Private ruling: Minors' tax rates
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can a minor's eligible income be assessed using the standard tax rates where the income is from funds invested for educational purposes? | A1: No

Relevant facts and circumstances: You are less than 18 years of age. You have savings in a bank account which is in your name. The funds in this account have been provided by a family member over a number of years to provide for future educational expenses. You have earned interest income from this account during the relevant financial year as well as salary and wages from part time employment.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6AA.

Reasons for decision: Summary: Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) ensures that special rates of tax and a lower tax free threshold apply in determining the basic income tax liability of a prescribed person, on their assessable income, unless the income is excepted assessable income. A prescribed person is defined in subsection 102AC(1) of the ITAA 1936 to include any person, other than an excepted person (as defined in subsection 102AC(2) of the ITAA 1936), under 18 years of age at the end of the income year. Section 102AC(2) of the ITAA 1936 defines an excepted person as: · a person who is married at the end of the tax year; · a person who is in full time occupation; · an incapacitated child for who a child disability allowance is paid; · a permanently disabled person who is independent; or · a double orphan who is independent. In addition to the exclusions for an excepted person, Division 6AA of the ITAA 1936 also includes provisions that exclude various types of income from being taxed at the special rates. Section 102AE(2) of the ITAA 1936 states that excepted assessable income includes: · employment income; · taxable pensions or payments from Centrelink or the Department of Veterans' Affairs; · compensation, superannuation or pension fund benefits; · income from a deceased person's estate; · income from property transferred to the minor as a result of the death of another person or family breakdown, or income in the form of damages for an injury they suffer; · income from their own business; · income from a partnership in which they were an active partner; · net capital gains from the disposal of any property or investments listed above; and · income from the investment of any of the amounts listed above Excepted net income is the total of the income listed above less any allowable deductions. Excepted net income is taxed at the standard individuals' tax rates. If the income is not considered to be excepted net income, then the special rules apply and the income will be taxed at minors' rates. The tax rate on minors' income in the 2012-13 income year is 66% of the excess income above $416.00 up to the amount of $1,307.00. For any amounts above $1,307.00 the tax rate is 45%. In your case, you have earned salary and wage income from part time employment, and interest on funds which have been invested by a family member. The employment income is considered excepted income and is taxed at normal rates, however as the interest is considered eligible income it is taxed at the special rates for minors. The Commissioner does not have any discretion to alter the way the special tax rates apply.