Education 20 Year Old Seeking Advice to Structure Share Ownership

Hey Guys,

I have a question regarding the best vehicle to own my investments. I am looking to get into the stock market, and want to buy, hold and sell stocks in a way that:

1. Preserves my Centrelink Youth Allowance eligibility (I am already receiving the benefit, but any additional income to my name will jeopardise my eligibility)

Just for some context, here is some information about me. I am currently completing a bachelor degree at UQ and will begin studying a Doctor of Medicine in 2023 - so I have 5 years left of university. I have a reliable part-time job in the government and receive a small sum of youth allowance a fortnight. I am at the youth allowance income threshold for how much I can earn from my part-time job. This means that I only need to receive a little bit more income before my youth allowance reduces to zero and I am no longer eligibile for any of the other benefits that come from receiving at least a dollar of youth allowance a fortnight . These benefits include rent assistance, NRAS rentals, a health concession card, electricity rebates, eligbility to a scholarship I am on, student loans etc. If I earn anymore money I won't be eligible for youth allowance and as a consequence will lose all the other benefits.

So, I have some savings at the moment and am wanting to trade on the market. I am looking in particular at leveraged stock trading over the next 5 years. I am seeking advice as to what would be the best vehicle to hold my stocks in. So that any dividends, or capital gains I receive in this time will not impact upon my centrelink eligiblity.

I have considered a few options with the CGT concession in mind:

• Trust - can only receive CGT concession with me as beneficary, and would still affect my centrelink eligbility.

*A possible solution I thought would be not distributing any capital gains, and reinvesting them via the trust so that the money isn't distributed in my name untill I have ceased studying (5+ years). However, there seems to be taxes involved with this/is overly complicated.​

• Company - Pro: Could negative gear my stocks. Con: No CGT concession. This seems to be the only option that might work. However, I am not sure how i could get my savings into the company, and if I would have any trouble accessing leveraged loans.

• My own name - not an option as if I sell, I will have to pay back my centrelink benefits from that year.

• SMSF - not very flexible, no margin loans

Any help would be greatly appreciated. I am really stuck and want to get this right before starting!

Cheers guys,
Montey

 

have a look at sections 1227 onwards of the Social Security Act.
A trust you or a family member control, gift to will be counted as your asset.

 

Thanks for your reply Terry. I have had a browse from this table:
SOCIAL SECURITY ACT 1991

1227 onwards seems to pertain to debt retrieval, which hopefully I am able to avoid ahah. Are they any parts in particular you can refer me to?

So if I gift stocks I purchase to a trust, they are counted as my asset. So I presume when I sell them, regardless if I just hold them in my trust, it will still count as my income?

Just to note, I am able to have $487,000 in assets before I am centrelink inelgible.

 

sorry it is s1207

 

So essentially, as I would be deemed to control a private company/trust, the assets and income will be treated as mine. I never knew this, and find it interesting because I have quite a few friends who are on centrelink as their parents operate their businesses through trusts/companies and they keep their taxable incomes below the $55,000 threshold.

Are there any loop holes regarding this?

 

Just because people do it doesnt mean its legal, or that it will pass an audit.

 

Okay so I've done some brainstorming. I have two ideas that I'd like to run by you guys.

I am not looking at personally accessing any of the proceeds from my shares for another 5-6 years - I want to be able to acess profts I have made after I have finished studying and am no longer concerned about my centrelink eligibility. However, I do want the option to be able to sell a stock and take my proceeds, and reinvest them in another stock - without that then screwing up my centrelink if they decide to count it as income.

This section of the social security act states that "losses and outgoings that relate to the business or investment" and are allowable deductions for the purposes of section 8-1 of the Income Tax Assessment Act 1997"

So theoretically, if I were to operate a trust to buy, hold, sell stocks and reinvest all proceeds back into more stocks, then Centrelink would not count that as income, as that is a permissible reduction of business/investment income.

Another idea I came up that I found interesting was lets say I had a significant capital gain, and did intend to access it, I could distribute it to a SMSF via the discretionary trust, and withdraw it as part of the FHSS (up to $50,000).

Any thoughts?

 

Not sure how you can get a deduction out of that. Unless you think because you 'used' the cash to reinvest it doesn't count as revenue? Doesn't work that way.

 

Yeah I confused myself with that one, I realise now that I would only be able to claim interest of the margin loan on the capital gain.

My new idea: A discretionary trust with the beneficiary beeing the SMSF. The SMSF could receive the capital gains, and can then loan the distributed income back to the trust interest-free. When I want to purchase my first home, I can withdraw up to $50,000 to put towards my house deposit.

It seems to comply with the social security act as well, as the income would be deemed the Super Funds.

 

Reinventing is not deductible

 

That would be a breach of the SIS act and also be non arms length income of the fund

 

A possible fix for the NALI of the fund would be the SMSF could loan the money back to the trust, with an appropiate interest rate. In regards to the SIS act, is there a specific area of breach you are referring to?

 

A smsf cannot loan more than 5% of its assets to a member or related party. It would still be NALI too

 

New idea: A trust with me as the beneficiary, stocks sold are reinvested into other stocks. Could the income be classed as a non-paid entitlements. I read some where that the proceeds would then be classified an asset in my name, as opposed to income.

 

upes are still taxed as income

 

Think its unlikely you will come up with some new structure or loophole professionals who do it for a living havent come up with, based on things you 'read somewhere'.

How much money are you investing here?

 

you haven't come up with the most obvious solution yet.

 

Possible NALI fix could be utilising a fixed trust with the SMSF as thesole beneficiary?

Potentially SMSF could use NPE to reinvest into the stock?

Am I heading in the right direction?

 

How much income are you planning to generate with this, and will it cover the costs of setting up the structures and ongoing fees?

 

Ideally I would like to generate my first home deposit with this investment strategy. With my current SMSF plan, I would aim to earn up to the FHSS withdrawal limit which will be $50,000 (not yet law). I quite like this plan because Centrelink deems FHSS withdrawals as exempt income, so say I get lucky and earn the $50,000 earlier than I intend (Prior to 5 years) and I am still studying, I could withdraw my $50,000 and purchase my first home while I am studying without that jepoardising my centrelink.

Obviously my goal is that any income I earn outweigh the expenses of this plan, however if it does not end up this way I am okay with that as it will be a learning curve. My mindset currently is that it is better to lose thousands of dollars in fees than to potentially screw up my assesable income by making a one off lucky capital gain that in combination with my ordinary income would mean I have to pay back the financial-year worth of centrelink income + interest, and potentially lose the benefits associated which I listed above.