parents - tax free threshold

Hi there,

We are contemplating the possibility of parent migration and trying to assess the financial/accounting +/- relevant to that. Both parents are age 60+ and low income in the home country (A$ 4K year). They will be considered residents for tax purposes here (as per ATO website). Main positive I can think is if structured correctly we can use their tax free income threshold to earn some income tax free (e.g. shares dividends, etc...)

Given they are at superannuation eligible age, can they participate in Aus supeannuation process at all and how. what about if we setup SMSF and we make them part of that so they can draw a money tax free. OR Family trust will be the best way to use their tax free threshold...any other considerations??

I get that this requires specific advise however i prefer to do some ground work on common +/-...would appreciate if any of you have dealt with clients/situations similar to this in past & things to consider..

cheers

 

I have covered some things here
Strategy: Incorporating Parents into Property Planning Strategy: Incorporating Parents into Property Planning

 

short answer is yes it's possible and if done correctly potentially highly lucrative as they're the perfect age to take advantage of the super tax breaks.

they cannot earn your portion of the family smsf tax free though, only theirs. smsf is still compartmentalised into who owns what etc

 

Thanks @Terry_w . Any understanding on migrating parents and superannuation angle and how best to use their tax free threshold without property investment. for property investing, serviceability is where we'll struggle as them being migrants, job is out of question for them and we are at our limit....

 

Does that mean under SMSF we can invest in income producing investments (using our savings) in their name and then they can draw that income tax free or does it have to be their personal savings...

 

You can gift them money and they can contribute to their own super provided the meet the requirements.

You could also lend them interest free.

You, or an associated entity, could possibly employ them, pay them a wage and super and claim it. You generally could do this with property.

Invest via a discretionary trust and diver income.

Gift/Lend them money so they can buy property in their own names, get the main residence exemption, and use the 6 year rule.

joint purchase as tenants in common (90/10 perhaps) with your strength qualifying for the loan

 

They may be tax residents but may not be able to access super "benefits" as they have no accumulated super yet. They will be pension embargoed for a (long) period of time too. Dont jump into a trust until the broader issues are finalised as non-resident beneficiaries etc can be problematic.

They would find the home country income would be taxed here and in most cases there is a reciprocal reporting between AU and the other. eg Italy, France, Malta etc etc....

A SMSF is unnecessary as almost any fund can handle these needs.

You may want to start with a no-obligation chat with one of our financial advisers specific to those issues first and the tax issues would follow

 

Would they not have to meet the work test to contribute to any super fund?

 

thats only oif theyre over 65 and its pretty easy to do so anyway

 

And I think the work test has or will be removed soon.

 

As of July 2017, I believe.

 

The work test relates to making contributions. The work test is based on age of the persons.
The proposed changes will also affect such a plan and all the legislation, when drafted, would likely be a package of law that has many effects on concessional tax outcomes.

Each resident taxpayer can earn around $20K or more if older in a full tax year. This generally means at prevailing earning rates of say 4% that a invested sum of $1m can be held in personal names without the cost of a smsf or a complex issue such as super.

 

Still has to go through parliament and senate.
Marg

 

sounds great if 4% is all youre aiming for and you dont expect any significant CGT events at any stage. at that point you bang your head against the wall for ignoring a tax free and completely legal haven

 

Sanj - The issue is that if the income for 2 people is $40K pa or less then there is no reason to even have a smsf or even have it in super. Its tax free anyway.

We see way to many people who make mistakes:
- Dont use super but have large investment income etc in own name. Paying tax that can be avoided. Often they pass the age based ledge and its too late to fix.
- Using super with view its tax free when it would be tax free anyway in own names.
- Have super after age 58 and they dont consider a pension. Leave it in accumulation.

 

i do agree with what youre saying, often its unneccessary if we're talking income levels of 20k/person or less.

the thing is though, we're on PC. arent we meant to be ambitious here? who the hell wants 20k/yr as a goal?

im only advocating it be considered, not saying it must be done. also, should it be done and then found to be not worth it the smsf can be wound down and the total cost of the exercise capped. on the other hand, should they miss the chance to put a decent chunk into super and later on decide they should have, it might be too late and every year they end up paying will hurt.

 

Income is a product of original capital x risk. $20K pa for a $4m portfolio is dismal. $20K pa for $100K is brilliant but may reflect a risk to capital and market conditions. Unless its direct property then a SMSF is likely to be unnecessary. A SMSF (only) can hold direct property as industry and public funds cant hold a member specific asset.

 

Thanks guys. catching up all comments after being away in hosp for 2 days...

 

On further reading, They will not be able to access government benefits (e.g. age pension) for 10 yrs but no mention of Superannuation. We are in process but another way we can think is build income producing share portfolio in their name rather than our name where we'll pay tax. End goal is to use their tax free $20K income each year rather than keeping income producing investments and capital gain in our name.

It doesn't have to be via Super but it will be good option if we can tranfer our shares in SMSF in their name (is it possible?). Family trust is another thing we can think of where we can divert income in their names. Have to admit not that we are generating lot of income from our invetsments yet but prefer to be prepared for that compare to changing structure right at the end....

Terry, any resources we can find some information on these so called requirements..

 

Here is a nice tabulated summary:
Contribution eligibility rules - summary table