Tax with starting new job and an IP

Hi Everyone,

I was wondering if a bright spark could help me out with some basic accounting/tax questions

Me - works and gets 120K salary . has half share of family house which has a $1.2M mortgage. No other investments or assets

Wife - Has shares worth $1.3M and 200K in cash, Gets dividends and interest as income. Generally about 60K or thereabouts and a good portion is franked No other assets or income

So, my wife would like to start working on a part time basis. She is a therapist and would make about 25K per year for working 1 day per week. She would over a 5 year time span increase her days and salary to about 75K

We are looking at get an IP or 2. Whose name should these go in?

She getting income from the shares and therefore if she works she'll have to pay much more tax than if she didnt get any dividends? When she goes to work, should she operate as a sole trader and pay tax direct to the ATO, or should she start up a company and then is there some way she can minimise her tax through a company?


Welcome to the forum, John !
As you are the high salaried earner it would be more beneficial to buy IPs in your name to save tax.

I don't believe your wife's tax position would be too affected by the share income if it's fully franked - certainly if she's making 25k p.a. The tax has been paid at the company rate already. I'm no expert on this stuff but I would think sole trader would be fine. At 75k I don't see what point there would be to set up a company. She'd be paying higher tax for a start. She can still claim all expenses & outgoings working for herself as a sole trader.

I thought for a while that your whole salary must go to paying the 1.2m mortgage. Then I re-read your post & realised that your wife obviously doesn't own the other half but someone else does. As a couple you're only servicing 600k, correct?
If your wife is getting 60k investment income plus 25k work income, that's 85k. The tax rate up to 80k is 30%, then 38% to 180k. So up to 80k total income, any fully franked dividends included in that 80k income would be paying their own tax. ie. if you earn 75k and receive a fully franked divi of 2k, there's a nil tax effect to you. Above 80k and you would pay the top-up tax of 8% on any dividends received.

As for starting a company to run the business, there's a couple of things to consider. First, you can't pull profits out of the company - that's a dividend and assessable. So the profits are stuck in the company until you bear the tax effect of pulling them out. Second, your wife may be caught by the PSI rules anyway - individual circumstances apply here so you would need to discuss with your accountant. I would stick to sole trader for now.
I would be looking more at the asset protection side of things for your wife, as I don't see tax as the big issue for her.

To that extent I would probably look at structures other than sole trader.

If she is working as a therapist and is an employee rather than a "business" I would probably still encourage her to self insure and also look at the liability issues and how her employer is covered and cover its employees.

She has a lot of asset exposure, so best to be careful.