Tax Planning Strategy 171 | Income Splitting

This strategy involves ‘evening up’ the marginal tax rates between spouses. Tax is saved if income can be moved from the spouse in the highest tax bracket to the spouse with the lowest tax bracket. 

The income splitting rules are:

• All investments earning income should be in the name of the lower-earning spouse so they can take advantage of the lower tax rates (especially the $18,200 tax free threshold). This is the case for term deposits, shares, and property.
• Negatively geared, and loss-making investments, should ideally be in the name of the spouse with the highest taxable income.
• Where both spouses are in the highest tax brackets, investments should be held in the name of an investment company (and taxed at 30%), or a self-managed super fund (and taxed at between 0-15%). 
• If transferring income earning investments between spouses the capital gains tax liabilities and stamp duty costs will need to be considered.