Distribution to minors

[GreatPig]

This follows on from a question in another thread.

What is the exact value that can be distributed to minors before the 66% tax rate cuts in?

According to the ATO here it's $772, but also according to the ATO here it's $1,334 (that page doesn't actually state that figure, but that's about what it works out to be and that figure is mentioned here).

So which is it, and what's the difference between those two numbers?

Thanks.

GP

 

[Mry]

2006 - $772 (=416 + 66% x 235)
2007 - $1,325 (=416 + 66% x 600)
2008 - $1,552 (=416 + 66% x 725)

 

[GreatPig]

Thanks, Mry. So for the 2006-2007 fin year it's $1,325?

That first ATO page says:

"The higher tax rates will apply if you have received more than $772 of eligible taxable income in the 2006-07 financial year"

and the second one says:

"The tax rates featured in the table below apply in 2006–07 for minors"

So according to the ATO, both those different rates apply in the 2006-2007 financial year???

GP

 

[Ebbie]

It's very difficult to interpret from the ATO website which figure to use. I'm also looking at making a trust distribution to minors this year so would appreciate an answer to GP's question.

I take it there is no minimum age for this and that a minor is defined from a 1 day old new born to 18 years of age?

 

[Pushka]

Last year was the last year of having a minor; wouldnt you know it, this year we will no longer be using the trust for distributions!

 

[Mry]

The ATO's page is wrong. My tax software seems to indicate that for 2007 it could be $1,332.

No minimum age. You just have to be born. If any of you have a trust and a kid is due in July, see your Doctor about inducing the birth.

(That was more bad accounting humor).

 

[geoffw]

(That was more bad accounting humor).

"accounting humour" is an oxymoron.

"Bad accounting humour" is even more so.

"Accounting humor" (without the letter "u") is an american version of an oxymoron. Which probably makes even more oxymoronic

 

[Mry]

Ack! I have single-handedly destroyed the english language in one sentence.

 

[Ausprop]

hold up! Dont forget the increasing baby bonuses!

 

[Ebbie]

The ATO's page is wrong. My tax software seems to indicate that for 2007 it could be $1,332.

No minimum age. You just have to be born. If any of you have a trust and a kid is due in July, see your Doctor about inducing the birth.

(That was more bad accounting humor).

Thanks Mry, so providing they are beneficiaries in the trust deed there is nothing stopping your trust from distributing a $13,320 profit to your 10 nephews and nieces - with no negative impact on the parents finances in regards to Family Tax Benefit, Childcare rebates, Income Tax, Centrelink or other entitlements?

 

[Mry]

And people wonder why I like trusts so much.

 

[geoffw]

Thanks Mry, so providing they are beneficiaries in the trust deed there is nothing stopping your trust from distributing a $13,320 profit to your 10 nephews and nieces - with no negative impact on the parents finances in regards to Family Tax Benefit, Childcare rebates, Income Tax, Centrelink or other entitlements?

You would have to ensure that no other relatives have trusts distributing money to the same nephews and nieces

 

[Pushka]

But isnt the catch to all this is that the people who do receive a distribution, can actually demand that you give them the money?

 

[Ebbie]

But isnt the catch to all this is that the people who do receive a distribution, can actually demand that you give them the money?

I think I recall DaleGG saying that it's best to actually distribute the money to avoid this, otherwise the beneficiaries could demand what is owed to them as a lump sum at some time in the future. I would be inclined to transfer the money (perhaps to the parents bank account?) and have them gift the funds back to the trust minus a small fee for their trouble. Unless anyone has a better suggestion.

 

[Pushka]

Yes Ebbie, that is true but I am betting that people use trusts so that tax liability is spread to many people, and NOT to give them the money that they are due! And i cant see too many bothering with all this paper trail stuff!

 

[Mry]

You can either-

Have them gift the money away by signing a declaration.

or

Spend the money on their behalf eg school fees, pocket money etc as long as you specify the amounts for each year in writing.

 

[GameBoy]

If you distribute the $1,334 can also give the $100 gifts as mentioned in Dales book?

 

[Ebbie]

Have them gift the money away by signing a declaration.

This might be difficult if the minor is only 2 years old.

Or does the parent sign a declaration on their behalf?

 

[Ebbie]

This might be a silly question, but do minors have to lodge a tax return if they receive income from a trust?

This could limit the amount of beneficiaries available as they would have to apply for a tax file number first.

 

[Pushka]

This might be a silly question, but do minors have to lodge a tax return if they receive income from a trust?

This could limit the amount of beneficiaries available as they would have to apply for a tax file number first.

Yes they do if over a certain amount and pay tax at a much higher rate than if earned as income. For obvious reasons.