• Skip to main content
  • Skip to primary sidebar
  • Skip to footer
[email protected] (02) 9299 4912

Lawyers Sydney | Solicitors in North Shore, Sydney

  • Home
  • Our Story
    • Our Community
    • Our Environment
  • Our Services
    • Sydney’s Premier Commercial Law Firm
      • Starting A New Business
        • New Business Structures
      • Buying & Selling a Business
        • Corporate Mergers and Acquisitions (M&A)
        • Sale or Purchase of Shares in a Private Company
        • FAQ – Sale of Business
        • FAQ – Purchase of Business
      • Commercial Dispute Resolution Law in Sydney
      • Corporate Governance & Asset Protection
      • Intellectual Property & IP Law
      • Contract Law
      • Climate Change, Energy Law & Carbon Trading
    • DEBT RECOVERY LAW
      • Debt Recovery Process
      • Enforcing a Debt or Judgment
      • Car Accidents & Motor Vehicle Claims
    • PROBATE LAW
      • Applying for a Grant of Probate
      • Contesting a Will
      • FAQ’s – Executors and the Administration of Deceased Estates
    • Civil Disputes & Litigation
      • Commercial Dispute Resolution Law in Sydney
        • Shareholder Disputes
        • Partnership Disputes
        • Director’s Disputes
        • Contract & Property Disputes
      • Litigation
        • COMMERCIAL LITIGATION LAWYERS IN SYDNEY
      • Negligence
      • Alternative Dispute Resolution (ADR)
    • Property & Conveyancing
      • Retail & Commercial Leases
      • Selling a Property
        • FAQ – Selling a Property
      • Buying a Property
        • FAQ – Buying a Property
      • Transferring Property in NSW
      • Property Owners Disputes
      • Caveats
      • Mortgages & Securities
      • Option Agreements
      • Electronic Conveyancing in NSW
    • WILL DISPUTE LAW
      • Drafting a Will
        • Children in Wills
        • Letter of Wishes
        • Digital Assets in a Will
      • Power of Attorney
      • Guardianship & Enduring Guardians
      • Elder Law
      • FAQ’s – Wills and Estates
    • Bankruptcy & Insolvency
      • Personal Bankruptcy
        • Bankruptcy Notices
        • Debt Agreements
        • Enforcing a Debt or Judgment
      • Company Insolvency
        • Creditor’s Statutory Demand
        • Creditor’s Petition
        • Winding Up or Deregistering a Company
    • Building & Construction
      • Building & Construction Contracts
      • Building & Construction Disputes
      • Security for Payments Act
    • SYDNEY EMPLOYMENT LAW
    • Insurance Law
    • Public Notary
  • Online Quotes
    • Simple Will Quote
    • Debt Recovery Quote
    • Conveyancing Quote
  • Meet the Team
    • Michelle Rockliff
    • Nicole Rockliff
    • Sarah Mooney
    • Nathan Rockliff
    • Trudy David
  • News & Articles
  • Contact Us
You are here: Home / News / Divorce & Family Law / Tax-free Child Support Payments

30/08/2013

Tax-free Child Support Payments

Raising children is an expensive business and more so if the parents are separated.

Most maintenance (child support) is paid with after tax dollars. The highest marginal rate is 46.5%. If you are on that rate, then you need to earn almost $40,000 to have $20,000 left to pay the child support.

A Child Maintenance Trust allows your children to pay the tax but generally at a lower tax rate – even a tax rate of zero. This is tax-effective income splitting.

With such a trust, you hold assets for your children’s benefit. In effect, you put “capital” into the trust (e.g. machinery, livestock or more rarely shares and property – anything that makes an income). Some or all of the income created from the trust can be paid to your children (or their guardian). This covers your maintenance obligation. The children then pay tax at the generous adult tax rate threshold. E.g. for each child the first $6,000 is tax-free (as it is for any Australian adult).

Usually, a child under 18 years of age pays tax at a rate of 66% for passive income from a trust. This is not the case for a Child Maintenance Trust. Under the Income Tax Assessment Act 1936 the trust income is “exempted trust income”. A properly set up Child Maintenance Trust gives the child the more generous adult tax rate threshold.

Sadly, your children eventually get their hands on the capital. This can be when they turn 18, 21 or even 80 years from the date that you set the trust up. This date is called the “vesting age”. This is why small business owners are the most prevalent users of these Child Maintenance Trusts.

The trust is only available for a “family breakdown”. You also need a legal obligation to pay maintenance for your children.

A “family breakdown” is the end of a domestic relationship – either a marriage or defacto relationship. There is no requirement to be actually divorced. You don’t have to have been married or in a defacto relationship. A one-night fling will do it.

Both parents must agree to the trust being set up and used. The other parent may not care about saving you tax. In fact, they are often happiest when you are suffering the most. However, the Platinum members can read why you can virtually always get the other parent to agree.

Whether a Child Maintenance Trust is for you is a question for your accountant and adviser to give advice on.

Reproduced with the permission of Law Central: www.lawcentral.com.au

Primary Sidebar

Search

Categories

  • Wills & Estate Planning
  • Insurance Law
  • General Legal Services
  • Divorce & Family Law
  • Debt Recovery
  • Civil Disputes & Litigation
  • Business & Commercial
  • Building & Construction
  • Bankruptcy & Insolvency
  • General
  • Uncategorised
  • Taxation
  • Superannuation
  • Services
  • Property & Conveyancing
  • Probate, Estate Administration & Disputes
  • News
  • Employment Law

Online Enquiry

* indicates required field

News & Articles

Managing Employees in Australia given the Impact of COVID-19

  We stress that due to the unprecedented nature of the pandemic and the very rapidly changing landscape, the guidelines below are general in nature and subject to change. Many of the laws that now apply to this situation were not written with regard to what is currently occurring. Therefore please exercise caution in relying […]

Temporary Changes to Insolvency Laws in Australia due to the Coronavirus (COVID-19) Crisis

In a move aimed to lessen the economic impact on businesses and individuals caused by the Coronavirus pandemic, the Australian Government has introduced some changes to insolvency laws in Australia that apply to personal and corporate insolvency regimes. This includes a temporary increase to the threshold in which creditors can issue a statutory demand on […]

Coronavirus (COVID-19) Update

Following on from the extensive reporting in relation to the COVID-19 pandemic we have implemented a number of protocols to enable the business to continue operating if a staff member or principal is diagnosed with the virus and/or the office needs to close for a period of time. Our staff and principals have adopted best […]

Footer

The Rockliffs Lawyers Difference

We provide pragmatic and practical solutions to your legal needs
We have decades of combined experience
Our lawyers and consultants are experts in their field to enable us to give you tailored legal advice to suit your specific needs

Contact Us

  • Suite 14, Level 26, 44 Market St Sydney NSW 2000
  • (02) 9299 4912

Connect With Us

  • Email
  • Facebook
  • LinkedIn

Newsletter

Sign up to our newsletter for updates on our latest news, articles and special promotions!

Our website does not give legal advice. All materials are for informational purposes only and should not be relied upon as legal advice. The use of this website is subject to our:
WEBSITE DISCLAIMER – PRIVACY POLICY – TERMS & CONDITIONS OF USE
Liability limited by a scheme approved under Professional Standards Legislation.Copyright © 2020 · Website hosted by Lift Legal Marketing · Log out