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Minors and tax
Everyone who earns an income needs to pay tax, even teenagers – whether delivering papers, pizzas or working at the local supermarket. For minors (people under the age of 18) there are special tax rates that apply to any eligible income you earn. “Eligible” income includes any money you receive that you have not earned through your own hard work – for example, bank interest. It does not include money coming in from a job, which is taxed at normal rates.
However, you do not have to pay any tax if your eligible income is up to $416 a year. If it is more than $416 but less than $1,308, you will pay 66% for any amount in between, and if it’s $1,308 and over, you will pay 45% on the entire amount.
The tax rules for eligible youth income were introduced into the Australian taxation system to stop or discourage adults from dividing their income and putting some into their children’s name, (since the children would be on lower tax rates due to their lower incomes, and therefore pay less tax).
Eligible income prescribed tax rates (for resident minors)
|Eligible income||Resident prescribed tax rate applicable|
|0 – $416||nil|
|$417 – $1,307||66% for amount in excess of $416|
|$1,308 and over||45% on the entire amount|
|Note: In order to discourage income splitting, children under 18 years of age cannot access the low income tax offset (LITO) to reduce tax payable on their unearned income, such as dividends, interest, rent, royalties and other income from property.|
Bank accounts for minors
Children may not be able to see over the counter at the bank, but they can have bank accounts. Some parents open saving accounts with banks soon after their child is born so they can deposit money and teach their child about money and saving.
Different financial institutions offer products tailored to children, however the interest these accounts earn is subject to tax. Interest on children’s bank accounts, or from investments in a child’s name, is taxed as children’s income where the investment, or money, was given (or gifted) to the child by parents, grandparents or other relatives.
As a result, it is regarded as “eligible” income, and will usually be subject to the special higher rates.
Not all minors are affected by the special rules – there are some minors who fall under the category of “excepted persons”.
You will not have to pay the higher tax rate, but you do pay the ordinary tax rates, if you are an “excepted person”.
For the year ended June 30, 2014, a minor is an excepted person if they were:
Income not covered by the special rules
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:
Excepted net income (that is, excepted income minus deductions relating to that income) is taxed at ordinary rates. The low income tax offset will only reduce tax payable on excepted net income.
All other income of a minor who is not an excepted person will be taxed at the higher rates. The low income tax offset will not reduce tax payable on this income.
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