Tax Return:: Tax Return for Under 18-Year-Olds

Hello, this is your tax and super specialist, P&C Tax Professionals.

Are you under the age of 18 and unsure on how to go about preparing for your tax return? There is no need to be concerned as we will fill you in on some of the key information regarding tax returns for under 18-year-olds.

<Income Tax Rates for Under 18-Year-Olds>

For those of you who are under 18 years old, a portion of your income could potentially be taxed at a higher rate than the tax rates that apply to adults.

However, you would still be subject to the same individual income tax rates to that of an adult for the following:

> all of the income you have earned if you are an ‘excepted person’.

You may be considered an excepted person if you:

> have completed full-time study and are working full-time

> have disabilities, or

> are entitled to a ‘double orphan pension’

> income you receive in the form of ‘excepted income’.

For example, this may include:

> your employment or business income

> payments from Centrelink

> income from a deceased person’s estate.

For more information on ‘expected person’ and ‘excepted income’, please refer to the ATO website links below.

‘Excepted person’ ATO Link: https://www.ato.gov.au/individuals/income-and-deductions/in-detail/income/your-income-if-you-are-under-18-years-old/?page=2#Work_out_if_you_re_an_excepted_person

‘Excepted income’ ATO Link: https://www.ato.gov.au/individuals/income-and-deductions/in-detail/income/your-income-if-you-are-under-18-years-old/?page=3#Work_out_if_you_receive_excepted_income

If you are under 18, the only time you would pay the normal income tax rates is if you are an ‘expected person’ or if you have received ‘excepted income’. If you are not classified as an ‘excepted person’ and only a portion of your total income received is ‘excepted income’, only the income that is considered ‘excepted income’ will be taxed at the normal income tax rate while the rest of your income will be taxed at a higher tax rate.

<Children’s Savings Accounts>

In terms of who declares the interest on their tax return, it depends on who owns or uses the balance that is sitting in the account (irrespective of the type of account and the name of the account holder).

Basically, you must consider who:

> is the provider of the money (e.g., for the initial and ongoing deposits)

> has control over how the money is spent, irrespective of who it is spent on.

If you are the person who deposits the money and spends the funds, you must be the one to include the interest income details in your tax return.

<Examples>

Example 1: Interest income belonging to parent

Lianne opens up an account for her daughter by depositing $3,000. Lianne is signatory to the account since her daughter, Charlotte, is only five years old.

Lianne makes regular deposits and withdrawals in order to pay for Charlotte’s pre-school fees.

Interest that is earned from this account is indeed considered to be Lianne’s.

This is because Lianne was the provider of the funds that were coming into the account and she was also the one who ultimately decided to spend the money to pay out her daughter's school fees.

Example 2: Interest income belonging to child

Henry is nine years old and holds a savings account in his own name.

Henry’s mother Jessica is signatory to the account.

The funds that have been deposited (summing up to $100) are birthday and Christmas gifts from Henry’s relatives.

In this case, the interest that was earned from this account is considered to be Henry’s.

<Children’s Share Investments>

If your child owns shares and earns a profit of more than $416, you must lodge a tax return on behalf of your child.

If your child has earned $416 or less, you may also consider:

> lodging a tax return on behalf of your child if too much PAYG tax was withheld, or

> claim a refund for franking credit simply by lodging a tax return or filling out an Application for refund of franking credit.

<Examples>

Example 1: Declaring dividends on parent’s tax return

Jack withdraws $5,000 from his own bank account in order to purchase shares in the name of his son, Kyle. Jack quotes Kyle’s TFN when he buys the shares.

Jack deposits the dividend received from holding the shares totalling $350 into his own bank account and spends it on his personal expenses.

Jack should declare the $350 dividend on his tax return. Upon the sale of the shares, he will also have to declare any capital gain or loss that arose as a result of the sale.

Example 2: Declaring dividends on child’s tax return

Alex withdraws $2,000 from his own bank account to purchase shares in the name of his daughter Angela. Alex quotes Angela’s TFN when he buys the shares.

Alex makes all the decisions in regards to those shares as Angela is only seven years old.

All dividend income as well as any profit made through the sale of the shares are deposited straight into Angela’s bank account which is in her name with Alex as the trustee.

The dividends and capital gains from those shares are to be declared on Angela’s tax return.

To that end, we will wrap it up here but if you have any other questions regarding tax or super, feel free to contact us through our Facebook Page (P&C Tax Professionals – Australia) or send them to our email at pnctax@naver.com.

Thank you and bye for now!