Income of minors is subject to special rules and they may pay tax on certain types of income at a higher rate. These rules were introduced to discourage adults from diverting income to their children.
For tax purposes you're a minor if you are under 18 years old at, 30 June in the income year.
Minors pays the same individual income tax rates as an adult if they're either:
If you're an excepted person, or only earn excepted income and you're an Australian resident, the first $18,200 you earn is tax free.
If you're a minor and not an excepted person, you pay a higher rate of tax for income that is not excepted income.
If a parent, relative or guardian has set up a savings account or bought shares in the name of a minor, the following needs to be considered.
- If a minor earns interest on income from a savings account, they need to consider who declares the interest as income. The tax treatment of interest income of a minor is different to income from a child's share investments.
- If a minor earns income from shares, they may need to consider who declares the dividends and any capital gain or loss.
You may be an excepted person if you're a minor and a:
If you're an excepted person, you pay tax at the same individual income tax rates as an adult, on all the income you earn.
You're an excepted person if all of the following apply at, 30 June of the relevant income year:
- You were working full time, or had worked full time for a total of 3 months or more in the income year
- You are, in the following income year, both
- intending to work full time for most or all of it
- not intending to study full time.
When you work out how long you have worked full time, ignore any period of full-time work you did before starting full-time study.
You're an excepted person for the relevant income year if you were one of the following:
- The main beneficiary of a special disability trust.
- At 30 June of the relevant income year you were
- entitled to a disability support pension or someone was entitled to a carer allowance to care for you
- certified permanently blind
- disabled and likely to suffer from that disability permanently or for an extended period
- unable to work full time because of a permanent mental or physical disability and you received little or no financial support from relatives.
You're an excepted person for the income year if at, 30 June of the relevant income year, you were both:
- entitled to a double orphan pension
- received little or no financial support from relatives.
Even if you aren't an excepted person, some of your income as a minor may be excepted income.
If you have excepted income, your excepted net income is taxed at the same individual income tax rates as an adult's net income.
Excepted income − Deductions relating to that income = Excepted net income
If you don't have any excepted income, for any other income you receive:
- you're taxed at the higher tax rates
- any tax payable is not reduced by the low income tax offset or low and middle income tax offset.
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 because 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
- net capital gains from the disposal of any property or investments listed above
- income from the investment of any of the amounts listed above.
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
- 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. Alex is a beneficiary of the trust and is 14 years old. Under the will, $100,000 is transferred on 17 July 2022 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 2022–23 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.
To calculate her excepted income amount, Alex works out from the $100,000 transferred from the deceased estate, she received $55,000.
Alex's excepted income is $5,000, worked out as $100,000 ÷ $1.1 million × $55,000 = $5,000.
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 2022–23 income year.
For the 2023–24 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 × $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 2022. 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 2022–23 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.
To calculate his excepted income amount, Michael works out from the $500,000 transferred from the deceased estate, he received $25,000.
Michael's excepted income is $6,250, worked out as $500,000 ÷ $2 million × $25,000 = $6,250.
The remaining $18,750 of income is attributable to assets unrelated to the deceased estate and is not excepted income.End of example