had to pay $50 per meal, but not the additional $60 per head for free drinks. What is the market value of the benefit received? The answer is $110.

Or another donor donated a range of items for the charity auction. The minor benefit rule still uses the actual market value, despite the fact that the charity paid nothing for these items.

Even if everything was donated – venue, meals, drinks, MC and auction items – it would still be the market value of all this that would go into the calculation. The fact that the charity didn’t pay for some of the benefit doesn’t change the market value or notional cost of that benefit.

Free Event

What happens if attendees don’t pay for the ticket to attend and are just asked for a donation, which they are free to make or not?  Then the entire payment is a donation and hence tax deductible as such. In this case you don’t need to worry about the minor benefit rule.

Splitting

The charity can’t split the ticket into event and gift. It can’t say $150 of the ticket is for the Gala dinner and the other $350 are a gift. Para 149 in TR 2005/13 is very clear on that one,

Para 149: Where DGRs conduct fundraising events such as celebrity dinners, gala events, $1,000-a-plate dinners, and so on, the price of a ticket cannot be notionally split between the value of the material benefit received, that is, the meal, and the amount which represents a gift. Where attendees are to pay a given sum of money in order to attend a function, no part of that sum can be considered a gift. This is so even where the cost of attendance is well in excess of the value of the meal received.

But the charity can charge the meal at market value and then ask for a donation. Para 151 in TR 2005/13 even suggests that,

Para 151: However, a fundraiser can offer tickets to a function for an amount which approximates its market value, and solicit additional optional donations from potential attendees. The ticket cost will not be deductible as a gift. However, the additional optional donations will be tax deductible.

Example

After all this, let’s do an example. 

Let’s say there is a Gala dinner followed by a charity auction, which Bob attends. Bob pays $500 for the dinner worth $100 and he successfully bids $1,000 for a golf bag worth $100 and $500 for wine worth $50.

In that case Bob can claim 3 deductions. He can claim $400 for the ticket, $900 for the purchase of the bag and $450 for the purchase of the wine. 

FBT

And last but not least, just in case it confuses you. FBT also has a minor benefit rule. But it is a case of same name – different rule. The minor benefit rule for FBT purposes has nothing to do with the minor benefit rule for contributions to charities.

For FBT purposes, benefits that are less than $300 in notional taxable value count as minor benefits and hence are exempt from FBT. But that is FBT land and has nothing to do with tax deductible contributions.

 

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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 Deductible Donation

Tax Deductible Donation

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When can you claim a tax deduction for a donation you make? What makes a donation a tax deductible donation?

Tax Deductible Donation

The short answer is: You can claim a deduction, if you have a tax receipt from an entity with DGR status that says it is a tax deductible donation.

The long answer is more complicated and goes like this: A tax deductible donation is either a tax deductible gift or it is a contribution that falls under s8-1 or the minor benefit rule.

If a charity has given you a receipt that says tax deductible gift, you can stop here. You got your tax deductible donation.

But if the charity hasn’t given you a receipt yet and there is a question mark whether you will, then the following is for you.

Donation

A donation is any money or property you voluntarily give to a charity – be it a gift or a contribution. 

DONATION = GIFT + CONTRIBUTION

If you get nothing in return, your donation is a gift. If you get anything in return, your donation is a contribution.  

So every donation of money or property is either a gift or a contribution. Gift v contribution – that is the terminology the legislator uses in Div 30 ITAA97. The problem is that the ATO doesn’t. They talk about ‘gifts or donations’ in D9 of an Individual Tax return as well as on their website. Messy terminology. Don’t let that confuse you. The end result is the same.

Tax Deduction

Why does it matter whether your donation is a gift or a contribution? It matters for tax purposes. It matters if you want to claim a tax deduction since different rules apply depending on whether something is a gift or a contribution.

Gift

A gift is tax deductible if it meets the conditions listed in s30-15 ITAA97 and TR 2005/13. There are many fine nuances in these rulings, but roughly speaking, a gift is tax deductible if it meets six conditions. It must be

1 – a gift;
2 – of money or property;
3 – of sufficient value;
4 – made voluntarily;
5 – with a tax receipt;
6 – to a recipient with DGR status.

