Tax Tip 277: When is a child considered an ‘adult’ for Tax Purposes?

Minor children have different tax rates to adults for income that is passive – such as investment income or income received from a trust. Minor children will pay up to 66% tax on this income.

But when does this apply?

If a child turns 18 on or before the last day of the financial year (30 June), they will be able to be taxed at adult rates for income earned during that financial year.

See

s102AC(1)(a) ITAA 1936

INCOME TAX ASSESSMENT ACT 1936 - SECT 102AC Persons to whom Division applies


Example

Homer has set up a discretionary trust to invest and the trust has an income of $21,000 in the 2019-20 financial year. Homer has a son named Bart who is 17 now but will be 18 on 30 of June 2020. Bart has no other income so Homer will cause the trust to distribute $21,000 in taxable income to Bart (the trust income is the same as the net taxable income).


Bart pays no tax on this as he is taxed at adult tax rates and gets the low income tax offset as well.


(try to give birth on or before 30 June to get an extra year of tax free income for the family. Would Part IVA apply to caesarean sections or induced labour?)