Hi,
My husband has a high income >$350,000 and I have a moderately high income (approx $100,000). We have no kids, no debts at all (farm worth $650,00 and owned outright but still in my name as purchased by me before our recent marriage) and both in good health and still young (average age 42) with a happy committed marriage. But we are being eaten alive by tax! We're in a country area, working long hours so have no had access to good advice. I want to turn our financial situation around – beyond our 100 acre farm we have no assets and find ourselves paying massive crippling PAYG bills for my husband's (not farm related) professional income so we're not doing half as well as we should be with an income approaching half a million! A few ideas we have had for legal tax minimisation are
1. Build the farm up into a legitimate tax offsetting business (including from stud livestock sales and also build a small holiday cabin on the farm and let that out short term); to date have spent much money upgrading the homestead and farm trying to turn the property into an income earning business – with very modest results but this is realistically a 5 year goal and we are only 2 years down that track
2. Buy an investment property (we were told we'd need to buy a few properties to have any significant tax gain)
etc.
What is the best choice for us from a tax and investment perspective? Who can I go to for good advice? What else should we be doing with our high income to fortify ourselves against the hard times that will surely come one day? Thanks for your thoughts – it's so hard to touch base with creative financial minds in rural areas!
Having a high income and paying lots of tax is a good problem to have. If you were to purchase property, it should not be for tax benefits. If you do purchase property, it would probably be a good idea to purchase using a discretionary trust structure so you can direct the income into the lowest income earner and save on tax.
Cheers,
Lukeluke86 wrote:Having a high income and paying lots of tax is a good problem to have. If you were to purchase property, it should not be for tax benefits.I agree with Luke. The tax benefits associated with property investing should only be seen as a bonus – not the fundamental reason for investing.
Think about it – with negative gearing benefits you're essentially taking $1 out of your pocket and the ATO is giving you back 40 cents…..so it's still costing you 60 cents. This isn't an issue providing the property is growing in value.
A discretionary trust can be handy for distributing income when the properties are cashflow positive….not so good when the properties are making a loss that can be claimed against your PAYG incomes though.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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I see you have averaged your ages, and it would be good if you could average your incomes as well, but ithink you would still be on more than $200,000 pa and on the top rate.
Depending on what sort of work your husband does it may be possible to divert some of his income into a company or a service trust. This should enable the tax rate to be 30% max on this portion. From there you can develop strategies to get the income out now in the form of loans or later on when your incomes are lower.
You could also look at super, smsf etc, but the money may be locked away for 20 more years.
Developing the farm is a good idea, but it won't save you tax.
If you have more than enough money to survive then I would look at gifting money to a discretionary trust. I think buying more assets in your own name is not a good idea, although it may assist with reducing the tax initially you will be making a tax time bomb.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Get a good acountant obviously you dont have one. Developing the farm will save tax Utilize FMD s the money you save in tax could be spent on Investment properties , depending on how many and LVR s, you could than take out any equity, for running expenses, to buy shares or more property. You can get 6% + return from your FMD you can use for cashflow if needed or you could invest that too. If you save 200k in tax and bought only one property you would have equity and casflow you wouldnt otherwise have. I thnk you can put a total of 500 k each into FMD s.
What is an FMD?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I could suggest Terry but I’d get barred!
Hi Janebell,
I'm an Accountant in Sydney if you still need help please look up our website http://www.callaughanpartners.com.au and get intouch with myself. For these sort of problems you need all the facts before trying to give any advise.
Brad
Callaughan Partners
Accountants & Business AdvisorsDear colleagues,
Thank you so much for your kind thoughts and advice. It confirms what I rather suspected – I need a good accountant who is as committed and clever as these folks here!
Thank you again!
Jane BellStill wondering what a FMD is ? Farms of Mass Destruction?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry an FMD is a essentially a term deposite that must meet certain requirements, designed to even out yearly cashflow variations for primary producers, so instead of being in the 47% tax bracket one year then zero the next two years. Money put in is not taxed, it is taxed when it is withdrawn. Minimium term is 12 months It may have changed but the minium primary production turn over required was about 20k. In IP terms it is a tax free buffer , you only pay tax on the interest earned. One thing people fail too realize is that as the money hasnt had tax paid on it , a 6% interest rate is as good as , 12% on money that has had the top tax rate paid on it. Banks arent allowed to use FMD s as colateral for a loan by law, but of course they do take it into consideration.
Thanks Crusty.
FMD = Farm Management Deposit
Found this example on google:
http://www.adelaidebank.com.au/make_me_money/farm_management_deposits.htmlWho can open an FMD?
- Primary producers with a non-farm income of less than $65,000 per annum.
- Accounts must be opened in one name only (joint/company accounts are not permitted).
- Primary producers may own more than one FMD, but they must all be with the same institution and not exceed $400,000 in total.
- You must read the ‘Statement to be read by Depositors’ (in accordance with Schedule 2 of The Income Tax Act) before applying. Full details and a copy of the Statement are available on application.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thats interesing Terry, I didnt know that, I would assume that is 65k taxable non farm income , and not 65k gross non farm income. Do you have any thoughts or Knowledge on that ? I guess that would be 65k each for a husband and wife.
Sorry Crusty, don't know much at all about farming or the tax and stamp duty concessions. But it sounds like there are a lot of concessions available. The above was just copied and pasted from Adelaide Bank
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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