It pays to split hairs, not income

WHEN it comes to paying tax in multiple countries, it pays to get some expert advice, writes Scott Pape.

Barefoot Investor doesn’t recommend mixing money with family.

BILL ASKS: I have a question — and then I have a complaint.

First, the question. My wife and I run a successful business and earn income both in Australia and the US. I have just obtained an ITIN (Individual Taxpayer Identification Number) for the US. Is it worth splitting our income between the two countries?

Now, the complaint. In your columns you have made some not-too-polite references to Hair in a Can. Well, our top product is GLH Hair in a Can, made here in Australia and exported all over the world.  It is No.1 in its category on Amazon on the back of what is considered the most successful infomercial on US TV, with amazing high-repeat sales.

Our product goes back to the Fabulous Baker Boys movie. Stop using it in a derogatory way.

BAREFOOT REPLIES: This is a very big call given how early in the year it is — but you, my friend, are already in the running for the best letter of the year.

Let’s deal with your tax question first. As an individual, your starting point is to determine whether you are classified as being an Australian resident for tax purposes (the ATO has a nifty online tool that’ll help you work it out). If you are, the ATO will tax you on your worldwide income from all sources. If you’re not, you’ll only be subject to local tax on your Aussie-sourced earnings.

That being said, if you’re running a successful business with international earnings, I’d strongly suggest you get professional help before you wade through the 73,954 pages that is the US tax code.

Now, let’s talk about spray-on hair in a can.

Bill, I’ll be honest: at first I thought you were pulling my hair.

However, a few clicks showed me that you’re ridgy didge: GLH stands for Good Looking Hair, and a few more clicks showed me that you are a bestseller on Amazon.

Well done! I love it when an Aussie company kicks it on the world stage.

There is obviously a huge market for your product, especially in the US.

My tip is to come out with an angry-orange colour: Trump would love it.

FAMILY AND MONEY

LEAH ASKS: My husband’s brother and his wife have recently taken out a $360,000 home loan, with $60,000 in an attached offset account.

They’re paying 3.99 per cent interest. He works full time while she is a stay-at- home mum with four primary school-age kids.

They are not too stretched by the loan, and they have not asked for any assistance.

However, my husband has suggested we could help them reduce the interest by putting $200,000 into their offset account for two years. They would then pay us 3 per cent.

The only formality would be an email between the brothers, giving their word that they would honour the deal. What are your thoughts? Generous? Foolish? Both?

BAREFOOT REPLIES: I don’t like mixing money with family, so I wouldn’t do it, but that’s just me.  

While the deal is a good one for your brother-in-law (it’s worth at least $2000 a year to them, plus the added benefit of the principal reduction), you should only do it if he and his wife feel totally comfortable.

If they are, make sure you have a signed, written agreement between the two families, to guard against anything coming out of left field: what happens if one of the brothers dies? Or gets divorced? Or develops a pokie addiction? Finally, the question I’d ask your husband is, why are you limiting yourselves to earning 3 per cent? Over the long term you could do much better than that in the share market — without muddying the family waters.

GOING TO WASTE

BRAD WRITES: I am 35 and on a good salary ($190,000).

My question is: if you had an investment property that, if sold, would clear $80,000, and you had personal debt of $50,000 (credit card and car loan), would you sell the property to clear the debt?

BAREFOOT REPLIES: How the hell do you earn $190,000 a year — over $10,000 a month after tax — and think the only way out of debt is to sell off the family silverware?

You need to decide whether the investment property is a good long-term investment.

If it is, you keep it, and you knuckle down and you pay off your debt comfortably within 12 months, cobber.  

The real question you need to ask yourself is whether or not you plan on continuing to p--- your money up against the wall.

It’s time to harden up, cupcake.

PLAN’S ON TRACK

RHETT WRITES: Last year I wrote and explained how the Barefoot Investor had changed my life.

Lucky for me, you wrote an article on my letter (“Here’s One for the Grandparents”) and then called me to give some advice. I just thought I would bring you up to date on my situation.

I am driving around in the crappy car that I bought with cash after selling my hugely expensive one. I now have no credit cards. I asked the girl of my dreams to marry me; luckily she said “yes”.  

We saved up a deposit and bought our first home. We have no debt apart from the home loan, with our wedding paid for thanks to us working overtime and taking jobs on the side. I am now taking your business advice and learning how to quote, run jobs and manage clients at the new company I’m working for.

Again, thank you mate. You have changed my life, and now my fiancee’s as well.

BAREFOOT REPLIES: That’s awesome, man, I’m really proud of you — and
I bet your fiancee is too.

This is totally politically incorrect, but I’m going to say it anyway: your actions show that you’re going to be a great provider for your family.

You got this!

The Barefoot Investor holds an Australian Financial Services Licence (302081).

This is general advice only. It should not replace individual, independent, personal financial advice.

The Barefoot Investor: the only money guide you’ll ever need (Wiley $29.95).

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Originally published as It pays to split hairs, not income