# Income splitting: lower tax



## yonnie (16 June 2007)

hi everybody,

my wife and I are share traders and will make about $ 125,000 in trading profits.
she had a job earning just over $ 8,000 this year as well.

she spends about 30% of her time in the share trading business and I do the other 70%. 
can we divide the profit 30/70 = $ 37,500 to my wife and $ 87,500 to me


considering that:
our trading capital is from a joint bank account
we dont have an established partnership agreement
we dont trade from a trust or company

would like to hear from a well-informed person; no guesses please


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## deftfear (17 June 2007)

Do you have a joint broker account, or 2 accounts in your own names that you trade from?


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## bernardp (17 June 2007)

You cannot split income in that way without the proper legal structure setup. The information you provide is a little sketchy, but from the outset it would appear you would have to share profit 50/50 as i assume all your holdings are held as such.

Are you working full-time? Do you meet the definition of 'share-trader' as set out by the ATO? 

Considering the profit made a discretionary trust may be an idea for you to ponder in future...

Hope this helps.


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## Prospector (17 June 2007)

Unless you are trading in a business name (ie formal Pty Ltd, Trust) structure, it is dependent entirely in whose name the shares are placed.  If joint names, then you would have to share Gains/dividends 50/50; if in either partners name, then 100% in that partners name, even if the other person was doing all the work.


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## Gordon (17 June 2007)

Prospector said:


> Unless you are trading in a business name (ie formal Pty Ltd, Trust) structure, it is dependent entirely in whose name the shares are placed.  If joint names, then you would have to share Gains/dividends 50/50; if in either partners name, then 100% in that partners name, even if the other person was doing all the work.




I work full time and get taxed at 42.5c in the dollar - does this mean i can get my younger sister (16yrs old doesnt work still in school) to open a commsec account, give me all the details, and any CGT from the profits of my trades will be calculated from her sallary? sounds a bit dodgy.


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## bernardp (17 June 2007)

You missed the point Prospector was trying to make Gordon.

Regarding the 16 year old sister, she's a minor and can only earn about $700 before minor tax rates rip her income away


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## Gordon (17 June 2007)

at what age do you change from a minor to a major? i might do this when she is at uni


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## prawn_86 (17 June 2007)

Gordon said:


> at what age do you change from a minor to a major? i might do this when she is at uni




they will probably question where she got the money from.
ie - if you gave her 50k to start her/your trading acc she may get taxed on that...but im not sure, where's an accountant when you need one


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## bernardp (17 June 2007)

Once she's 18 she is no longer a minor. There are special rules however, check this out for a read if you really care:

http://www.ato.gov.au/print.asp?doc=/content/20046.htm

Setup a discretionary trust, distribute about 11k to her which after the low income tax offset comes into account is about the amount you can earn for the 2007/2008 financial year before she gets taxed...

Just an idea


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## yonnie (17 June 2007)

thank you all for your replies.

we actually have 8 broking accounts: 1 joint name, 1 my name, 1 her name, 1 in nieces` name, 1 in her sons name, 1 in niece/her/my name, 1 in niece/her name, 1 in niece/my name,  all funded from our 1 joint bank account.

we are definately share traders because we trade in penny stocks (no dividend possible) so we can only profit from price advances, we keep regular books and we make about 500-600 trades a year.

I thought the 50/50 rule applies to investors trading with a joint account.

In business you can stipulate what percentage each gets, but I dont know if you have to have a written partnership contract.


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## Prospector (17 June 2007)

yonnie said:


> thank you all for your replies.
> 
> we actually have 8 broking accounts: 1 joint name, 1 my name, 1 her name, 1 in nieces` name, 1 in her sons name, 1 in niece/her/my name, 1 in niece/her name, 1 in niece/my name,  all funded from our 1 joint bank account.
> 
> ...




Wow, quite some set up.  Each 'profit' can only be allocated to the entity (1 person or joint) that bought/sold the relevant share.  If any of the above are minors, then after $700 or so, the tax rate is something like 46% for income that does not come from personal exertion (eg trade profit or trust distributions for instance).  And each person will have to declare this appropriately in their tax return.  And pay full CG rates if held less than 1 year.
At least, that is my understanding


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## jammin (17 June 2007)

Prospector said:


> Unless you are trading in a business name (ie formal Pty Ltd, Trust) structure, it is dependent entirely in whose name the shares are placed.



