The Income of Minors and Taxation - Part 3

What rate of tax applies to the income of minors?

The tax rates given below apply in 2006–07 for minors who:

• are residents of Australia
• are not excepted persons, and
• have no excepted income.

Rates

$0 - $416 other income = Nil tax

$417 - $1307 other income = Nil + 66% of the excess over $416

Over $1307 other income = 45% of the total amount of income that is not excepted income.

If the minor’s taxable income is less than $40,000, they will get the low income tax offset. The maximum tax offset of $600 applies if their taxable income is $25,000 or less. This amount is reduced by four cents for each dollar over $25,000.

Example:

Kris is 15 years old. She has no excepted income and $900 in other income. The tax payable on her income is:

Excess over $416 = $900 – 416 = $484
66% of the excess = $484 x 66% = $319.44

As Kris’s taxable income is less than $25,000, she gets the maximum tax offset of $600. The net amount payable by Kris is $0 ($319.44 - $600).

What if the application of the special rules results in serious financial hardship?

If a minor faces serious financial hardship as a result of the application of the special rules, they may get a tax offset of some or all of the extra tax payable if we consider there is serious hardship due to higher tax rates applying rather than ordinary tax rates.

If you are in this situation, you will need to provide information stating the reasons for your hardship when you lodge your income tax return.

Source: Australian Taxation Office

The Income of Minors and Taxation - Part 2

Are all types of income received by minors covered by the special rules?

No. Even though a minor may not be an excepted person, ordinary rates of tax still apply to certain types of income. Such income is called excepted income.


Excepted income includes:

• employment income
• taxable pensions or payments from Centrelink or the Department of Veterans’ Affairs
• compensation, superannuation or pension fund benefits
• income from a deceased person's estate
• income from property transferred to the minor as a result of the death of another person or family breakdown, or income in the form of damages for an injury they suffer
• income from their own business
• income from a partnership in which they were an active partner
• net capital gains from the disposal of any property or investments listed above, and
• income from the investment of any of the amounts listed above.

Excepted net income – that is, excepted income minus deductions relating to that income – is taxed at ordinary rates. All other income of a minor who is not an excepted person will be taxed at higher rates.

Source: Australian Taxation Office

The Income of Minors and Taxation - Part 1

Income of minors
A minor is a person who is under 18 years of age. Special rules apply to the income of minors.

Under these rules, certain types of income received by minors may be taxed at higher rates.

However, minors who are residents of Australia do not have to lodge a tax return if they earn less than $1,334 in 2006-07. This is because the low income tax offset of $600 offsets the tax payable on income less than $1,334.

Why do special rules apply to income of minors?

The special rules were introduced to discourage adults from splitting their income and diverting it to their children.


Are all minors covered by the special rules?

No. Several categories of minors are excluded from the special rules. These minors are called excepted persons.

A minor is an excepted person if on 30 June 2007:

• they were working full-time, or had worked full-time for three months or more in 2006-07 (ignoring full-time work that was followed by full-time study)
• intending to work full-time for most or all of 2007-08, and
  not intending to study full-time in 2007-08.
• they were entitled to a disability support pension or rehabilitation allowance, or someone was entitled to a carer allowance to care for them
• they were permanently blind
• they were disabled and were likely to suffer from that disability permanently or for an extended period
• they were entitled to a double orphan pension and received little or no financial support from relatives, or
• they were unable to work full-time because of a permanent mental or physical disability and received little or no financial support from relatives.

Ordinary rates of tax apply to all the income of an excepted person.



Continued in Part 2

Source: Australian Tax Office