“Excepted income” of children (minors) is taxed at ordinary rates and is excluded from the high marginal tax rates which would otherwise apply.
A minor is an individual who is under the age of 18 at the end of the year of income.
Income which is not excepted income is subject to a reduced tax-free threshold, therefore mostly being taxed at the highest marginal tax rate, and from 2011-12 does not benefit from the low income tax offset. (See Children Tax Rates)
Minors may be shielded from the application of the higher-taxing rules in a tax year if they were an “excepted person”. An excepted person pays tax at ordinary rates on all of their income.
A minor is an “excepted person” for a year of income if they were:
- working full-time, or had worked full-time for three months or more in the income year (ignoring full-time work that was followed by full-time study), and for most or all of the following year intending to work full-time and not intending to study full-time
- entitled to a disability support pension or rehabilitation allowance, or someone was entitled to a carer allowance to care for them
- permanently blind
- disabled and likely to suffer from that disability permanently or for an extended period
- entitled to a double orphan pension and received little or no financial support from relatives, or
- unable to work full-time because of a permanent mental or physical disability and received little or no financial support from relatives.
A minor who is not an excepted person will nevertheless only pay tax at the lower ordinary tax rates on that part of their income which is “excepted income”. Their other income (which is termed “eligible income”) is taxed at the higher minors’ tax rates.
Excepted income includes income from personal exertion – for example wages and salary – as well as a number of other specifically included income categories. To be “excepted” the wages or business income must be paid at an “arms length” rate – i.e. the rate which would be paid by someone not related to or associated with the minor.
Excepted Income of Minors includes income and investment proceeds of the following:
- wages or income from services, including business and partnership income *
- taxable pensions or other income such as AUSTUDY paid by Centrelink or the Department of Veterans Affairs which is subject to the PAYG tax withholding requirements
- income from a deceased estate
- income from testamentary trusts
- investment income from investments (including via a trust) from:
- a public poverty relief fund
- winnings from an authorised lottery
- compensation proceeds, including an out-of-court settlement
- superannuation and life assurance proceeds
- child support proceeds following a family breakdown
- investment income from assets equivalent to an intestate value transferred from a deceased estate beneficiary within 3 years of death
- investment income from assets acquired through a family breakdown property settlement (s102AGA)
- income from investment of any of the above
* The relevant tax provisions provide the Commissioner with powers to determine amounts which are “reasonable” having regard to such factors as the extent of real and effective control exercised by the taxpayer over the business. There are anti-avoidance provisions targeting arrangements which are non-arms length and/or aimed at obtaining excepted income.
- Childrens tax rates
- Budget 2018 Integrity measure – to apply from 1 July 2019 – see article testamentary trusts
- Testamentary Trusts
- Child Maintenance Trusts
- Trust tax rates
- Tax Ruling (withdrawn but still relevant) IT 2489 Income tax : business income of minors
- Tax Ruling TR 98/4 Income tax: child maintenance trust arrangements
- Tax Determination TD 2017/11 Income tax: who should be assessed to interest on bank accounts?
This page was last modified 2018-11-27