How to avoid the ATO auditing your family trust

Max Newnham
Published: July 26, 2016 – 9:44AM

When the owners of a business want the flexibility of distributing income to family members, to reduce the impact of income tax on net business income, a discretionary family trust with a company acting as trustee provides flexibility from a tax planning point of view and legal protection.

There have been examples in the past of people that have used family trusts to reduce the tax payable on what is really employment income. Since the introduction of the personal services income rules the ability to unfairly save tax on employment income has been reduced.

Where a business is operated through a family trust and family members work in the business there are steps that can be taken, to ensure that in the event of an ATO audit, no penalties will be imposed.

Q. I run a tourist attraction that is operated through a family trust and need someone to help me. I would like to know what the legalities of having a nephew working in my business for a share of the profit via a distribution from the Trust? How is this best structured to protect both me and him in event of accident, and what important things should the distribution agreement cover?

A. One of the areas that the ATO focuses on when conducting auditing a business is the people that work within it, and the level of salaries and wages they receive. Where the ATO can show that the profit of the businesses being inflated, by underpaying salaries, business owners can find themselves not only facing income tax penalties but also SGC and WorkCover penalties.

Your ability to distribute profits from your family trust to your nephew will not depend on a distribution agreement, but instead on the wording of your family trust deed. To distribute to your nephew he would either need to be named as a beneficiary of the trust in its deed, or be a relative of a named beneficiary.

Typically a family trust deed will state who the primary beneficiaries are, then allow profit to be distributed to secondary beneficiaries who are a relative of a primary beneficiary, and tertiary beneficiaries who are a relative of a secondary beneficiary. If you are not sure whether you trust deed will allow you to distribute to your nephew you should seek professional advice.

I do not believe you would receive the amount of protection you require by distributing profits to your nephew. As he will be working in your business you should pay him a commercial wage. As part of this process you would need to also pay WorkCover insurance, which provides the protection in the event of him having an accident, and also make compulsory super contributions.

If you did not have him as an employee and distributed profits you would be at risk if he had an accident, and also if the ATO audited your business he would classed as an employee and then pay SGC and WorkCover penalties.

Questions on small business income tax and other issues can be emailed to Max Newnham is a partner in the accounting firm TaxBiz Australia and founder of

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Australia’s skilled migrants: job outcomes improve but many skills still wasted

Inga Ting
Published: July 24, 2016 – 12:47PM

Many Australians have met migrants working in occupations far below their skills level: the dentist working as a cleaner; the former university lecturer driving a taxi.

But the tide appears to be turning for at least some of Australia’s skilled migrants, with new research showing that those arriving with tertiary qualifications in the past five years are twice as likely to work in their field as those who arrived more than 15 years ago.

Nearly 40 per cent of migrants who came after 2010 and already had tertiary qualifications are working in their field, compared with 20 per cent of those who arrived before 2001, according to the latest figures from the Australian Bureau of Statistics.

Policy changes focused on boosting the scale of skilled migration and enhancing English-language screening have greatly improved job outcomes for migrants, said Lesleyanne Hawthorne, an internationally-recognised migration expert from the University of Melbourne. Skilled migrants now make up more than two-thirds of migrants to Australia, up from less than half about 20 years ago.

“If you compare Canada and Australia in terms of skilled migration 15 years ago … about 60 per cent [of skilled migrants] were employed in six months,” she said.

“With Australia’s policy changes we’ve moved to 83 per cent within six months. Canada’s stayed pretty much the same.”

However, the gains for migrants attaining tertiary qualifications after arrival – mostly international students – have not been evenly distributed, Professor Hawthorne said.

For example, her own research shows that less than 10 per cent of recently-arrived migrants with degrees in business or commerce were employed in their field, compared with nearly 30 per cent for engineering, 57 per cent for medicine and 66 per cent for nursing.

Sisters Andrea and Audrey Kraal, who came to Australia from Malaysia as international students, had very different experiences in the graduate job market.

Andrea, who came to Australia in 2012 and completed a bachelor of mechanical engineering at UNSW, secured full-time employment even before she had graduated.

“In my second year [of studying in Australia] I got a part-time job at my current company as a mechanical engineer, and that’s how I got in,” Andrea said. “I was really lucky.”

By contrast, Audrey, who finished studying in 2009 and holds a bachelor in business and masters in accounting at UTS, needed months to find relevant work.

“It was really hard … There’s a lot of accountants out there. You’re competing with people who have more experience,” Audrey said.

Many accounting, business and IT graduates would have had similar experiences because these fields were oversupplied, Professor Hawthorne said. The problem was compounded by “shonky operators” in the private sector churning out students with very poor training, she said.

The government has since changed its policy so only bachelor or higher degree graduates are eligible for post-study work visas.

Australia imported skills to reduce the pressure under-investment in local skills creation, said UTS professor of sociology Andrew Jakubowicz.

And yet “historically … Australia has wasted a lot of the skills of its migrants,” he said.

Seven in 10 migrants who arrived after 2010 have tertiary qualifications, compared with four in 10 of those who arrived before 2001, ABS figures show.

“We pick the cream of the crop,” Jock Collins, professor of social economics at UTS Business School, said.

Immigrants are increasingly selected for their university qualifications but “in too many cases prospective employers do not recognise these qualifications once they are in Australia.”

“The cliche of medical professionals, PhDs and other highly educated immigrants driving cabs for a living or getting jobs as unskilled labourers is, sadly, very true today,” Professor Collins said.

Recently-arrived migrants make up 5 per cent of Australia’s tertiary-qualified workforce but 12 per cent of labourers, according to ABS figures.

The same research shows recently-arrived migrants workers are nearly twice as likely as Australian-born workers to have a university degree.

