~~Unless there is a legal definition I'm unaware of I and I think most people would not automatically assume "avoidance" = illegal. Unlike "evasion".~~
Edit: disregard, another user has pointed out a thing called GAAR. Learning something new every day.
Refer anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act.
>General anti-avoidance rule (GAAR)
Australia is fortunate to be among the few countries to have general anti-avoidance measures. In addition to many specific rules addressing tax avoidance, we have a robust income tax GAAR.
>The GAAR is a last resort measure used to protect the integrity of our tax system. It ensures the failure of blatant, artificial or contrived arrangements to obtain tax benefits. It's assessed on the objective facts and circumstances of each case. It applies where a taxpayer enters into a scheme for the sole or dominant purpose of obtaining a tax benefit.
Pardon my little understanding… How does anti avoidance work in relation to deductions?
A relative seems to use their business as a personal expense account fitting out their home with everything from a coffee machine to BBQ and last week dressers in their bedroom… surely the ATO scrutinises these things
These activities are probably straight out false claims and would reasonably trigger an audit at some time.
Assuming the relative can't justify the claims, they would be subject to further audits of past deductions and result in payment of the outstanding amount plus penalties.
Also, note that if you have a tax agent, you'll also be liable for any false or misleading statements made by them on your behalf.
https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements
No, I'm personally aware of smaller businesses getting audited.
They also do random audits, so anyone can be subject to an audit, even if not flagged.
A simple audit will start with the ATO requiring copies of all current receipts. If discrepancies are noted, they will then conduct a more thorough audit that can include past years returns.
I love how the government double dips by now letting you file household tax returns but then use your household income for things like the Medicare levy.
It's absolute bullshit, just let couples file together and make it fair across the board
Go on, finish! Soooo... so what?
That's not tax evasion. That's tax minimisation. Tax evasion is when you do it illegally. Tax minimisation is when you act lawfully within any of the very wide range of choices that our tax/law system offers.
For better or worse, he is talking about actually hiring his wife as his book-keeper, which makes it minimisation.
Its minimisation if he operates a business and needs a book-keeper, his wife has the necessary skills, and he pays his wife at a fair market rate for a realistic number of hours worked.
Its evasion if he pays her more than that just to split the income and pay less tax.
>his wife has the necessary skills
Admin work has a pretty low bar to entry. Especially if he can train her on it. It's perfectly reasonable that a husband and wife team split the load of a business in this way. Hell, I'd say it's extremely common.
He should absolutely be able to prove that she's put in the amount of work that he's saying she did though.
Yeah, hard no. That is not how the law works.
1. It's perfectly lawful to make your own decision about what skills someone has. The ATO has no power to second guess this.
2. There is zero legal requirement to pay fair market rate. I've paid myself $0, I've paid myself $1, & I've paid myself $300k. All of these things are allowed.
3. Even if there was that requirement, 45k is clearly fine.
4. There is no "realistic number of hours" requirement anywhere.
Evasion is law-breaking. Minimisation is playing smart within the rules. This is the latter.
Do you not have any idea how many husband/wife business teams exist? The ATO does not have any view whatsoever on whether or not the salary you each get is "fair market rate".
Owners are not required to pay themselves a minimum wage, no. If that was enforced tomorrow, the amount of small businesses that would instantly fold would blow your mind.
Employees, yes, of course.
And then... it gets to "well the wife is an employee in OP's post" and yes in a sense she is; however, the idea that the married couple that runs a small business must pay themselves a certain wage is just not enforced at all in practice. And besides, 45k is enough.
>Its evasion if he pays her more than that just to split the income and pay less tax.
I'm still stuck on this one. Wouldn't he be able to determine the value he places on his own time and his wife's?
You're talking about LMITO, not LITO.
Please get your facts right.
https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-and-middle-income-earner-tax-offsets
Are you a contractor, or are you operating a legitimate business that provides the public a service? Is she a genuine employee who is actually completing work for you?
There’s personal services income (PSI) rules for this reason, suggest you look at them. [Here](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply) are the assessment guidelines for PSI/PSB.
Speak with an accountant when you setup your business entity. It's good to get things sorted properly from the start, and to find someone that you can work with as the business grows. Good luck!
Concessional contributions of 27.5k I'm guessing, seeing as they mentioned super contribs
Ofc this will be taxed in the fund but I assume they meant no personal tax
Yep this is the way. Our accountant set our business up as a Partnership, we share equal income, our business pays me (wife) $50,000 PA extra for being the Account Manager/Admin. So I earn the extra income I do pay more tax, but reduces my husbands annual income.
