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Family trusts

While the ATO continues to crack down on its tax minimisation strategies, quite a few legal pathways to paying less tax while preserving wealth for retirement or estate planning purposes still exist.

Family trusts have significant tax-saving abilities, and can save high-income earners a fair amount of money over a few years by apportioning wealth to members in lower income brackets via a strategy called streaming.

Streaming income allows trustees to place a high proportion of the trust’s earnings into the names of their adult children (who are subjected to a lower marginal tax rate). Using the kids’ $18,200 tax-free threshold also means the investment income is not be taxed, and franking credits would are refunded. However, if children are below the age of 18, it may not to use this strategy since any investment income they earn above $416 attracts a much higher tax rate.

While streaming is a great option for minimising a family’s overall tax burden, it is not always a straightforward practice and may warrant professional advice. Here are two tips when using the family trust structure for tax purposes:

Take advantage of the tax-free thresholds: Make sure to take advantage of the $18,200 tax-free threshold if you have younger members in the trust, by transferring a higher allocation of the trust’s investment income to them.

Put capital gains and franking credits with low-income earners: Placing a higher proportion of profits to low-income earners can result in huge tax savings.

Posted on 4 September '15 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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