By the time we send our next newsletter the Federal election will have been
held. Don't forget to vote on Saturday 7 September 2013; one year, someone in
our office made it to polling booths with only 3 minutes to spare after
remembering just in time! You can find your nearest polling booth at www.aec.gov.au.
Aged Care and Trusts
We have often been asked if trusts can be used to minimise the impact of the
income and assets tests in Aged Care and we gave the following recent advice
to a client (here quoted in part).
- Gifts reduce tax liability by up to $30,000 over 5 years or $10,000 in any one year.
- Monies put into trust for others are also considered gifts; it's not just cash payments or transfers of assets.
- Special Disability Trusts are exempt (for the principal beneficiary) from the income and assets tests for Aged Care up to an asset value of $596,500, and also qualify for gifting concessions. Severe dementia qualifies as a severe disability for the establishment of a Special Disability Trust.
- There is nothing to stop gifting any amount but only $30,000 will be deducted from the assessment for 5 years. Gifts over the threshold are called "excess gifting" and will be deemed assessable but after 5 years are no longer included in assessment.
- Any assets bought get included in the assessment - even if someone else uses them - but see below for income testing rules on what gets included (the below-listed assets are still included in the assets test but any income derived from them is not).
- Insurance bonds also get included in the assets test but not the income test. Insurance bonds held for 10 years are tax free and no income is received for tax purposes until they are redeemed. If using insurance bonds, we suggest breaking them up into more than 1 investment if access to cash is ever needed. Early redemption would have taxable implications and reduce the yield.
Financial investments do not include:
- your home or its contents,
- cars, boats and caravans,
- antiques, stamp or coin collections,
- standard life insurance policies,
- holiday homes, farms or other real estate,
- accommodation bonds.
Testamentary trusts can be very useful if established at least 5 years before
an assessment is needed. Testamentary trusts are established by will and allow
assets to be placed in trust while alive, that are then allocated according to
your wishes on death. Income from the trust is distributed according to the
trust deed, which is typically distributed to the testator whilst alive. If
the trust is formed at least 5 years before an Aged Care Assessment is needed,
the assets will not be included and only the income (if any) will be included.
Care should be taken when drafting, and legal advice is required to ensure all
of your needs and wishes are accounted for. This advice is general in nature
and should not be relied upon. Specific advice for your circumstances must be
Peregian Beach near our office
Peregian Accounting -
Phone: 61 7 5448 1218
Fax: 61 7 5448 1221
Independent Contractors vs Employees
Independent contractors are natural persons (ie not companies or trusts) that run their own business, hiring out their services to other organisations. They negotiate their own fees and working arrangements, and can work for multiple clients at a time. Contractors can also be "incorporated", meaning that the entity contracting out services is not a natural person but is a company or trust, but the general view is that incorporated contractors cannot form employment relationships and should therefore always be treated as contractors. The information that follows discusses how and why to determine whether your independent (not incorporated) contractors should actually be classified as employees.
Contracting is a common way to provide workforce flexibility without the
hassle of payroll, but engaging independent contractors does not necessarily
absolve you of payroll obligations, and may end up costing you much more than
you are hoping to save by not having employees. If your contractors have the
nature of employees the ATO and Fair Work Ombudsman may decide that your
workers are employees and workers' entitlements may have to be backpaid. In
addition, there may be fines and interest on late payments.
There is no simple, conclusive test to work out whether you have employees or
independent contractors, rather you have to decide based on a few factors
whether they are more like one or the other. In general, however, if your
workers are providing mostly labour, you control what they work on and how
they do it, they bear little financial or operational risk, and they use your
equipment and premises then it is likely they will actually be seen as
employees rather than contractors. What you or your worker call the working
arrangement or whether they have an ABN is not conclusive evidence;
determinations are made objectively based on the circumstances of the
Below is a table summarising some of the differences between employees and