fringe benefits
tax-free pensions or benefits
income from overseas not reported in your tax return
reportable super contributions
total net investment loss for both financial investments and rental properties.
Marlene and Saxon are married. Marlene is genuinely unable to work and has no salary or wage income. They have rental properties and a share portfolio. Saxon has also entered into a salary-sacrificing arrangement to boost his super. His taxable income is $130 000 after claiming a total net investment loss of $18 000. He has reportable super contributions of $17 000.
Saxon's adjusted taxable income is $165 000 ($130 000 + $18 000 + $17 000). As Saxon's adjusted taxable income is over the income threshold for this offset ($100 000) he is not eligible to claim the dependant (invalid and carer) tax offset.
4 CHILDREN
Any income that has been earned by your child's efforts, such as wages from an after-school job, is considered ‘excepted income’ and is taxed at the general adult tax rates regardless of whether your child is under 18. However, you should be cautious when putting investments in your child's name because minors do not enjoy the same tax-free thresholds as adults on this type of income, known as ‘eligible income’. Table 1.2 sets out the tax rates that apply to minors' eligible income.
TABLE 1.2: tax on eligible income for minors (2021–22)
Source: © Australian Taxation Office for the Commonwealth of Australia.
| Taxable income | Tax on this income |
|---|---|
| $0–$416 | Nil |
| $417–$1307 | 66c for each $1 over $416 |
| $1307 and over | 45% of total income |
Minors under the age of 18 are taxed at the highest marginal tax rate for ‘eligible income’ (such as interest, dividends and trust distributions) over $416 per annum.
If some of your child's income is excepted income and the rest is eligible income, they will pay ordinary rates on the excepted income and pay at the higher rate on the eligible income.
Louie is 17 on 30 June. He earned $8780 from a part-time job. He also received $920 in interest from money he had saved over the years from gifts. Therefore, he has an excepted income of $8780 and is entitled to the tax-free threshold of $18 200 for this income. He also has eligible income of $920 interest, which is taxed at the special higher rates.
A child is eligible from birth for a TFN from the ATO. If your child is under 16 (at the start of the calendar year) and does not supply their TFN to the bank or share registry, then 45 per cent tax will be withheld on interest earnings over a threshold of $420 as well as on all unfranked dividends. If your child is aged 16 and over, then the threshold is reduced to $120.
Children do not need to lodge a tax return if their assessable income is less than $416. However, if tax has been withheld from them by an investment body or employer, then they must lodge a return in order to get that money returned to them.
If you have an adult child who has a job while going to university or TAFE then they may be able to claim a deduction for certain expenses if there is a sufficient connection between their course and their assessable income. Some expenses that they might be able to claim in this instance include:
depreciation of assets (such as computers, desks and bookshelves) used for studying purposes
journals and periodicals
photocopying and printing costs
stationery
textbooks
travel from work to place of study.
They wouldn't be entitled to a deduction for any tuition fees payable under HELP or any repayments of outstanding HELP debts.
Earnings from a child's investments must be declared by the person who rightfully owns and controls the investment, not the person whose name it is in, or whose name it is held in trust for. This is regardless of whether the money is spent on resources for the child.
Sarah opens an account for her three-year-old daughter, Samantha, by depositing $8000. Sarah is signatory to the account and she also makes regular deposits and withdrawals to pay for Samantha's preschool expenses. The ATO would deem that the money belongs to Sarah and any interest earned from this account must be declared for tax by her.
If the funds in the account are made up of money received as birthday or Christmas presents, pocket money or savings from part-time earnings such as newspaper rounds, and these funds are not used by any person other than the child, then the interest earned is the child's income.
Children are not eligible for the low-income tax offset against unearned income, such as interest. The rebate can only be offset against excepted income.
5 PAYMENTS FOR NEW PARENTS
There are a few government payments available when becoming a mum or a dad.
Paid parental leave
Eligible working parents of children born or adopted may be entitled to the paid parental leave scheme to help them care for a new baby. The pay is for up to 18 weeks at the national minimum wage (currently $753.80 per week before tax) and is paid by either your employer or the government (where employers do not provide parental leave entitlements). You can claim for paid parental leave up to three months in advance.
To be eligible you must have worked at least 330 hours across 10 of the 13 months prior to the birth of your child, but your annual salary must also be less than $150 000. The work test has been extended so that mothers can count periods of paid parental leave they've taken for earlier births as ‘work’.
Paid parental leave is subject to income tax and may also affect other government benefits such as child support, health care cards and public housing. In contrast, the Newborn Upfront Payment and Supplement is not taxable and not considered income for family assistance or social security