Australias tax system takes from the young to give to the old

[Captivating]

Seeds. You still haven’t explained how your trust scenario means no tax is paid.

I want to know as if it works, I’ll set one up ASAP

 

[Seeds]

Who are these beneficiaries? It only works in your scenario for trustee's who are 18+ and who don't work.

Well there are plenty of those. Plus in my example I've put in workers on the standard wage as beneficiaries. Tax gets reduced from 45 to 15 percent.

 

[Seeds]

Seeds. You still haven’t explained how your trust scenario means no tax is paid.

I want to know as if it works, I’ll set one up ASAP

Well I'm not going to tell you then as I don't believe people should be setting them up.

 

[Sphynx]

Well there are plenty of those. Plus in my example I've put in workers on the standard wage as beneficiaries. Tax gets reduced from 45 to 15 percent.

What do you mean? "Plenty of those"?

There's definitely a scenario in which you can do it, but it's not exactly the scenario you were describing, was it? At the point in which you have disposable income not everyone can simply cheat the system. It only works in this scenario if you have people you want to disperse part of your life savings passive income to who aren't working. Remembering it's legally their money once it's dispersed to them.

You aren't exactly putting your mates in it, are you?


I have no idea what you mean by "I have put workers on the standard wage". What do you mean by "standard" wage?

Further what do you mean "workers" as beneficiaries? You can't pay trust distributions in lieu of wages, as you bypass superannuation requirements, PAYG tax etc. The ATO will have your ass if that is what you are implying.


The only scenario in which you reduce form 45 to 15 percent is via super contributions. There's no function within a trust that would achieve that, as 15% isn't a marginal tax bracket and discretionary trusts are dispersed via a trustee's personal income.. You might pay an effective tax rate of 16% or so from CGT distributions after optimization, but I don't think that's what you were talking about.

Im sure some accountants can step in here.

 

[Sphynx]

There was a great video/articles about the scams the rich pull off to avoid tax.

Money into "assets" that are inflated by the fact super wealthy people buy them to hoard wealth. They use those assets to back lines of credit at a tiny interest rate, and live off that. The growth in the investments covers the interest, which you may never pay regularly. The lender is fine with this as they get benefits of their own - I believe they can borrow money based on your debt to them. You never sell the asset backing your borrowing, until you die when it pays off your debts and you pass on the remaining wealth at a low or no tax rate.

If you're paying 1% interest to avoid, say, 30% tax, that's what you do.

Unless your assets devalue, then the debt is called in. Then you can be screwed on that deal as everyone tries to cash out at once to pay off the debt, prices crash...

Etc etc. Of course it is more complicated than that - I am no financial guy.

Who is lending a line of credit (in what sounds like the millions) for 1% interest?

Give me their number as I would like to have a chat with them....

Again, this scenario sounds highly exaggerated.

What asset class are you talking about, shares? Well there's clearly a bit more risk than it being set and forget isn't there? As we've seen over the last 20 years.

Property? Well you have diluted form of a wealth tax there if it's not their PPOR, primarily land tax, but also council rates, insurance, property management (if it's rented) etc.

 

[Captivating]

Well I'm not going to tell you then as I don't believe people should be setting them up.

Ok, so tax is in fact paid. So income is distributed to each beneficiary to pay at the marginal rate.

Bit like a company distributes profits to shareholders to pay tax at their marginal rate.

Are companies a huge tax dodge too?

 

[Chief]

Who is lending a line of credit (in what sounds like the millions) for 1% interest?

Maybe talk about the overall idea rather than figures used off the top of my head for illustrative purposes?

 

[Gavin Excell]

It's hard to imagine any worthwhile structural change occurring in the current environment

 

[Seeds]

Ok, so tax is in fact paid. So income is distributed to each beneficiary to pay at the marginal rate.

Bit like a company distributes profits to shareholders to pay tax at their marginal rate.

Are companies a huge tax dodge too?

Companies and shareholders are the same thing. Parents and their children are not.

 

[Captivating]

Companies and shareholders are the same thing. Parents and their children are not.

A private company can be set up to have children as the shareholders. In fact the wealthy often use companies as income doesn't have to be distributed like it has to in trust to avoid being taxed at the highest MTR.

 

[Sphynx]

A private company can be set up to have children as the shareholders. In fact the wealthy often use companies as income doesn't have to be distributed like it has to in trust to avoid being taxed at the highest MTR.

Yes, but they are subject to company tax of either 25% or 30%.

 

[Seeds]

A private company can be set up to have children as the shareholders. In fact the wealthy often use companies as income doesn't have to be distributed like it has to in trust to avoid being taxed at the highest MTR.

But the money used to buy shares for ones children is post tax. The parents marginal tax has been taken off the base value. And the children pay company tax rates on the dividends and capital gains.

 

[AvantGardener]

They give to beneficiaries who have little to no marginal tax. Then on top of that capital gains gets a 50 percent discount. So someone on the 45 percent marginal tax rate can pass capital gains money onto someone on the 30 percent tax rate and then that gets lowered to 15 per cent.

I am lost to how you are getting these numbers but I think you must be misunderstanding how CGT works. The 50% isn't 50% off on their tax rate (eg 30% down to 15%). It's 50% discount on what the gain is. A gain of $200K gets 50% discount to $100K gain. You end up paying on tax at marginal rates on normal income + $100K cap gain income.

 

[peetoo]

Young Australians cut back in cost-of-living crisis while older people shop more, data shows

Commonwealth Bank finds over-70s cohort spent 7.7% more from July to September than the same time last year

www.theguardian.com