is tax-free) on any investment income derived. Likewise, have all passive deductions, such as charitable donations, in the higher-earning spouse's name as they may get a return of up to 47 per cent, depending on their income level.
The best tax outcome can be achieved with a low-income earner holding investment assets. They could earn up to $25 437 tax-free (see p. 15), receive a refund of all imputation credits and pay less tax on capital gains.
If an investor on the top marginal tax rate of 47 per cent had a $100 000 capital gain on an asset held more than 12 months he/she would pay $23 500 in tax and Medicare levy. If an investor with no other income had a $100 000 capital gain he/she would pay $5967 — a saving of $17 533.
Any tax benefit derived by transferring an income-producing asset from one spouse to another may be lost if there is CGT to pay on assets originally acquired after 19 September 1985.
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.
If you do not have a spouse, or you are both in the highest tax brackets, consider creating an investment company that is taxed at a flat rate of 30 per cent (reducing to 25 per cent if your company derives at least 20 per cent of its income from non-passive sources and has an annual turnover below the small company threshold of $50 million) for all income.
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.
The DICTO has consolidated the following tax offsets:
invalid spouse
carer spouse
housekeeper
housekeeper (with child)
child housekeeper
child housekeeper (with child)
invalid relative
parent/parent-in-law.
The ATO may deem you eligible for the DICTO if the following applies:
you contribute to the maintenance of your spouse, your parent (or your parent's spouse), your child (aged 16 or over) or siblings (aged 16 or over)
your dependant was being paid either:a disability support, a special needs disability support or an invalidity service pensiona carer allowance for a child or sibling aged 16 or over
your adjusted taxable income as the primary income earner was $100 000 or less
your dependant's adjusted taxable income was less than $11 614
you and your dependant were Australian residents (not just visiting).
If you satisfy the above and your dependant's adjusted taxable income was $285 or less and you maintained him or her for the whole year, you can claim the maximum dependant (invalid and carer) tax offset of $2833.
The DICTO is reduced by $1 for every $4 that your dependant's adjusted taxable income exceeds $282.
You may be able to receive more than one amount of DICTO if you contributed to the maintenance of more than one dependant during the year, including if you had different spouses during the year.
The ATO defines your ‘adjusted taxable income’ as the sum of the following amounts, less any child support that you have paid:
taxable income
adjusted fringe benefits
tax-free pensions or benefits
income from overseas not reported in your tax return
reportable super contributions
total net investment loss for both financial investments and rental properties.
Marlene and Saxon are married. Marlene is genuinely unable to work and has no salary or wage income. They have rental properties and a share portfolio. Saxon has also entered into a salary-sacrificing arrangement to boost his super. His taxable income is $130 000 after claiming a total net investment loss of $18 000. He has reportable super contributions of $17 000.
Saxon's adjusted taxable income is $165 000 ($130 000 + $18 000 + $17 000). As Saxon's adjusted taxable income is over the income threshold for this offset ($100 000) he is not eligible to claim the dependant (invalid and carer) tax offset.
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 (2022-23)
Source: © Australian Taxation Office