Contribution

A contribution is not deductible since you receive something in return. You are basically buying something, even if it is for a bad price. And so there is no tax deduction. But … there are two exceptions – the general deduction in s8-1 ITAA97 and the minor benefit rule. 

General Deduction s8-1

The general deduction in s8-1 (1) ITAA97 allows you to claim a tax deduction whenever you pay for something to gain assessable income. To get brand exposure or to buy donor data for example.

Minor Benefit

Whenever you get a benefit in return, you didn’t give a gift. But if this benefit is so minor in comparison to what you pay – if you pay way above market value – then you must have done this to support the charity.  

The dinner and auction was just the side show. It is a minor benefit in comparison to what this is about. This is the reasoning behind the minor benefit rule.  

Minor Benefit Rule s30-15

The minor benefit rule in s30-15 ITAA97 allows you to claim a tax deduction for a contribution if your contribution passes two tests.

The contribution needs to be LIKE a tax-deductible gift …apart from the fact that it isn’t since you received something in return. So it must meet all the conditions a gift has to meet apart from being a gift. That is the first test.

The second test is that the benefit must be minor. To pass there are five conditions about you, the charity and the event.

# 1    Individual

You must be an individual. Only individuals can claim a tax deduction under the minor benefit rule, but companies, trusts and partnerships can’t. 

# 2   Fundraising Event or Charity Auction

The minor benefit rule only applies to fundraising events and charity auctions. So it doesn’t apply – for example – to the cost of merchandise you buy through a charity website.

# 3    Tickets

If you claim the price of a ticket, you can only claim up to two tickets. 

# 4   Less Than 15 Similar Events

The charity running the event must run less than 15 events of this type per year.

# 5   Minor Benefit

This is the big hurdle. Whether a benefit is a minor benefit depends on its market value and what you pay for it.

The benefit you get must be worth $150 or less. And what you pay must be at least 5 times more than what you paid. These are the two deciding factors – market value and what you pay.

Market Value

The market value of the benefit must be $150 or less. If it is worth more than $150, no minor benefit. So if the ticket or auction item is worth more than $150, it doesn’t qualify as a minor benefit. 

But remember this is not about what you actually pay for the ticket or item. It is about what it is worth – the market value of your ticket to the event. And the market value of the auction item you successfully bid for.

What you Pay

You must pay at least 5 times more than its market value.

And this is just as important. It means that if the meal is worth $100 per head, then you must pay at least $500 for the ticket for it to qualify as a minor benefit. And if an auction item is worth $50, you must pay at least $250 for it.

The argument is that if you pay 5 times more for what it is worth, you clearly pay the money for other reasons than the benefit you get back. Your intentions are clearly altruistic.

—–

Here is more about the minor benefit rule. If you get stuck, please call or email us. There might be a simple answer to your question.

 

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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.

Commonwealth Seniors Health Card

Commonwealth Seniors Health Card

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The Commonwealth Seniors Health Card (CSHC) is to help you cover your medical expenses while self-funding your retirement.

Commonwealth Seniors Health Card 

Funding your retirement is one thing. There is super, maybe the age pension, maybe some personal savings.

Paying your medical expenses however is a different story. Nobody thinks of medical expenses to begin with. We all imagine our retirement to be spent on golf courses, cruise ships and overseas trips. But with time medical bills will enter the scene. And this is when the Commonwealth Seniors Health Card (CSHC) comes into play.

Self-Funded Retiree

The Commonwealth Seniors Health Card (CSHC) is aimed at self-funded retirees, who don’t claim the age or DVA pension – even though they are of pension age – and instead just live off their super.

It is to help self-funded retirees with their medical bills. The government’s hope is that this additional support will allow you to stay self-funded, even as your medical bills increase with age. 

Concessions

The CSHC comes with a range of possible concessions.

It might give you cheaper access to Pharmaceutical Benefits Scheme (PBS) prescription items and increase your benefits via the Medicare Safety Net. You might receive an energy supplement and receive other benefits from state governments and businesses. And there is a small chance that doctors agree to bulk-bill you as a CSHC holder.

The Centrelink / Department of Human Services website has more information about possible concessions.

Conditions

There are four conditions to qualify for the Commonwealth Seniors Health Card.

