Clements Dunne & Bell Melbourne

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Low Income Offset & Minors

The 2011-12 Federal Budget includes changes to limit the availability of the low income tax offset for minors to employment income only.

Up until 30 June 2011, minors have been able to apply the low income tax offset to “unearned income” such as distributions from family trusts, interest and dividends.

This has meant that minors have been able to receive small amounts of unearned income tax free each year.  For example, a minor could receive $3,333 of unearned income tax free in the 2011 tax year.

The new rules come into effect from 1 July 2011 and will mean that unearned income will be taxed at the tax rates in the below table.

Unearned income

Tax rates

$0 - $416

Nil

$417 - $1,307

Nil + 66% of the excess over $416

Over $1,307

45% of the total amount of income

 

What does this mean?

First, the practice of distributing small amounts to minors from family trusts will need to be re-assessed for the 2012 year onwards.

Secondly, families will need to review children’s bank accounts and investments in shares, etc. in order to ensure that the income generated will not give rise to unfavourable tax consequences.



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