Tax and your child’s money: what parents need to know including TFNs

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If your child has a savings account or receives other income, you need to know how to help them manage their finances and meet their tax obligations.

Income tax can apply to money your child receives, such as bank account interest or dividends from shares.

For tax purposes, a “minor” is an individual under 18 years of age at 30 June of the income year. Special tax rules for minors apply until they no longer meet this definition.

•       Special tax rates for minors: For 2024–2025, for income of Australian resident minors:

-      $0 to $416: no tax;

-      $417 to $1,307: 66% of the amount over $416; and

-      over $1,307: 45% of the total income.

•       “Excepted income” and “excepted persons”: If your child’s income is excepted income, or they’re an excepted person, they’re taxed at the same rates as an adult. This means they can usually take advantage of the $18,200 tax-free threshold. Excepted income includes amounts like employment earnings and taxable pensions from Centrelink; excepted persons include children who work full-time, or have certain disabilities.

•       Bank account interest: There are specific thresholds for children under 16, until the end of the calendar year they turn 16:

-      Interest under $120 per year: Financial institutions generally won’t withhold tax.

-      Interest between $120 and $420 per year: If the bank has the child’s date of birth or Tax File Number (TFN), tax usually won’t be withheld, and a tax return isn’t needed for this income alone.

Interest of $420 or more per year: If a TFN is provided, tax won’t be withheld. Otherwise, the bank will withhold tax at 47%. For children aged 16 or 17 earning $120 or more in interest, providing their TFN prevents tax withholding.

Does my child need a Tax File Number (TFN)?

There’s no minimum age to apply for a TFN, but it can be useful for children to have one.

If you need to lodge a tax return on your child’s behalf, or they need to lodge their own (eg to claim a refund of withheld tax or because their income requires it), they will need a TFN.

Financial institutions and share registries may withhold tax at the highest marginal rate (currently 47%) from interest or unfranked dividends if a TFN isn’t provided. If money and its earnings are genuinely your child’s, you should quote your child’s TFN. If you have put some of your own funds aside for a child, that is considered at best as trustee for your child without a formal trust, and you’d quote your TFN.  If there’s a formal trust, use the trust’s TFN.

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