New tax exemption for children

19110294_sIt was all over the news.  The media went slightly crazy at the idea of children having to pay tax but most of them failed to mention the new tax exemption that was introduced for children from 2013 onwards.  With some careful planning your child might just be eligible.  Simply make sure they meet all of the following requirements:

  1. They receive (or are allocated) income as a beneficiary of a Trust and
  2. The income isn’t caught by the minor beneficiary rule* and
  3. You can tick off all of the following for them:
  • they were 14 or under or
  • they were 15, 16 or 17 and still attending school, or
  • turned 18 on or after 1 January in the previous tax year and continued to attend school (not tertiary institutions)
  • the income isn’t passive such as interest or dividends
  • the income isn’t a salary, wages or a schedular payment (withholding tax)
  • their total income from exempt sources is less than $2,340 for the income year.
An example often helps …

Lets say, sixteen year old Amber earns $900 from mowing her neighbour’s lawns and baby sitting.  Her Grandparents also allocate her $1,400 as beneficiary income from their Trust. Her beneficiary income comes from a manufacturing business carried on by the trust. Amber’s total income of these types is less than $2,340 so the exemption applies. If instead her lawn mowing and baby sitting income was $1000 (instead of $900), the full $2,400 would be taxable.

It’s important to note that all of Amber’s income will be taxable (not just the amount above the limit) if her total income from all sources which the exemption applies to is $2,340 or more.

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*The minor beneficiary rule applies when Trust income which is under $1,000 is allocated to a minor and is therefore taxed at the minors personal tax rates rather than at the Trust’s flat rate of 33%.

 

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