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Dedicated to my mum and dad. Thank your for being my biggest supporters in life and my biggest critics! I hope I made you proud. And no mum, I have never forgotten where I came from ... but what an amazing journey since. Love you. Sunshine.

ABOUT THE AUTHOR

Adrian Raftery (PhD, MBA, B Bus, AFA, CFP, CPA, CTA, FCA, FIPA FFA, F Fin, MAICD), aka Mr Taxman, is one of Australia's leading commentators on all matters relating to tax and finance. With regular columns in various investment magazines, an Associate Professor at Deakin University and frequent appearances on TV and in the media, Adrian is one of Australia's leading tax experts.

Part of Adrian's ‘tax' appeal as a financial media commentator is due to his personable and approachable style. Just as importantly, Adrian's 27 years' experience as an award-winning accountant working with small and medium businesses, and as a personal tax expert, means he has the relevant knowledge and experience to give qualified advice.

Adrian is considered so good at what he does that he is one of the youngest Australian accountants to have advanced to Fellowship with the Institute of Chartered Accountants at the age of 33 and had an award-winning Sydney accountancy firm at just 25! Adrian is also one of the country's leading experts on the rapidly growing Australian superannuation industry with work from his PhD on self-managed superannuation funds published in top-ranked international academic journals. These factors and Adrian's ability to translate complicated tax, superannuation and finance jargon into understandable and workable solutions are probably why ‘Mr Taxman' is frequently called upon for his viewpoints by the Australian media.

HOW TO USE THIS BOOK

This book is designed to be of benefit to 99.9 per cent of taxpayers. If you have an investment property, own a share portfolio, have money in superannuation, have a family, work as an employee or run your own business, there will be something in here for you.

While it is extremely unlikely that all 101 tips will be applicable to you, your family or your business, just feel comfortable knowing that one tip alone will be more than enough to pay for the investment you make in buying this book. This book has been written to take into account all phases of life, so if you find that only a few tips apply to you right now, don't worry because more tips will become relevant as you grow older. Make sure that you consult your own adviser to assess your own particular needs before implementing any of these tips.

If there is one constant with tax, it is change. That is why I update this book every year to take into account the latest federal budget changes in May. If you intend to use this book as a reference guide over a number of years, you should always check the latest tax legislation for the current figures and thresholds.

Remember that tax planning should be a year-round exercise, not merely one that's done in the last few weeks before 30 June. A lot of these strategies are just as useful on 1 July as they are on 30 June.






INTRODUCTION

Five years ago, my wife and I were extremely fortunate to celebrate the birth of our son Hamish via a friend who acted as a surrogate mum. Before we started the surrogacy process, I remember her telling us that she had a gift to bear children, but ‘a gift is not a gift unless it is given'.

I feel the same way about this book. Ever since I started working as an accountant at the age of 18, I have had a gift (some would say it is a curse) for understanding tax. But as a gift should be given, I have decided to share some great tax tips with you for a small tax-deductible fee (that is, the price of this very cheap book!).

This book has two objectives. First, I would like to help maximise everyone's refunds by making you more aware of the different ways that are available to help you save money on your tax legally. Second, through the setting of boundaries, I wish to reduce the amount of fraudulent claims made so that we all pay a fairer share of tax.

My motivation for writing this book was the number of families out there who didn't understand all the different types of government benefits and tax concessions that were available to them. I hope that this book will help reduce the confusion and that you will start claiming more of what you are legally entitled to.

This book is split into various parts in line with some key areas surrounding your finances:

In each part I will share with you a number of tips and strategies that you can implement to save money on your taxes — legally!

You should leave no stone unturned in your quest to legally minimise your tax. While everyone should pay their fair share of tax, Kerry Packer summed it up best when he famously said ‘don't tip them!'

Now I don't expect that every single tip will be applicable to every single person out there but I am confident that there will be at least one tip that will save you more than the cost of this book. Some tips will maximise your refund, others will minimise your tax, while others will simply save you money. Some may save you millions over a lifetime, others just a few dollars. But times are tough and every dollar counts.

Whatever you get out of this book, I hope it is positive and not too taxing! And this is my gift to you.

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PART I
YOU AND YOUR FAMILY

From marriage and children right through to divorce, retirement and ultimately death, all families encounter many life-changing events. And in nearly all of these events, there are tax consequences along the way.

The Australian tax system offers a range of tax benefits including credits, refunds, offsets and bonuses to support families. Some people feel ambivalent about putting their hand out for government entitlements. But don't be shy in claiming your fair share. After all, the government doesn't get shy when it comes to taxing you!