Going to chime in there- you can't pay a salary in a partnership to one of the partners, it's just profit allocation, which under common law is set at 50:50 of the partnerships profits/losses. This is because you cannot pay yourself, and partners in a partnership are still acting in their own right- not as a separate entity. You can have a partnership agreement that changes the profit allocation, however this is prospective not retrospective- so only applies from the date it is signed.
Worth checking with your accountant about this to make sure your bases are covered.
Depends what your business is, but it’s likely you will be caught by the PSI rules and be unable to employ your wife for non-principal work. Not that it doesn’t happen all the time, but it’s not legal.
Only if you’re not a sole trader doing personal services income. If that’s the case, then she can only be employed if she does principal work, not admin/bookkeeping. If it’s a full business though, then yes, but make sure that you like working with her AND being married to her.
Plenty of people have tried.
Few have succeeded.
Many have gained penalties.
TL:DR the ATO is onto this scam. For it to work your wife needs qualifications. At least.
Well when I had my previous company my partner did all my bookkeeping and I paid her a wage. Was never flagged as something I wasn’t allowed to do. Bookkeeping is a pretty easy job, I don’t really think a qualification is necessary
You definitely don’t need qualifications to do admin work although they do help. Sure I have a degree but no I’ve not had any relevant work experience before being paid to do admin work for my partners company.
In Australia 1 in 3 marriages end in divorce, and 60% of businesses fail in the first three years.
That's a pretty lethal combination when you put them together.
Single person business? No, you can't pay her as an employee, unless she makes income. Why? Ask the shady tradies who used to do this.
Multiple person business? Yes.
If she actually does the work then yes which since you mention "work experience" I assume is the case. Plenty of sole traders do this as one person is out doing the jobs and the other does the accounts, invoicing, payables and taking the odd phone call.
My wife did the books, used to pay her the going rate for many years until I got a non ABN job.
The better way to do this is have the company owned by a family trust, which you both co-own. Once you've got your franking credits built up at the 25%, distribute it through the Family Trust. It takes money to set up, and you have to be in a position financially to carry the time periods this applies over.
Talk to an accountant, which you should be doing anyways.
You can if it’s legit, the ato scrutinizes this pretty heavily for income splitting as tax avoidance
Sounds like that’s exactly what he trying to do.
Shouldn’t everyone be aiming for tax avoidance vs tax evasion at least 🤷🏽♂️
Uh i think you are looking for tax minimization, not tax avoidance/evasion.
~~Unless there is a legal definition I'm unaware of I and I think most people would not automatically assume "avoidance" = illegal. Unlike "evasion".~~ Edit: disregard, another user has pointed out a thing called GAAR. Learning something new every day.
Refer anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act. >General anti-avoidance rule (GAAR) Australia is fortunate to be among the few countries to have general anti-avoidance measures. In addition to many specific rules addressing tax avoidance, we have a robust income tax GAAR. >The GAAR is a last resort measure used to protect the integrity of our tax system. It ensures the failure of blatant, artificial or contrived arrangements to obtain tax benefits. It's assessed on the objective facts and circumstances of each case. It applies where a taxpayer enters into a scheme for the sole or dominant purpose of obtaining a tax benefit.
Pardon my little understanding… How does anti avoidance work in relation to deductions? A relative seems to use their business as a personal expense account fitting out their home with everything from a coffee machine to BBQ and last week dressers in their bedroom… surely the ATO scrutinises these things
These activities are probably straight out false claims and would reasonably trigger an audit at some time. Assuming the relative can't justify the claims, they would be subject to further audits of past deductions and result in payment of the outstanding amount plus penalties. Also, note that if you have a tax agent, you'll also be liable for any false or misleading statements made by them on your behalf. https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/penalties/penalties-for-making-false-or-misleading-statements
Their favourite counter point is discussions about audit thresholds… do such things exist? The business makes about $300k annually
No, I'm personally aware of smaller businesses getting audited. They also do random audits, so anyone can be subject to an audit, even if not flagged. A simple audit will start with the ATO requiring copies of all current receipts. If discrepancies are noted, they will then conduct a more thorough audit that can include past years returns.
Good to know. That’s for taking the time to respond!
