Income splitting refers to ensuring income is legally earned by a partner or family member and taxed at their lower tax rate.
In respect of share investments, we often find that new clients have done that.
It often surprises me though, indeed just as it is with a new client, how often the high income earner has all the bank accounts and term deposits earning interest in their own name. Having such accounts in joint names is half as bad. The tax burden would be a lot less if held in the name of the spouse name on the lower marginal tax rate (and almost always will still be treated as a joint asset for family law purposes). Same income, better tax result.
Negatively geared properties however require detailed consideration. Negative gearing refers to the situation where the interest and other expenses incurred on an investment exceed the income from that investment. The tax break on negative gearing often dictates that the investment be made in the name of the high income earner. That said, with the 10 year bond yield under 1%, interest aren’t going up in a hurry – which means that properties become more quickly positively geared than they have in recent years. In other words, getting a tax break doesn’t last for that long and actually becomes a tax problem relatively quickly.
The other factor for consideration is when will the property be sold.
If in retirement, the tax burden may be low; if whilst working the tax could be eye watering.
We welcome any tax question you may have.
At MRS, we will spend today planning for your success.