Hi yonnie, Prospector has accurately summed up the situation. The account name you use to purchase and sell will be the name that is liable for the CG tax or credit.
I am actively trading and have 2 accounts with my broker, one in my name and the other in my partners name. I decide which account the trade will be placed through dependent on which account will be the most tax effective. My partner does suggest that I place the trades in her name because she believes she is more lucky than I am. Luck!!!! what does luck have to do with it.(For some reason the trading results support "Luck" theory).


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## yonnie (17 June 2007)

we only set up this many broking accounts, because our broker gives a trading limit for each account where you can actually place orders without having the money in the bank account. we still have to pay for the shares 3 days after purchase.

so in this case my niece and her son have nothing to do with the trading/nor are they putting in any money and are not trading personally on their accounts but have given us authority to trade in their name. the shares are paid for out of our joint bank account.  

so we are saying that we as share traders (business) trade under the names of (trade as):
our joint broking account name
my personal broking account name
her personal broking account name
niece/her/my broking account name
her/niece broking account name
my/niece broking account name
my/son (minor) broking account name
niece broking account name

so I assumed the profits of those 8 accounts still come to my wife and me only and not to our niece/son (2 years young).

if this is so and all these broking accounts is 1 joint trading business would we have to split everything 50/50?

if we dont want to do that because I spend more time in our business then we will have 2 businesses.

my wifes` business and she is getting the profits of:
1/2 profit of our joint broking account
her broking account
1/2 profit of my/her/niece broking account
her/niece broking account

my business and I get profits of:
1/2 profit of our joint broking account
my broking account
1/2 profit of my/her/niece broking account
my/niece broking account
niece broking account (I have authorization)
nieces` son broking account (I have authorization)

looks a bit complicated, but its not really

any comments?


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## GreatPig (17 June 2007)

jammin said:
			
		

> The account name you use to purchase and sell will be the name that is liable for the CG tax or credit.



Not necessarily, if that person is a minor.

See the first example here.

GP


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## Prospector (17 June 2007)

I dont think it matters who has paid for the shares, it is the name in which they are purchased that counts.  Also, didnt you have to do the 100 point check for each of these accounts to establish their identity?  Otherwise you could trade under fictitious names which would then be classed as fraud, or tax evasion.  I think maybe you need to seek some professional accounting advice about all this because maybe there are some issues about all these identities.

Also, I have some shares for my kids but I had to hold them in trust until they reached 18; I have to pay the CG etc.  My tax file number is registered with the holding. I didnt think minors could hold shares in their own name outright?

OK Great Pig, I have just read your link and it seems like my accountant has been putting CG in my tax return but they should have been put into the kids Tax return.  Hm, just as well it wasnt that much!  And I will be sending him that link tomorrow.  Thankyou for that!


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## deftfear (18 June 2007)

yonnie said:


> my wifes` business and she is getting the profits of:
> 1/2 profit of our joint broking account
> her broking account
> 1/2 profit of my/her/niece broking account
> ...




I think that you need to declare the gains in the name of the person  as you have listed above. IMO it doesnt matter who does most of the work/ research/ trading etc, it depends on whose name it is. I trade in my girlfriends name, and she has little input but she pays the tax on it, not me, regardless of how much effort she or I put into it.

I also cannot understand why you want to split the income 70/30, that would put yourself in a higher tax bracket (40 cents per dollar) for part of your income over $75,000, whereas if you split it 50/50 you are both under the $75,000 and only pay 30 cents in the dollar. 

This is just a basic breakdown, but as said before, I think you need to see a proper accountant, you can take the risk and go by what others have said on this forum, but you are the one ultimately responisble for your tax returns and the information in it. Please seek professional advice.


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## yonnie (18 June 2007)

thank you all for your help, including Duckman.

To get around all the pitfalls I can establish a partnership with 3 partners (wife, niece and me) and put all the 8 broking accounts in that partnership as trading under 8 different names.

We can then decide ourselves how much each partner gets out of the profits of that partnership depending on our criteria.

Good or what!


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