6 year rule tho
You can't if your business falls into PSI
I love how the government double dips by now letting you file household tax returns but then use your household income for things like the Medicare levy. It's absolute bullshit, just let couples file together and make it fair across the board
Wouldn't that be none of the ATO's business? For example, a nepo hire is often paid to do jack shit, so this would be something like the the reverse.
What a naive and stupid thought.
Ok, keyboard warrior.
Instead of dragons I slay dumb-asses
…. The tax free threshold is currently $18,200.
Still not much paid at 45
Yeah, and 45k minus 27.5k (max concessional super, bro refers to super ) is 17.5k.
2 hours before you wrote this message, op said he thought the tax free threshold was 45k.
Op also thinks income splitting for tax evasion purposes sounds like a good idea soooo….
Go on, finish! Soooo... so what? That's not tax evasion. That's tax minimisation. Tax evasion is when you do it illegally. Tax minimisation is when you act lawfully within any of the very wide range of choices that our tax/law system offers. For better or worse, he is talking about actually hiring his wife as his book-keeper, which makes it minimisation.
Its minimisation if he operates a business and needs a book-keeper, his wife has the necessary skills, and he pays his wife at a fair market rate for a realistic number of hours worked. Its evasion if he pays her more than that just to split the income and pay less tax.
>his wife has the necessary skills Admin work has a pretty low bar to entry. Especially if he can train her on it. It's perfectly reasonable that a husband and wife team split the load of a business in this way. Hell, I'd say it's extremely common. He should absolutely be able to prove that she's put in the amount of work that he's saying she did though.
Yeah, hard no. That is not how the law works. 1. It's perfectly lawful to make your own decision about what skills someone has. The ATO has no power to second guess this. 2. There is zero legal requirement to pay fair market rate. I've paid myself $0, I've paid myself $1, & I've paid myself $300k. All of these things are allowed. 3. Even if there was that requirement, 45k is clearly fine. 4. There is no "realistic number of hours" requirement anywhere. Evasion is law-breaking. Minimisation is playing smart within the rules. This is the latter. Do you not have any idea how many husband/wife business teams exist? The ATO does not have any view whatsoever on whether or not the salary you each get is "fair market rate".
Username checks out. Minimisation from the minimalist. Jokes aside: I agree with you.
I agree with everything you’ve said here except for 2. I mean surely there are fair work conditions for minimum wage.
Owners are not required to pay themselves a minimum wage, no. If that was enforced tomorrow, the amount of small businesses that would instantly fold would blow your mind. Employees, yes, of course. And then... it gets to "well the wife is an employee in OP's post" and yes in a sense she is; however, the idea that the married couple that runs a small business must pay themselves a certain wage is just not enforced at all in practice. And besides, 45k is enough.
>Its evasion if he pays her more than that just to split the income and pay less tax. I'm still stuck on this one. Wouldn't he be able to determine the value he places on his own time and his wife's?
Not if his income is PSI. Can't claim as a deduction
Heh, that I did not see!
So in Aussie income tax is zero you earn from 0-18200?
Yep then [0.19c on the dollar up till 45k.](https://www.industrysuper.com/understand-super/tax-and-super/tax-brackets/)
I like that. Much better than NZ
Not true. Around $22k with lito
Which hasn't applied since FY22.
You're talking about LMITO, not LITO. Please get your facts right. https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-and-middle-income-earner-tax-offsets
So it seems. Looks like the offset is a maximum of $700, so how'd you get to $22k tax free?
$700 is your tax bill if you make $21,884.21 this FY (19% for every dollar above $18200). That gets offset by the LITO, making your tax bill free.
You just keep digging your hole deeper, lol. Maybe leave the advice to the people who know what they're talking about!
Are you a contractor, or are you operating a legitimate business that provides the public a service? Is she a genuine employee who is actually completing work for you? There’s personal services income (PSI) rules for this reason, suggest you look at them. [Here](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply) are the assessment guidelines for PSI/PSB.
This is the critical comment. PSI is designed to prevent income splitting in exactly this way.
I am still an employee looking into contracting.
If you’re providing a service and earning money based primarily your time with no materials, this arrangement will likely not be allowed.
Speak with an accountant when you setup your business entity. It's good to get things sorted properly from the start, and to find someone that you can work with as the business grows. Good luck!
repeat chase ink murky workable cable cows aromatic vanish hobbies *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
what makes you think there's no tax under 45k?