1  –  You must be of pension age, which starts somewhere between 65 and 67 depending on your date of birth;

2 –  You must be self-funded and not receive any income support from Centrelink or DVA (Department of Veterans Affairs);

3  –  You must be an Australian resident currently living in Australia;

4  –   Your annual adjusted taxable income (ATI) must meet an income test.  

The good news is that there is no asset test. So this is different to the age pension.

Threshold

The threshold for you annual adjusted taxable income (ATI) is indexed and hence changes each year. In rough numbers, your ATI must be less than $55k when single and less than $90k as a couple. If you live apart as a couple due to illness, respite care or prison, then your combined ATI is about $110k. 

Indexation

From 2001 until 2014 the ATI thresholds were not adjusted to inflation. And as a result, less and less self-funded retirees qualified for the CSHC.

With time this would have pushed the CSHC into oblivion. So in September 2014 indexation came back. And the income thresholds have been indexed every September ever since.

So you would think that increasing the income thresholds would make more Australians eligible for the CSHC.

But the indexation is offset by another change in the opposite direction. Since January 2015 deemed income from superannuation in pension mode is now included in your ATI and hence makes it harder to pass the income test. 

Adjusted Taxable Income

Your adjusted taxable income (ATI) is your

1 – taxable income plus
2 – foreign income not taxed in Australia, plus
3 – total net investment losses, plus
4 – employer-provided fringe benefits (if exceeding $1,000), plus
5 – reportable super contributions and plus
6 – any deemed super income from a taxed source.

Let’s go through these one by one.

1 – Taxable income

Your taxable income is your gross income less deductions. Even if you don’t have to lodge a tax return, you might still have taxable income.

2 – Foreign Income Not Taxed in Australia

This relates to income you receive from outside Australia for which you don’t pay Australian income tax. 

3 – Total net investment losses

Your total net investment losses are your net losses from rental-properties and from financial investments. You add these negatively geared losses back to your adjusted taxable income. 

4 – Employer-Provided Fringe Benefits

Employer-provided fringe benefits include benefits such as cars, loans, housing, and health insurance. But you only add them to your ATI if they exceed $1,000.

5 – Reportable Super Contributions

Reportable superannuation contributions are not the compulsory 9.5% superannuation guarantee (SG) contributions your employer might have paid for you. It also doesn’t include the non-concessional contributions you might have paid out of your after-tax income.

Instead, it is the salary sacrifice you might have paid into your super fund as well as any additional super your employer might have paid for you in addition to SG.

6 – Deemed Super Income from a Taxed Source

Super benefits can come from an untaxed or taxed source. Most Australians only have super from a taxed source. You usually find untaxed sources only among retired former government employees.

Super benefits from an untaxed source are subject to tax and therefore already part of your taxable income and hence ATI. So there is no need to deem any income. 

Super benefits from a taxed source while aged 60 or over are tax-free, however. As a result the actual payments are not included in your taxable income. And this is where deeming comes into play.

Your ATI includes a deemed amount of pension income for any pensions started post 2014. So not the actual payments, but a deemed amount.

New applicants on or after 1 January 2015 include deemed super income based in their adjusted taxable income.

This is a radical change, but it only applies to new applicants applying for the CSHC on or after 1 January 2015 and new pensions.

Pre-2015

This deeming of pension income only applies to CSHC cards issued and pensions started on or since 1 January 2015.

If you have been holding your current CSHC card since 31 December 2014 or earlier, then these pension benefits still fall under the old rules. Meaning there is no deeming of super income.

However, this grandfathering only applies to the actual pension in place as of 31 December 2014. If you start a new pension on or after 1 January 2015, then this new pension will be subject to the new rules, even though you might be a pre 2015-CSHC holder. 

Calculation

Deeming means that the actual amounts withdrawn from your super account are not taken into account for the ATI. Instead deeming assumes a standard rate of return on your super pension assets. Your actual returns or pension payments might be different from this standard return.

The calculation uses the asset value of your super pension assets applying a set interest rate. This might sound familiar. The age pension also deems super income since 1 January 2015.

Overseas Travel

You can spend up to 19 weeks overseas without losing your current CSHC. If you are away for longer, you need to apply for a new card.

This is important if you held your CSHC since pre-2015. A new application would break the grandfathering rules and would mean that your new card would become subject to the deemed income rules we will discuss later.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

MORE

Age Pension

Preservation Age

Retirement Age

 

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.

 

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