“This is a form of market failure,” Professor Collins said.

It hurts migrants’ occupational mobility and makes the Australian economy less productive and innovative, and yet it is immigrants who often get blamed for economic problems, he said.

Even migrants who tried to upgrade their skills or have their overseas qualification recognised faced hurdles because they often had to take up unskilled work while in training, said Stephen Castles, Research Chair in Sociology at the University of Sydney.

“Later on it’s very hard for them then to get a job that matches that qualification because they were already doing unskilled work,” Professor Castles said.

“The same goes for international students … who may have a well-recognised bachelors and come here for a masters or PhD, but while they’re studying, they’re doing unskilled work.”

However, Professor Hawthorne said Australia’s skilled migration program was the envy of other advanced economies.

“In world terms, Australia has exceptional outcomes,” Professor Hawthorne said.

“Not perfect, but exceptional.”

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How to recognise a narcissist

Jane Brody
Published: July 22, 2016 – 12:15AM

Does this sound like anyone you know?

  • Highly competitive in virtually all aspects of his life, believing he (or she) possesses special qualities and abilities that others lack; portrays himself as a winner and all others as losers.
  • Displays a grandiose sense of self, violating social norms, throwing tantrums, even breaking laws with minimal consequences; generally behaves as if entitled to do whatever he wants regardless of how it affects others.
  • Shames or humiliates those who disagree with him, and goes on the attack when hurt or frustrated, often exploding with rage.
  • Arrogant, vain and haughty and exaggerates his accomplishments; bullies others to get his own way.
  • Lies or distorts the truth for personal gain, blames others or makes excuses for his mistakes, ignores or rewrites facts that challenge his self-image, and won’t listen to arguments based on truth.

These are common characteristics of extreme narcissists as described by Joseph Burgo, a clinical psychologist, in his book “The Narcissist You Know.” While we now live in a culture that some would call narcissistic, with millions of people constantly taking selfies, spewing out tweets and posting everything they do on YouTube and Facebook, the extreme narcissists Burgo describes are a breed unto themselves. They may be highly successful in their chosen fields but extremely difficult to live with and work with.

Of course, nearly all of us possess one or more narcissistic traits without crossing the line of a diagnosable disorder. And it is certainly not narcissistic to have a strong sense of self-confidence based on one’s abilities.

“Narcissism exists in many shades and degrees of severity along a continuum,” Burgo said, and for well-known people he cites as extreme narcissists, he resists making an ad hoc diagnosis of narcissistic personality disorder, as defined by the American Psychiatric Association.

The association’s diagnostic manual lists a number of characteristics that describe narcissistic personality disorder, among them an impaired ability to recognise or identify with the feelings and needs of others, grandiosity and feelings of entitlement, and excessive attempts to attract attention.

Dr. Giancarlo Dimaggio of the Center for Metacognitive Interpersonal Therapy in Rome wrote in Psychiatric Times that “persons with narcissistic personality disorder are aggressive and boastful, overrate their performance, and blame others for their setbacks.”

According to the Mayo Clinic, people with a narcissistic personality disorder think so highly of themselves that they put themselves on a pedestal and value themselves more than they value others. They may come across as conceited or pretentious. They tend to monopolise conversations, belittle those they consider inferior, insist on having the best of everything and become angry or impatient if they don’t get special treatment.

Underlying their overt behaviour, however, may be “secret feelings of insecurity, shame, vulnerability and humiliation,” Mayo experts wrote. To ward off these feelings when criticised, they “may react with rage or contempt and try to belittle the other person.”

Burgo, who sees clients by Skype from his home in Colorado, noted that many “grandiose narcissists are drawn to politics, professional sports, and the entertainment industry because success in these fields allows them ample opportunity to demonstrate their winner status and to elicit admiration from others, confirming their defensive self-image as a superior being.”

The causes of extreme narcissism are not precisely known. Theories include parenting styles that overemphasise a child’s special abilities and criticise his fears and failures, prompting a need to appear perfect and command constant attention.

Although narcissism has not been traced to one kind of family background, Burgo wrote that “a surprising number of extreme narcissists have experienced some kind of early trauma or loss,” such as parental abandonment. The family lives of several famous narcissists he describes, Lance Armstrong among them, are earmarked by “multiple failed marriages, extreme poverty and an atmosphere of physical and emotional violence.”

As a diagnosable personality disorder, narcissism occurs more often in males than females, often developing in the teenage years or early adulthood and becoming more extreme with age. It occurs in an estimated 0.5 percent of the general population, and 6 per cent of people who have encounters with the law who have mental or emotional disorders. One study from Italy found that narcissistic personality traits were present in as many as 17 percent of first-year medical students.

As bosses and romantic partners, narcissists can be insufferable, demanding perfection, highly critical and quick to rip apart the strongest of egos. Employee turnover in companies run by narcissists and divorce rates in people married to them are high.

“The best defence for employees who choose to stay is to protect the bosses’ egos and avoid challenging them,” Burgo said in an interview. His general advice to those running up against extreme narcissists is to “remain sane and reasonable” rather than engaging them in “battles they’ll always win.”

Despite their braggadocio, extreme narcissists are prone to depression, substance abuse and suicide when unable to fulfil their expectations and proclamations of being the best or the brightest.

The disorder can be treated, though therapy is neither quick nor easy. It can take an insurmountable life crisis for those with the disorder to seek treatment. “They have to hit rock bottom, having ruined all their important relationships with their destructive behavior,” Burgo said. “However, this doesn’t happen very often.”

No drug can reverse a personality disorder. Rather, talk therapy can, over a period of years, help people better understand what underlies their feelings and behaviour, accept their true competence and potential, learn to relate more effectively with other people and, as a result, experience more rewarding relationships.

The New York Times

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