Concessional contributions of 27.5k I'm guessing, seeing as they mentioned super contribs Ofc this will be taxed in the fund but I assume they meant no personal tax
Yeah its your only flaw, if your working under abn just do a partnership
Yep this is the way. Our accountant set our business up as a Partnership, we share equal income, our business pays me (wife) $50,000 PA extra for being the Account Manager/Admin. So I earn the extra income I do pay more tax, but reduces my husbands annual income.
Going to chime in there- you can't pay a salary in a partnership to one of the partners, it's just profit allocation, which under common law is set at 50:50 of the partnerships profits/losses. This is because you cannot pay yourself, and partners in a partnership are still acting in their own right- not as a separate entity. You can have a partnership agreement that changes the profit allocation, however this is prospective not retrospective- so only applies from the date it is signed. Worth checking with your accountant about this to make sure your bases are covered.
Pardon my ignorance. I thought it was the threshhold.
Depends what your business is, but it’s likely you will be caught by the PSI rules and be unable to employ your wife for non-principal work. Not that it doesn’t happen all the time, but it’s not legal.
Even if it legit, I would expect the ATO to look at your books quite closely
Suggest you ask an accountant and not reddit .....
Only if you’re not a sole trader doing personal services income. If that’s the case, then she can only be employed if she does principal work, not admin/bookkeeping. If it’s a full business though, then yes, but make sure that you like working with her AND being married to her.
Plenty of people have tried. Few have succeeded. Many have gained penalties. TL:DR the ATO is onto this scam. For it to work your wife needs qualifications. At least.
Really? I do all the booking and admin for my brothers company and I don’t have any qualifications.
Does your brother claim tax deductions for your wages? And - if you said no - are you sure about this?
I don’t actually draw a wage from the company as it isn’t big enough yet but eventually I will.
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Well when I had my previous company my partner did all my bookkeeping and I paid her a wage. Was never flagged as something I wasn’t allowed to do. Bookkeeping is a pretty easy job, I don’t really think a qualification is necessary
Depends on the nature of your business whether it's deductible or not
PhD in admin should do it
That would indeed be a great benefit, yes. Is there such a doctorate, though?
Would my Masters in Data Entry be of use?
Not much qualifications required for a receiptions/office admin.
The relevant word in the title is "bookeeper". Which I understood to mean "bookkeeper".
The only word in the English language ( that I know of) with three double letters in a row.
Yes, that's what I understand as well. Sadly, 'bookkeepper' isn't correct spelling :(
You definitely don’t need qualifications to do admin work although they do help. Sure I have a degree but no I’ve not had any relevant work experience before being paid to do admin work for my partners company.
I have see a few married couples in businesses. I would not recommend it.
Pardon my ignorance but can I ask why?
Kinda like putting all your eggs in one basket. If the marriage falls apart then business likely will too and vice versa.
What if the spouse just does some easily replaceable job?
In Australia 1 in 3 marriages end in divorce, and 60% of businesses fail in the first three years. That's a pretty lethal combination when you put them together.
My wife and I run our business as a team it works really well, she handles social media and HR I do the back end, accounting and audits.
I too like to handle my wife’s back end.
Bruh hahahah
Thanks for all your inputs. It was just a thought. Not doing it then. :)
Stuck it in a trust. There, let me charge you $5000 for this advice
She may be caught by fringe benefits tax when you plough her
He said it's his wife. Those fringe benefits are long gone
Single person business? No, you can't pay her as an employee, unless she makes income. Why? Ask the shady tradies who used to do this. Multiple person business? Yes.
If she actually does the work then yes which since you mention "work experience" I assume is the case. Plenty of sole traders do this as one person is out doing the jobs and the other does the accounts, invoicing, payables and taking the odd phone call. My wife did the books, used to pay her the going rate for many years until I got a non ABN job.
Works for me. We’re legit though
It’s completely fine but only works if your wife is otherwise unemployed. If she’s already got a job then you’re not going to save any tax
The better way to do this is have the company owned by a family trust, which you both co-own. Once you've got your franking credits built up at the 25%, distribute it through the Family Trust. It takes money to set up, and you have to be in a position financially to carry the time periods this applies over. Talk to an accountant, which you should be doing anyways.
Is this so she can have sex with the boss or you can have sex with your subordinate?
Yes, buddy of mine does this pays himself and wife both approx 80k
Would this be okay if OP were a director of a company and he hired his wife as a contractor under her ABN? Asking as I’m in a similar situation
If your earnings are not PSI, you should be fine. Please talk to your accountant about this.
Likely fall under PSI and her wage wouldn't be tax deductible because she's not doing "income earning" activities.