The measure introduced as part of Tax Laws Amendment (2011 Measures No.4) Act 2011 removes the ability of minors (children under 18 years of age) to use the Low income tax offset to offset tax due on their unearned income, such as dividends, interest, rent, royalties and other income from property. This will reduce the benefits of income splitting between adults and children.
From 1 July 2011, minors will not be eligible for the Low income tax offset on unearned income.
Rules
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Resident Minors |
The rules apply to income derived by the minor directly or through a trust. Where the minor is an Australian resident the special rules do not apply if the eligible taxable income is $416 or less. Eligible taxable income between $416 and $1,307 is taxed at 68% on the part of the relevant taxable income exceeding $416, thereby phasing in the special tax rates. Eligible taxable income of $1,308 and more is taxed at a flat 47%. |
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Non-resident Minors |
A foreign resident minor is taxed at 32.5% on the first $416 of unearned income, at 66% on eligible taxable income between $416 and $663 and at 45% on relevant income of $663 and more. As both apply to non-resident minors, the same rates will be applied to the unearned income. |
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All Minors |
Minors will still be able to use the Low income tax offset to reduce tax payable on their work income. |
For persons under age 18 completing Form I
Schedule U is accessed from item A1 in the Individual return. Amounts entered in Part B are totalled and integrated to label J at item A1. This income is not subjected to the higher Div6AA rates and tax is calculated at standard rates.