Part I looks at the tax concessions available to families, the special considerations you need to look out for, as well as some simple strategies to save tax within your family.

1 MARRIAGE

Accountants are frequently asked two questions by couples who are just about to get married: ‘Are there any tax implications once we tie the knot?' and ‘Do we need to start doing joint tax returns?'

Your wedding day is a special day. So I'm perplexed as to why on earth the bride and groom are thinking about the ATO during such an exciting time in their lives!

You don't need to worry about tax in the lead-up to your nuptials. Unless you are involved in a business together, you don't have to lodge a combined tax return. Any share of joint investments, such as interest, dividends and rental properties, is still recorded separately in your respective tax returns.

You do need to show on your return that you now have a spouse, and disclose his or her taxable income each year.

If you elect to change your name, you can notify the tax office:

You will need either your Australian full birth certificate; your Australian marriage certificate; or your Australian change of name certificate.

According to the ATO, the definition of spouse has been extended so that both de facto relationships and registered relationships are now recognised. Your ‘spouse' is another person (whether of the same sex or opposite sex) who:

It is not unusual to find a couple where each owns a main residence that was acquired before they met. However, spouses are only entitled to one main residence exemption for capital gains tax (CGT) purposes between them. If both members of a couple own a main residence they must do either of the following:

Provided the homes meet the requirements for the main residence exemption, they will both be wholly exempt from CGT for the period prior to the couple being treated as spouses. However, from the time the couple became spouses, only one exemption is available, though this may be divided between the two dwellings.

2 INCOME SPLITTING

Income splitting is a legitimate tax-planning tool and one of the easiest strategies to implement. There are a few simple strategies for you to follow and they all mainly revolve around the marginal tax rates for yourself and your spouse, both now and in the future. The tax rates for individuals, not including the Medicare and other levies, are shown in table 1.1.

The goal is to try to level the income of couples so that they are paying tax at the same marginal rate. While income from personal exertion (such as your salary) cannot be transferred to the other partner, there is scope to have passive income from investments transferred if the assets are held in the lower-earning spouse's name.

Table 1.1: tax rates for individuals excluding levies (2017‐18)

Taxable income Tax on this income
0–$18 200 Nil
$18 201–$37 000 19c for each $1 over $18 200
$37 001–$87 000 $3572 plus 32.5c for each $1 over $37 000
$87 001–$180 000 $19 822 plus 37c for each $1 over $87 000
$180 001 and over $54 232 plus 45c for each $1 over $180 000

Source © Australian Taxation Office for the Commonwealth of Australia.

It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see rich business people paying the highest tax rate (47 per cent including medicare levy) on interest or dividend income while their spouses don't fully use their $18 200 tax-free threshold. With a $1.6 million transfer balance cap on superannuation coming into effect 1 July 2017, there is an opportunity to split superannuation contributions between spouses such that each spouse maximises their respective $1.6 million thresholds before they retire.

The best tax outcome can be achieved with a low-income earner holding investment assets. They could earn up to $20 542 tax-free (see p. 14), receive a refund of all imputation credits and pay less tax on capital gains.


If you transfer an income-producing asset to your spouse you may need to find out the market value of the asset from a professional valuer. This is regardless of what you actually receive because the transaction is not independent nor is it at arm's length. In this situation either party could exercise influence or control over the other in connection with the transaction.

3 DEPENDANT (INVALID AND CARER) TAX OFFSET

The dependant (invalid and carer) tax offset (DICTO) is only available to taxpayers who maintain a dependant who is genuinely unable to work due to carer obligation or disability.





4 CHILDREN

Any income that has been earned by your child's efforts, such as wages from an after-school job, is considered ‘excepted income' and is taxed at the general adult tax rates regardless of whether your child is under 18. However, you should be cautious when putting investments in your child's name because minors do not enjoy the same tax-free thresholds as adults on this type of income, known as ‘eligible income'. Table 1.2 sets out the tax rates that apply to minors' eligible income.

Table 1.2: tax on eligible income for minors (2017–18)

Taxable income Tax on this income
$0–$416 Nil
$417–$1307 66c for each $1 over $416
$1307 and over 45% of total income

source: Australian Taxation Office for the Commonwealth of Australia.

If some of your child's income is excepted income and the rest is eligible income, they will pay ordinary rates on the excepted income and pay at the higher rate on the eligible income.

A child is eligible from birth for a TFN from the ATO. If your child is under 16 (at the start of the calendar year) and does not supply their TFN to the bank or share registry, then 45 per cent tax will be withheld on interest earnings over a threshold of $420 as well as on all unfranked dividends. If your child is aged 16 and over, then the threshold is reduced to $120.

