Paying teenagers

[bb1]

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Ok a question from me for one of our good accounting people (James are you here).

Received the following from my ex, and it sounds dodgy as anything to me, and if it was legit, I don’t personally want to go down that path as not keen on involving D, but interested what the legalities really are. I sent an email to my accountant and he is off overseas again (yep I’m in the wrong profession)….

For info D is 16 years old, and will be starting a casual job at one of our supermarkets next week, so will not be earning much at all this financial year.

The slightly edited text:-
Some of my clients are giving wages to their children around the age of D to minimise their tax.
I think this could work for us in each of our businesses.
I suggest say… $3,000-$4,000 each that we can register a group certificate for her in each of our businesses.
This tax advice has been given to several of my clients from their Accountants.
It may only work this year, but we both may as well benefit.
What do you think?

[Past-Member]

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I’m not an accountant, but I would not feel comfortable about it.
This article is related, but not the same as your query.
https://www.ato.gov.au/individuals/investing/in-detail/children-and-under-18s/children-s-savings-accounts/
It has some text in red, ‘If the amount deposited to the account is considered excessive, further examination is needed to decide where the money came from and whose money it really is.’

[James Millar]

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bb1, post: 214333, member: 53375 wrote:

Ok a question from me for one of our good accounting people (James are you here).

Received the following from my ex, and it sounds dodgy as anything to me, and if it was legit, I don’t personally want to go down that path as not keen on involving D, but interested what the legalities really are. I sent an email to my accountant and he is off overseas again (yep I’m in the wrong profession)….

For info D is 16 years old, and will be starting a casual job at one of our supermarkets next week, so will not be earning much at all this financial year.

The slightly edited text:-
Some of my clients are giving wages to their children around the age of D to minimise their tax.
I think this could work for us in each of our businesses.
I suggest say… $3,000-$4,000 each that we can register a group certificate for her in each of our businesses.
This tax advice has been given to several of my clients from their Accountants.
It may only work this year, but we both may as well benefit.
What do you think?

If a minor (person under 18) derives employment income then they are generally tax at normal rates on that employment income. However if a minor receives more passive unearned income (trust distributions etc) then those amounts will generally be taxed at a higher rate to discourage income splitting.

So yes the maths probably stack up but keep in mind that the law would expect it to be a genuine employment arrangement.

Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900

[bb1]

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JamesMillar, post: 214358, member: 5318 wrote:

If a minor (person under 18) derives employment income then they are generally tax at normal rates on that employment income. However if a minor receives more passive unearned income (trust distributions etc) then those amounts will generally be taxed at a higher rate to discourage income splitting.

So yes the maths probably stack up but keep in mind that the law would expect it to be a genuine employment arrangement.

Hi James, yes they were my concerns as well, and had already decided not to go down that path, if she suggested it I assumed it was dodgy.

As usual thanks for your help

Interesting I also got a reply from my accountant, apparently they have internet overseas as well, bit sad that he is answering my emails on holidays though, dedication I guess. And he mentioned the same things as well as the possibility of super ($450 income per month), register with work cover, although maybe not have to pay a fee. plus we can’t suddenly pay say 3K this months without upsetting the apple cart, and if we back paid it over the year, it would look dodgy as we would have to adjust our BAS’s.
Oh plus of course if we don’t actually hand over the cash (which was the bit I edited out of the original email), in a couple of years time D could come and say, well where is it.

[James Millar]

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bb1, post: 214396, member: 53375 wrote:

Hi James, yes they were my concerns as well, and had already decided not to go down that path, if she suggested it I assumed it was dodgy.

As usual thanks for your help

Interesting I also got a reply from my accountant, apparently they have internet overseas as well, bit sad that he is answering my emails on holidays though, dedication I guess. And he mentioned the same things as well as the possibility of super ($450 income per month), register with work cover, although maybe not have to pay a fee. plus we can’t suddenly pay say 3K this months without upsetting the apple cart, and if we back paid it over the year, it would look dodgy as we would have to adjust our BAS’s.
Oh plus of course if we don’t actually hand over the cash (which was the bit I edited out of the original email), in a couple of years time D could come and say, well where is it.

I agree with your sentiment Bert. It can be done and in some cases is either completely legit or at least quasi legit. However in cases where its clearly contrived then I’d suggest the risk to everyone is too great.

It comes back to the two elements of our mission statement. The first is to improve your wealth by minimising tax. The second element is to reduce your financial risk by minimising your exposure to tax non compliance penalties. That second element is very important. There is no point paying an accountant good money just because they always tell you what you want to hear (ie yes you can claim it!).

We know the boundaries and the limits and it seems you have a good understanding as well. If in doubt take the high road and sleep easy.

Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900

[bb1]

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Thanks James, I await the hand grenade thrown back when the NO hits her inbox.

[Author]

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