In 2002 my father wanted to invest in property, he however was paying child support to my mother as I was living with her.
The problem with child support is that when you try and invest in property you find that for child support purposes you are required to pay 18% (one child) of the income the property recives before expenses of the loan are taken into consideration (forget about + or – cashflow!). Consequently, all the value of negative gearing is thorwn out the window and investing in property losses a lot of it s value.My question is, if he had first created a discredentary trust to put the properties into, then would he have been able to avoid this child support dilemma? I mean, if the properties are not in his name but rather the name of a trustee then he should not be liable to pay child support to my mother for those investments.
Additionally if he wanted to provide additonal support to me all he had to do was include me as a beneficiary of the trust
at which point I may recieve income from his investments at my relevant tax rate (low).You have now entered the Family Law Twilight Zone and it does not matter how 'smart' you think you can set up discretionary and family unit trusts, SMSF's, or otherwise, you cannot avoid your obligations under Family Law. Unfortunately, it's as black & white as that. Remember the Law can be a TURTLE and an ASS – it's SLOW and it's STUPID at times.
I have never looked into the child support side, but if it was centrelink they would regard any trust in which you dad had a role as being his assets and income. So if he was an appointor/trustee/beneficary/director/shareholder in any trust or company then there would be a very long form to fill out and they would assess the trust and possibly consider the trust assets as his own personal assets for the purpose of assessing benefits.
It is possibly similar with child support.
There is a special trust which is good for tax savings with child support. This is usually called a child support trust or a child maintenance trust. Income from a child support trust can go to the child with huge income tax benefits. The child would be able to earn up to $16,000 pa tax free.
The benefit to the parent is that this income does not pass through them so they are not paying tax on it and then giving it to the ex. The money comes straight from the trust.
If the kid was made a beneficiary of a discretionary trust then they could receive income from the trust too. But it wouldn't count as child support and the child would only be able to get $416 pa trust free. They could end up paying 66% on the rest.
There are many conditions to these though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
ALF1 wrote:You have now entered the Family Law Twilight Zone and it does not matter how 'smart' you think you can set up discretionary and family unit trusts, SMSF's, or otherwise, you cannot avoid your obligations under Family Law. Unfortunately, it's as black & white as that. Remember the Law can be a TURTLE and an ASS – it's SLOW and it's STUPID at times.There is a famous senior Barrister and trust expert called Dr Spry, he even wrote a book on equity. But even he got it wrong when splitting from his wife. Trusts he set up years before were 'attacked'. see Kennon v Spry in the High Court.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw,
"But it wouldn't count as child support and the child would only be able to get $416 pa trust free"
You mean to say "Tax free" right?
Ah, yeah sorry. Tax free!!
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Just had a quick look at the CSA site, http://www.csa.gov.au/child_support_formula/your_income_details.php
and it doesn't mention anything about counting income from a trust you control – unless the person being assessed in receiving the income.So, on first glance, you could possibly set up a trust and distribute the income to a third party so as the trust income is not assessed for the child support income calculation.
But this must happen a fair bit and would be surprised if they haven't tried to put a stop to it.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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