THERE IS A VERY poorly thought out anomaly in our tax system.
It affects families (in the main), retirees (call it a death tax) and other taxpayers alike — especially the NOT self-employed.
Is This Your Family?
Let us use one family’s example and explore a typical case.
A family has the one main breadwinner while the other receives some Government Benefit but plans on a return to work.
Of the “new” second income, the family may end up keeping $0.20 cents in the dollar while the benefits they receive will reduce as they earn. Also they pay tax on the money that they earn (it is a double edged sword).
If you subtract the costs of actually being employed (such as travel to work, parking and childcare costs) from what is left over — the family may end up with nothing or, even worse, less than nothing.
What a badly thought out aspect of the government benefit/tax system. There is little or no incentive to become productive.
You may be much better off to stay on benefits and not return to work. What kind of affect does that have on our economy?
Both sides of governments have tried to address the problem but nothing has changed. So how do you work around it?
It is the elderly who most affected financially when one spouse passes on — leaving the survivor as a single for benefit and tax assessment purposes.
The one who remains will not get the benefit of having combined assets and incomes assessed for pension, health care or tax and may end up losing the benefits.
It is critical to consider this when doing estate planning.
For example: when one spouse passes on distribute their inheritance to another family member — rather than just leaving it all to the surviving partner.
Especially, if the partner does not need the financial support from it.
The self-employed have the benefit of utilising structures and other benefits. But care and consideration must be given.
Good accountants (like CIA!) always consider both tax and benefit implications at the same time.
The key here is to do the numbers to see if it is worth a second income (most do not even consider the numbers and think they are better off when they are actually not).
Money might not be the only factor to consider. Perhaps career is the motivator.
Regardless, you should at least calculate how the second income affects your overall family income.
To reduce the negative impact, you can offset other incomes (like investment profits, dividends, interest, rents, etc.) against other investments.
Your accountant may be able to find a structure to help you put away money for the future (superannuation).
BOTTOM LINE: You must always consider both tax and benefits at the same time and plan your way around these anomalies.
Stay optimistic — it is not all bad.We live in a country fortunate enough to have a large safety net for all individuals.
You will be fine if you assess your circumstances, maximise your outcomes and, most of all, find peace with them.