Children’s Tax Rates

The income tax on children (under 18 years old) is settled according to both the type of income and the status of the child who earned it.

In general, children are taxed at higher rates on ‘unearned’ income under rules which were introduced to discourage income splitting via trusts and other means.

The higher taxing rates applicable to unearned income are set out in the tables below, excluding medicare levy.

Excepted‘ income (such as from employment) is taxed at the normal adult rates of tax.

A child, or “minor”, for income tax purposes is a person who is under the age of 18 years on the last day of the income year (30 June).

2017-18 – Resident

Resident tax rates for minors on eligible income 2017-18
Eligible incomeResident tax rate
$0 to $416Nil
$417 to $1,30766% of excess over $416  (1)
Over $1,30745% of the entire amount of eligible income    (2)

 

Temporary Budget Repair Levy: Following from the Federal Budget 2014-15 the top marginal tax rates were increased by 2% for a period of 3 years commencing 1 July 2014 and ending on 30 June 2017.

2014-15, 2015-16, 2016-17 – Resident

Resident tax rates for minors on eligible income 2014-15-16-17
Eligible incomeResident tax rate
$0 to $416Nil
$417 to $1,30768% of excess over $416  (1)
Over $1,30747% of the entire amount of eligible income    (2)

 

 

2017-18 – Non-resident

NON-Resident tax rates for minors on eligible income 2017-18
Eligible incomeNON-Resident tax rate
$0 to $41632.5%
$417 to $663$135.20 + 66% of excess over $416  (1)
Over $66345% of the entire amount of eligible income    (2)

 

2014-15, 2015-16, 2016-17 – Non-resident

NON-Resident tax rates for minors on eligible income 2014-15-16-17
Eligible incomeNON-Resident tax rate
$0 to $41634.5%
$417 to $663$143.52 + 68% of excess over $416  (1)
Over $66347% of the entire amount of eligible income    (2)

 

2013-14

Resident tax rates for minors on eligible income 2013-14
Eligible incomeResident tax rate
$0 to $416Nil
$417 to $1,30766% of excess over $416  (1)
Over $1,30745% of the entire amount of eligible income    (2)

 

NON-Resident tax rates for minors on eligible income 2013-14
Eligible incomeNON-Resident tax rate
$0 to $41632.5%
$417 to $663$135.20 + 66% of excess over $416  (1)
Over $66345% of the entire amount of eligible income    (2)

 

(1) If the marginal tax amount on the eligible income slice according to the ordinary tax scale would be higher, then the higher amount is used. (Rates Act s 13).

(2) When the highest tax rate is triggered it is applied to the entire amount of eligible income, not just the top slice.

Medicare Levy

The above tax rates do not include Medicare Levy which should normally be taken into account for resident individuals. Note that the Medicare Levy is proposed to increase (by 0.5%) from 1 July 2019.

Medicare Levy does not apply to non-residents.

Effect of children’s tax scales

The above scales result in higher tax on eligible income than would be the case if the ordinary tax scale applied. This is due to:

  • the lower tax free threshold amount
  • higher marginal tax rates (currently second tier 66%, third tier 45%)
  • since 1 July 2011 – the low income tax offset (“LITO”) is not available on eligible income.

Minors who are Australian residents do not ordinarily have to lodge a tax return if they earn less than $416 within the financial year, unless requested, or tax has been withheld.

Excepted Income of Minors

Children who are not excepted persons, will have the higher tax rates applied to income which is not excepted income. For a more detailed summary of definitions see excepted persons and excepted income.

The tax for a minor whose taxable income consists of both eligible income and excepted income will need to be calculated in two parts. The total tax liability is then the sum of the normal tax on the excepted income slice and the higher tax on the eligible income remainder.

Income of each component of the calculation is “net income” – i.e. deductions relevant to each type of income should be attributed before calculating the tax.  Deductions which are “apportionable” are allocated to the income segments on an ratio of gross income amounts.

S 102AD(c)

See Also

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This page was last modified on 2017-11-10