Guest Blogger – Warwick Jackson – Berkmans Chartered Accountants
Welcoming a little bundle of joy can set about some big changes. Whilst you’re busy planning the nursery, there are a series of other important considerations that will also require your attention.
Parenthood delivers a high level of responsibility and it’s important you take steps to protect your offspring’s future wellbeing and your ability to provide for your growing family.
Here, I have collated some key considerations for new parents:
Prepare a Budget and stick to it
Where at all possible, planning to live on one income prior to the arrival of a baby can set in place good saving habits. Every dollar saved prior to birth means less financial stress and more choice around returning to work.
Look to bring forward expenses when you know your income is likely to significantly reduce in the following year. Prepaying expenses such as memberships, interest expenses and even accounting fees can deliver a better tax break in the earlier year than would have occurred when your income is significantly reduced.
Self-employed business owners may seek to review their business structure to allow more tax effective income splitting. Quite simply – one person on an income of $100,000 pays around $9,850 more tax than two people earning $50,000.
Private Health Insurance
High income families (any family exceeding $176,000 combined income) should ensure their new child is covered by Private Health Insurance Hospital Cover. The Australian Taxation Office (ATO) will tax the parents an additional 1-1.5% of taxable income if all dependents are not covered.
Often the income of one of the parents is likely to be significantly reduced in the period following the birth of a child. It is worth considering finding $1000 to put into superannuation for such taxpayers. The ATO will put in up to $500 as a co-contribution. This might not sound like much but a 50% guaranteed return is pretty good. With the compounding effect of interest over time, this small sacrifice will make a massive difference at retirement.
Paid parental leave – are you eligible?
High earners may look to package income. Paid parental leave is available provided certain criteria are met. Qualifying for most of us is not an issue – however the following people should look closely:
- High Earners – must have received an individual adjusted taxable income of $150,000 or less in the financial year either before the date of birth or the date you claim. Getting under this threshold (through careful tax planning) may make all the difference.
- Spouses of Self Employed – often the spouse of a self-employed person actively works in the business but may not receive a formal wage for his or her efforts. Tax planning will ensure this is dealt with in order to meet the parental leave work test.
Centrelink and Family Tax benefits
Many Centrelink benefits can be time sensitive, i.e if you apply for them after a certain date you can miss out. Stay on top of your financials and present them regularly to Centrelink.