Jump to content

Do you manage your part time earnings
for maximum tax benefit?


  • Please log in to reply
7 replies to this topic

#1 PureBliss

Posted 27 November 2012 - 07:37 PM

Hoping to gain some insight into how I can better manage our finances. We seem to have been caught out this year.

I have been fortunate to have a well earning career prior to having children. During mat leave I registered a business with the view of working part time for myself (consulting.)

My earnings for my first tax year were good. My tax return was further complicated by rental income for an investment property, and dividends from shares in my husbands business.

This was my first year with the dividends - almost 40k worth. Sadly I don't see a penny of it , as it goes straight back on a loan we took out to purchase the shares - the ATO considers it income though.

So in short, between my earnings, the rental income and dividends I am well and truly in the highest tax bracket, with really not that much "take home pay" to show for it. I am not eligible for family tax, childcare benefit etc etc. This year I didn't get a tax refund, but a compulsory debt of $6k (HELP debt) to be paid in one hit, rather than over time, all due to my "high earnings". At this point we are asset rich, but cash poor, mortgaged and taxed to the hilt, living in an unrenovated 70s delight, and with hardly any capacity to save.

On the advice of our accountant, we are planning to sell the investment property this year to give us some breathing space. I guess I am wondering now with the dividends considered "income" is it worth me strategically managing my earnings to within a certain tax threshold? Do many second earners do that to maximise their tax refund?

Or should I just be trying to earn as much money as possible and suck it up being in the highest bracket?

Any advice welcome!

#2 crayons

Posted 27 November 2012 - 07:47 PM

You should be taking yourself down to your accountant and asking them all these questions as this is exactly what there job is. They should be able to provide you with a couple of scenarios about what would happen if you earnt a, b or c and in whose name the income should be. Then you can go from there and see what work you want to do with the knowledge about exactly how much you will get in your pocket. Please remember that your HELP debt won't last forever and that should free up some cash.

#3 JRA

Posted 27 November 2012 - 07:57 PM

As sparkyredfish says.

We have the philosophy that their are huge benefits in earning a decent income, and the downside of more tax. The higher tax bracket only kicks in now at $180K now, so much lower than 15-20 years ago, that makes it seem easier, and in some ways harder, it would have been a hell of a lot nicer back then.

So if you are earning say $250K, you are still only paying just over 33% in tax, pretty bloody low.  That is the way we look at it, to help the big bill each quarter.

#4 Escapin

Posted 27 November 2012 - 08:02 PM

I would suggest you see a good financial planner, who has access to some decent modelling software and can model some different options for you to demonstrate the effect of different actions on your cash flow. Or you could have a go at doing it yourself in excel. It sounds like you're mixing up your tax position with your cash flow issues, they are two separate issues.

#5 JRA

Posted 27 November 2012 - 08:06 PM

QUOTE
This was my first year with the dividends - almost 40k worth. Sadly I don't see a penny of it , as it goes straight back on a loan we took out to purchase the shares - the ATO considers it income though.


actually they don't class the money that was used to pay off interest income.

As has been said, if you over-committ it hurts no matter what.

As escapin said, cash flow and income are very different.

#6 JRA

Posted 27 November 2012 - 08:06 PM

QUOTE
This was my first year with the dividends - almost 40k worth. Sadly I don't see a penny of it , as it goes straight back on a loan we took out to purchase the shares - the ATO considers it income though.


actually they don't class the money that was used to pay off interest income. - well they do, but you claim the interest so they nett off.

As has been said, if you over-committ it hurts no matter what.

As escapin said, cash flow and income are very different.

Edited by JRA, 27 November 2012 - 08:06 PM.


#7 Julie3Girls

Posted 28 November 2012 - 08:48 AM

The highest tax bracket is really very high, so you are obviously earning a lot.

I have no idea how you have your investments set up, but one of the things that we were advised was to make the investment loans interest only. Which you can then claim some of that back at tax time. Don't pay off the principal.

Instead, anything over the interest payments, put into our home mortgage, and pay that off first. So brings our home loan down, saves us interest on the home loan.  Once the home loan is pretty much gone, that's when we start throwing money at the investment loans.

So if your dividends are going towards paying off the principal amount of your investment loans, I'd look at possible changing that.

You really need to sit down with a financial planner, give them all the details, and see what they suggest to change things to give you a bit more cash flow.

Oh, and also check on the financial implications for this year if you do go ahead and sell the investment property.

#8 tothebeach

Posted 28 November 2012 - 11:04 AM

I'm in a similar situation to you - I run my own consulting company and have investment income.   As someone who is self-employed, my income fluctuates.  

I work as much as I want/can - I don't try to limit my earnings based on the prospect of paying tax.  Actually, I find that notion very odd.

