Tax Tip: Ensure Family Members Are In The Same Tax Bracket

This tax tip actually assumes that you’re using a trust, a discretionary trust maybe, or a company that might be owned by a trust to be able to distribute some dividends around and be able to have the flexibility to distribute to different family members. So what we want to see with this tax tip is all the family members within a similar tax bracket, meaning no one’s in a really high tax bracket, while someone else is in a really low tax bracket. 

Let’s take the example of my own, where I actually work full time, and my wife is actually on maternity leave at the moment so she’s not actually earning any income from working. So if I go and distribute all the income to me, that might take me into that highest tax bracket of 47% tax or maybe more, while my wife with no employment income might be earning literally $0 taxable income and still have a tax-free threshold of $20,000 that’s unused. So what we’re suggesting here is, let’s say we’ve got $200,000 in income, instead of giving it all to me, we might give $100,000 to me and $100,000 to her so that we even that out and we use her lower marginal tax rates to pay a little bit less taxes if we gave that extra $100,000 to me. 

The key here is we don’t want to see a huge discrepancy in tax bills or taxable incomes because of the marginal tax rates of individuals, which says the more that you earn in Australia as an individual, that the higher your tax rate as a percentage. So there’s a bit of an art and a science to this one. And the bulk of our tax planning is doing what we can here, from a legal tax planning perspective, to keep that tax bill as low as possible.