It’s impossible to over-emphasise the huge financial benefits to families of working together when planning their financial affairs.

Most families do not plan, and the Australian Taxation Office thanks you for your generosity in contributing more of your income than is necessary.

Today’s article presents a fairly straightforward scenario.  The figures do the talking.  The cost of a Will could be recouped in 3 months – even though the benefits could continue for decades.

The benefits for families in executing a plan can reap enormous financial rewards – which brings greater happiness through reducing financial stress.


1.   Streaming of income

The primary advantage of having a sophisticated will is that they include optional testamentary trusts.  Where a testamentary trust is used, income can be split amongst children and there are preferential tax rates for distributions to minors under testamentary trusts.

When a beneficiary in your will earns income off a gift – eg, rent on an investment property, or capital gains when they sell it – that income will be taxable. While they have children under 18 years old, that income can be ‘streamed’ to the children to take advantage of their preferential tax rates.  This requires a special structure called a ‘testamentary discretionary trust’ that can only be created under a will.

2.   Income tax rates for resident minors

The following figures are based on FY18 tax rates:

Distribution ($)

Normal Family Trust

Testamentary Trust

0 – 416
417 – 1,307 66%
1,308 – 18,200 47%
18,201 – 37,000 47% 19%
37,001 – 80,000 47% 32.5%
81,000 – 180,000 47% 37%

180,001 +



3.   Example scenario

Family Details

Sarah’s only significant asset is her primary residence, which is a 2-bedroom apartment worth $800,000.  Sarah leaves everything to Emily who is her only child.

Emily has a job paying $120,000, and 2 children who are still in school.  Emily lives in a 3-bedroom townhouse, which she rents as she can’t yet afford to buy her own home.

Once Sarah’s apartment passes to Emily, to help pay the bills, Emily rents out Sarah’s old apartment as an investment property, which earns $40,000 p.a. in rental income.  Emily holds Sarah’s apartment as an investment property for 10 years and then sells it for $1,000,000, making a $200,000 capital gain on the sale.

Tax Consequences

The result is that, over the 10 years while Emily held Sarah’s former apartment as an investment property, Emily saved a whopping $146,612 in tax!

Here’s the breakdown (taking into account the 50% CGT discount for assets held for more than 12 months):












Salary 120K 120K 120K 120K 120K 120K 120K 120K 120K 120K
Rental Income 40K 40K 40K 40K 40K 40K 40K 40K 40K 40K
Capital Gain 200K
Total Income 160K 160K 160K 160K 160K 160K 160K 160K 160K 360K
Simple Will Tax 46,832 46,832 46,832 46,832 46,832 46,832 46,832 46,832 46,832 67,616
Smarter Will Tax 32,716 32,716 32,716 32,716 32,716 32,716 32,716 32,716 32,716 48,048
Tax Saved 14,116 14,116 14,116 14,116 14,116 14,116 14,116 14,116 14,116 19,568

PLEASE NOTE: This example should not be relied on as a substitute for obtaining legal, financial or other professional advice.  This case study is intended to provide a general example in relation to income tax only and is not comprehensive.  Other taxes also need to be considered – eg, GST, stamp duty, land tax, etc. You must seek your own tailored professional tax advice.

This is our last publication for 2017.  Let’s talk again late January 2018.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

Copyright © 2017 Wockner Lawyers. All Rights Reserved. Contact Wockner Lawyers – [email protected]. This article may not be used without the prior written consent from the author. See below for more details…

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