But I do try to smooth my earnings (some years I earn lots, others not so much).  I work under a company structure.  At the end of the year, my accountant tells me what to pay myself and we retain the rest in the business (and pay company tax).  If I earn less the next year, I pay myself dividends from the company, rather than a salary.

All income from our family trust gets paid to me.  If that pushes me into the highest tax bracket, so be it.  I'm paying what I'm obliged to.  My husband is in the highest tax bracket anyway, so there is no point in investment income going to him.




1 user(s) are reading this topic

0 members, 1 guests, 0 anonymous users

 

Why Tracey Spicer has given up make-up

"After 30 years on television, I had become what I despised: a painted doll who spent an hour a day and close to $200 a week putting on a mask."

Empowering bikini photo of 46-year-old mum goes viral

When a group of teenagers made rude remarks about her body as she walked past them in a bikini at the local beach, Julie Cross refused to cover up.

Devastated widow discovers she's pregnant the day before husband's funeral

They had been trying to conceive a baby for seven years. Tragically Kristy Kirchner found out she was pregnant the day before her husband Royce's funeral.

Gabriella Goat sues Peppa Pig

Every toddler's favourite television pig is being sued by an Italian woman who shares a name with a Peppa Pig character.

Meet the Mpregs, the male pregnancy enthusiasts

"Men can't have babies - that's something only women can do! But our community is full of like-minded people who wish otherwise."

Your new motherhood survival kit

Forget about the bright, pretty baby things - while you're in survival mode, all you'll need are the essentials.

More than 100,000 cars recalled globally after death of pregnant woman

The announcement of a mass recall comes as Malaysian police investigate the death of pregnant woman in July.

Win a family pass to Disney Live!

We have 4 family passes to give away to see Disney Live! presents Three Classic Fairy Tales, touring Australia this December/January.

I had a 'good baby' but still suffered from postnatal depression

I had a much wanted precious baby girl, a 'good baby' who slept well, self settled and was mostly content. It just seemed implausible to think I could succumb to depression.

There's no need to eclipse a babymoon

As long as pregnant women do their research, travelling during pregnancy can be done safely.

Mum and daughter have babies on same day

"It's not really something you ever want or think could happen. To have my mum going through it with me is probably the most special, amazing thing ever.”

Our baby's reflux caused the longest endurance test of our lives

I'm glad she wasn't my first child, or I would have thought that this was normal.

Win one of 5 Little Tikes Cozy Coupe Sport

Australia?s No 1 selling car is now available in a Sports model and we have 5 to give away to some lucky Essential Baby families.

The podcast that reminds mums they are not alone

A mum's complicated, gruelling labour gave birth to two lovely beings: her daughter and her delightful podcast, The Longest Shortest Time.

Is it too late to change my midwife?

My wife is nine months pregnant and we are planning a home birth - but we've had late problems with our midwife team.

The Very Hungover Caterpillar: a parody many can relate to

A new book released this month will be sure to have parents nodding and giggling in recognition the world over.

Babywearers unite against misinformation

Everyone has heard of people power, but what about passionate babywearing power?

Reliving the birth experience

When people ask about how my labour went, I usually respond: "Good, I think? Four hours long, and yeah it hurt, but I dunno, it's labour, it's giving birth, it's painful... but I guess it was good? As good as good gets?"

Literary baby name inspiration

From Harry Potter to Shakespeare and everything in between, we've scoured the library shelves for literary baby name inspiration.

Preparing your child to attend a sibling's birth

Thinking about having your kids at the birth of your baby? Here are some things to consider.

Counselling helps mum deal with triplets' early birth

When Kimberlee King's waters broke nine weeks before her triplets were due, she went into autopilot as she packed her hospital bag.

The women balancing babies with new businesses

Motherhood teaches us that we can be more tolerant, patient, and loving than we ever thought possible - and can also show us that we're innovative, creative and entrepreneurial, too.

It's true, kids grow up overnight

A dad ponders how his toddler daughter can change so much in just one 24 hour period.

Father sings to dying son days after losing wife

A heartbreaking video shows a new dad singing 'Blackbird' to his dying son just days after losing his wife.

Download now: Essential Kids Activity Finder app

Got bored kids? Quickly find the best activities for kids wherever you are in Australia with the Essential Kids app.

 
Advertisement
 
Advertisement
 
 
 

What's hot on EB

Win one of 5 Little Tikes Cozy Coupe Sport

Australia?s No 1 selling car is now available in a Sports model and we have 5 to give away to some lucky Essential Baby families.

Join PADDINGTON on the red carpet!

To celebrate the release of PADDINGTON, we are giving five lucky winners the chance to win a family pass to the exclusive Australian Premiere in Sydney on December 7!

