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

As a parent or guardian, it’s essential to understand how tax applies to your child’s money. If your child is under 18 years old and has a savings account or receives other income, you need to know how to help them manage their finances and meet their tax obligations.

Does tax apply to my child’s money?

Yes, 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?

There’s no minimum age to apply for a TFN, and 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’re holding money as a trustee for your child without a formal trust, you’d quote your TFN. If there’s a formal trust, use the trust’s TFN.

Do I include the money in my tax return, or lodge a return for my child?

This depends on who the ATO considers the owner of the income. 

If you (a parent or guardian) provide the funds, control how they’re used and spend the earnings, that income is generally considered yours and should be declared on your tax return.

Your child may need a separate tax return if:

• the income’s genuinely theirs and tax has been withheld (eg from bank interest or dividends because no TFN was provided), and you want to claim a refund;
• for share income specifically, if your child owns the shares and their dividend income (plus any other income that needs to be declared) is more than $416 for the year, a tax return must be lodged on their behalf. Even if it’s $416 or less, a return can be lodged to claim refunds of tax withheld or franking credits; and
• generally, if their total “non-excepted income” (income subject to the higher minor tax rates) exceeds $416, a return is needed.

Managing your child’s financial beginnings and helping them learn to handle their money is an important process. Understanding these tax aspects can help ensure everything’s set up for them correctly.

Source: www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/income-you-must-declare/your-income-if-you-are-under-18-years-old
www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-bank-accounts-and-income-bonds/children-s-savings-accounts