Show download pdf controls
  • Work out if you receive excepted income

    Even if you aren't an excepted person, some of your income may be excepted income. This means it is taxed at the same rates as if you were an adult. This may apply to your employment or business income, Centrelink payments and income from a deceased person's estate.

    Your 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, including income derived by a testamentary trust from property of the deceased person's estate
    • income from property transferred to you as a result of the death of another person or family breakdown, or income in the form of damages for an injury you suffer
    • income from your own business
    • income from a partnership in which you were an active partner.

    It also includes:

    • net capital gains from the disposal of any property or investments listed above
    • income from the investment of any of the amounts listed above.

    Income derived by a testamentary trust

    Your income from a testamentary trust that was generated from property of a deceased estate, such as a deceased person's mortgaged property, remains excepted income.

    Property of a deceased estate includes real property and money from the deceased estate. It can include, accumulations of income or capital from property of that deceased estate, and conversions of such property from one asset type to another. For example, if a trustee of a testamentary trust sells a rental property transferred to the trust from a deceased estate and invests those proceeds in shares, the income from those shares is income from property of the deceased estate.

    Your income from a testamentary trust is not excepted income if it is generated from assets:

    • acquired by or transferred to the trustee of the trust on or after 1 July 2019, and
    • that were unrelated to property of the deceased estate.

    Example: Distribution from a family trust to a testamentary trust

    Lavender Trust is a testamentary trust established under a will of which Alex is a beneficiary. Alex is 14 years old. As a result of the will, $100,000 is transferred on 17 July 2019 to the trustee of Lavender Trust from the deceased estate. Shortly after, the trustee of a family trust makes a capital distribution of $1 million to the trustee of Lavender Trust. The trustee of Lavender Trust invested the entire amount of $1.1 million in listed shares.

    In the 2019–20 income year, the trustee of Lavender Trust derives $110,000 of dividend income from the investment in the listed shares. The net income of Lavender Trust for that year is $110,000. Alex is made presently entitled to 50% of that amount, which is $55,000.

    Alex's excepted income is $5,000. This amount is the extent to which the $55,000 of income resulted from the $100,000 transferred from the deceased estate (worked out as $100,000 ÷ $1.1 million × $55,000). The remaining $50,000 is income that resulted from the $1 million capital distribution from the family trust, which is unrelated to the deceased estate. It is not excepted income.

    End of example

    Example: Trust income reinvested

    Assume the trustee of Lavender Trust (from the example above) did not pay Alex her share of the net income of the trust (being $55,000, comprising $5,000 excepted income and $50,000 not excepted income). The trustee, instead, reinvests that amount in more listed shares in the 2020–21 income year. For the 2020–21 income year, that investment derives income of $5,500 and Alex is made presently entitled to that amount.

    Alex's excepted income is $500 (worked out as $5,000 ÷ $55,000 x $5,500). This amount is the extent to which the $5,500 of income resulted from Lavender Trust reinvesting previously excepted income. The remaining $5,000 is attributable to assets unrelated to the deceased estate and is not excepted income.

    End of example

    Example: Rental property acquired with borrowed money, trust distribution and money from deceased estate

    Johnston Trust is a testamentary trust established under a will into which $500,000 is transferred from the deceased estate on 22 August 2019. A trustee of a family trust then makes a capital distribution of $500,000 to Johnston Trust. The trustee of Johnston Trust borrows $1 million from a bank and purchases a rental property for $1.9 million. The remaining $100,000 is used as working capital for the rental property.

    In the 2019–20 income year, the trustee of Johnston Trust receives $50,000 of net rental income. The net income of the trust for that year is $50,000. Michael, who is under 18 years old, is made presently entitled to 50% of the $50,000 net income, being $25,000.

    Michael's excepted income is $6,250. This amount is the extent to which the $25,000 of income resulted from the $500,000 transferred from the deceased estate (worked out as $500,000 ÷ $2 million × $25,000). The remaining $18,750 of income is attributable to assets unrelated to the deceased estate and is not excepted income.

    End of example

    If you have excepted income

    If you have excepted income:

    • your excepted net income (that is, excepted income minus deductions relating to that income)
      • is taxed at the same rates as an adult's net income
      • any tax payable is reduced by any low income tax offset or low and middle income tax offset you are eligible for.
       

    For any other income you receive:

    • you are taxed at a higher rate
    • any tax payable is not reduced by the low income tax offset or low and middle income tax offset.

    If you don't have excepted income

    If you don't have any excepted income, all your income is taxed at the higher tax rates.

    Next step:

      Last modified: 26 Jun 2020QC 16509