Knowing you are one of the lucky ones

I am secure, confident and strong, but the responsibility of protecting my children can almost bring me undone.

Why I am so emotional now I have kids?

There are so many ways in which parenthood changes us as women, but one of the most noticeable, for me, has been the changing state of my emotions.

Baby survives despite sharing womb with 'foreign body'

Baby Maia was conceived against the odds, only to find she was sharing a womb with an ominous "foreign body".

Video: Baby shows dog how to jump - or vice versa

They say dog is man's best friend, but this playful pooch seems to have chosen a jumping baby as her number one buddy.

10 ways to soothe a crying baby

New paernts can get frustrated when their newborn gets fussy and can't settle down. When you're feeling overwhelmed, try some of these simple tips to help soothe your baby.

20 baby names that are becoming more popular every year

The data-lovers at nameberry.com have been at it again – this time, they’ve discovered the names that are continually rising up the ranks, ready to take out some top spots in the next few years.

10 great meals to make for new parents

Ideally, you want to give food that isn’t expensive to make, isn't too difficult to create, and freezes well; stews, bakes, soups and pasta sauces are perfect.

'It's not you, it's me': Boston bombing survivor mum to have leg amputated

Rebekah DiMartino is going through a break-up. She even wrote a farewell love letter. But it's not to her husband.

What it's like to go through early menopause

In a cruel twist, Carla had been breastfeeding and perimenopausal at the same time. But she's far from the only one to go through menopause early.

Restaurant served alcohol to two-year-old

Busy restaurants can be forgiven for getting food and drink orders mixed up from time to time, but not when the confusion leads to a two-year-old being served an alcoholic cocktail instead of the child-friendly beverage they ordered.

Julia Morris tells of miscarriage on a flight

Julia Morris has spoken about the devastation of suffering a miscarriage while on an international flight.

Woman's survival after birth 'a story of two miracles'

A US mother is home and tending to her new baby less than a month after surviving without a pulse for 45 minutes.

Eating ice may give mental boost to the iron deficient: study

A new study proposes that, like a strong cup of coffee, ice may give those with insufficient iron a much-needed mental boost.

Tiny lives in caring hands: Thank U NICU Day

Each year in Australia, over 40,000 newborns need the help of a special care nursery or neonatal intensive care unit. One day a year, the staff are honoured by the parents they help through those dark days.

I paid $50,000 to have a girl

This time my husband and I hadn't taken any chances. We had paid $50,000 and travelled 13,000 kilometres to make sure the baby growing inside me was female.

Weird pregnancy products

Some pregnancy products come to market and are just awesome. Others just leave you scratching your head.

Dear firstborn, I'm sorry

Being a first-time mum is tough for so many reasons – particularly because you really have no idea what you're doing.

A trace of sesame could kill my son

Helen Richardson son's had two anaphylactic reactions in a month. It's traumatic for everyone.

When you know before the test says yes

It wasn't a pregnancy test or missed period that told me I was pregnant with my second baby; it was too early for those things. A doner kebab told me I was going to be a mum again.

What not to do when your partner is in labour

Robbie Williams stole the show during his wife Ayda's labour, pretty much demonstrating everything on the "what not to do when your partner is in labour" list.

Best maternity swimwear and beach cover-ups

Thinking about a tropical babymoon but have nothing to wear? Here are some great swimwear and beach cover-up options for mums-to-be.

Parents face bankruptcy after birth

A couple has been slammed with a $1 million medical bill after the early arrival of their baby while on holidays.

 

How many weeks til Christmas?

On your To-Do list

Get the "Santa" shopping done without the kids in tow.

 
Advertisement
 
 
Essential Baby and Essential Kids is the place to find parenting information and parenting support relating to conception, pregnancy, birth, babies, toddlers, kids, maternity, family budgeting, family travel, nutrition and wellbeing, family entertainment, kids entertainment, tips for the family home, child-friendly recipes and parenting. Try our pregnancy due date calculator to determine your due date, or our ovulation calculator to predict ovulation and your fertile period. Our pregnancy week by week guide shows your baby's stages of development. Access our very active mum's discussion groups in the Essential Baby forums or the Essential Kids forums to talk to mums about conception, pregnancy, birth, babies, toddlers, kids and parenting lifestyle. Essential Baby also offers a baby names database of more than 22,000 baby names, popular baby names, boys' names, girls' names and baby names advice in our baby names forum. Essential Kids features a range of free printable worksheets for kids from preschool years through to primary school years. For the latest baby clothes, maternity clothes, maternity accessories, toddler products, kids toys and kids clothing, breastfeeding and other parenting resources, check out Essential Baby and Essential Kids.