Special tax rules are in place for income received by those less than 18 years of age (minors). The main intention of these rules is to discourage parents from diverting their income to their children.
Minors who are residents of Australia but do not earn more than $1,667 in 2007-08 do not have to lodge a tax return. This is because the low income tax offset of $750 offsets the tax payable on income less than $1,667. If the minor’s taxable income is less than $48,750, they will get the low income tax offset. The maximum tax offset of $750 applies if their taxable income is $30,000 or less. This amount is reduced by four cents for each dollar over $30,000.
For those that do need to lodge a return, under the special rules for minors, there are 3 possible scenarios that may apply:
- 1. the child has only excepted income
- 2. the child has both excepted and eligible income
- 3. the child has only eligible income
Excepted income refers to income that is generated through the minor’s own efforts and includes income from sources such as employment, Centrelink benefits, compensation, income from deceased estates, their own business or partnership that they were involved in and any income that is generated from the investment of these and other excepted income. Excepted income should be reported at Item A1 on your tax return.
Eligible income is defined as income that is received by the minor but not as a result of their personal efforts. It could be interest that is earned on birthday money that was invested or proceeds from a family trust distribution.
Any excepted income that is earned by a minor is taxed at the same marginal rates as all other Australian taxpayers. However, eligible income is taxed at a higher rate.
Where a minor has both excepted and eligible income the amounts are reported separately and the tax owing on those amounts is calculated separately. The below table shows the applicable rates for calculating the tax payable on minor’s eligible income.
Amount of eligible income
$0 – $416
$417 – $1,307
Nil + 66% of the excess over $416
45% of the total amount of income that is not excepted
At The Quinn Group, our team of professional accountants is able to provide advice to businesses and individuals on a range of accounting and tax related issues. To speak with one of our professionals regarding this or any other tax query that you may have please contact The Quinn Group on 1300 QUINNS or click here to submit an online enquiry.