Children do not need to lodge a tax return if their assessable income is less than $416. However, if tax has been withheld from them by an investment body or employer, then they must lodge a return in order to get that money returned to them.

Earnings from a child's investments must be declared by the person who rightfully owns and controls the investment, not the person whose name it is in, or whose name it is held in trust for. This is regardless of whether the money is spent on resources for the child.

If the funds in the account are made up of money received as birthday or Christmas presents, pocket money or savings from part-time earnings such as newspaper rounds, and these funds are not used by any person other than the child, then the interest earned is the child's income.

5 PAID PARENTAL LEAVE

Eligible working parents of children born or adopted may be entitled to the paid parental leave scheme to help them care for a new baby. The pay is for up to 18 weeks at the national minimum wage (currently $672.60 per week before tax) and is paid by either your employer or the government (where employers do not provide parental leave entitlements). You can claim for paid parental leave up to three months in advance.

To be eligible you must have worked at least 330 hours across 10 of the 13 months prior to the birth of your child, but your annual salary must also be less than $150 000. The work test has been extended so that mothers can count periods of paid parental leave they've taken for earlier births as ‘work'.



6 DAD AND PARTNER PAY

To help partners bond with their new baby, eligible working partners of children born or adopted after 1 January 2013 may be entitled to a single ‘dad and partner pay'. It is a one-off payment of up to two weeks at the national minimum wage (currently $672.60 per week before tax).

To be eligible you must have worked at least 330 hours across 10 of the 13 months prior to the birth of your child, but your annual salary must also be less than $150 000. You can be eligible if you work full time, part time, casually, seasonally, on contract or in a family business. You cannot be working or receiving paid leave during the period of claiming the dad and partner pay.

Claims must be lodged by the partner who is eligible to receive the payment. You can claim the dad and partner pay up to three months in advance or within a year following your child's birth or adoption. Employers are not required to pay this entitlement as it is solely administered and paid by the Department of Human Services.

7 CHILD CARE

Ask the parents of any young child and they will tell you that their biggest expense is child care. If you have a child who is attending child care services approved by, or registered with, the government you may be eligible for the Child Care Benefit (CCB). You can apply for the benefit at the Family Assistance Office. The amount you receive will depend on the type and amount of care that you use, your income, the reason you are using care and the number of children that you have in care.

The Child Care Rebate is additional help available to eligible working families to assist with covering the cost of child care. It is a 50 per cent rebate, up to $7500 per child per year per primary claimant, based on the out-of-pocket cost for approved child care after the CCB has been paid. Note that the Child Care Rebate is a different payment from the CCB. To receive the rebate you must first claim the CCB for approved care.

Parents can claim up to 50 hours of CCB per child per week dependent on passing a work/training/study test. Once eligible, the rebate is paid weekly or fortnightly by Centrelink based on child care attendance information it receives electronically from your service provider. Even if your child is absent from child care, the CCB and Child Care Rebate can still be paid in some situations. You can receive payments for up to 42 absences per financial year, if you are charged for child care. These absent days can be taken for any reason with no evidence required.


8 LOW-INCOME EARNERS

There are a few tax benefits available if you are a low-income earner, such as when you work part time.

Low-Income Tax Offset

The low-income tax offset (LITO) is a tax rebate for individuals on lower incomes. In 2017-18, the LITO will provide a tax rebate of $445 for individuals who earn less than $37 000. The offset is reduced by 1.5 cents for every dollar that your taxable income exceeds $37 000, before eroding entirely at $66 667.

To be eligible for LITO, you must be a resident for tax purposes and lodge a tax return. The ATO will automatically apply this offset to your assessment for you if you're entitled to it.


Superannuation Co-Contribution

If your total superannuation balance is under $500 000 and your total income is under the low-income threshold of $36 813 and you contribute $1000 post-tax to your super fund, the government will match it by 50 per cent with a further $500. The super co-contribution gradually phases out to nil (by 3.333 cents per dollar) at the higher income threshold of $51 813.

Superannuation Spouse Contribution Tax Offset

You are entitled to a rebate of up to $540 if you make contributions into your spouse's superannuation fund, if your spouse's assessable income and reportable fringe benefits are less than $40 000 (increased from $13 800 in the 2016-17 income tax year).

The rebate is 18 per cent of the lesser of:

Low-Income Superannuation Tax Offset

From 1 July 2017, this offset replaces the Low-Income Superannuation Contribution but despite the new name, the operation remains the same. The government will contribute up to $500 annually into the superannuation account of workers on adjusted taxable incomes of up to $37 000 to ensure that no tax is paid on superannuation guarantee contributions.