Tax Tip 384: A Couple Living Tax Free on over $91,000 per year

In my last tax tip I showed how a couple could potentially earn up to $45,000 per year and not have to pay any income tax.

Many think that this is too low for a ‘retirement’ income.


There is a way to double it the potential income without having to pay any tax.


Capital gains can qualify for a 50% CGT discount if a resident individual taxpayer has held the asset for 12 months or more. This can include capital gains from assets held in a discretionary trust.

Therefore, to double the tax free income it just has to be earned from the sale of capital assets that have been held for 12 months or more.


Example

Homer and Marge have set up a discretionary trust to hold high growth shares. The trust sells enough assets each year to generate an income of $91,204, After the 50% CGT discount this become $45,602 and 50% of this income is distributed to each of Homer and Marge.

The particular shares held in the trust do not pay dividends, so these capital gains are the only income of the trust and neither Homer nor Marge have any other income so overall no income tax is payable.



They will be slowly eating into the capital assets of the trust but this has been factored into their planning.


See also

Tax Tip 383: How to Live Well Without Paying Income TaxTax Tip 383: How to Live Well Without Paying Income Tax


Tax Tip 284: How a couple could earn more than $87,500 per year and pay no income tax

Tax Tip 284: How a couple could earn more than $87,500 per year and pay no income tax


Tax Tip 147: How to Earn $95,000 pa and pay No Tax Tax Tip 147: How to Earn $95,000 pa and pay No Tax

 

Thanks Terry. The trust might be useful in some circumstances but unless I'm mistaken isn't necessary for this strategy.

Here's a variation to consider:

Homer and Marge hold high growth shares (or maybe even a few dozen bitcoin that they mined back in 2010) individually in their own names (they like the simple life). They each sell enough assets each year to generate individual incomes of $45,602. After the 50% CGT discount taxable individual income becomes $22,800.

The particular shares held do not pay dividends and neither Homer nor Marge have any other income so overall income tax is payable by both is nil or close enough to nil.

 

That is certainly possible. The trust gives more flexibility though.