Income split with kids

[Twitch]

This is for those parents of a disabled child and relates to a rule/exception I only just learned about.

Parents can income split (eg through a family trust) to a disabled child without getting slugged the penalty tax rates that usually apply when distributing income to kids. A disabled child is entitled to normal tax rates/brackets that an adult is entitled too. This can be worth tens of thousands of dollars a year.

It may or may not cover anyone here on this forum, but for those it covers it can make a huge difference, and go a long way towards helping us parents afford the care and treatment our child needs as they grow up.

Hope this helps someone.

 

[Twitch]

replying here to my own thread here

What opened my eyes was that "disability" doesn't just mean, say, severally mentally handicaped, being blind or deaf etc, but it can mean a child has: ADD/ADHD, Aspergers, HFA (High Functioning Autism) etc. These are fairly common conditions, probably 2% of the population.

 

[Mr. Fabulous]

Hey Twitch,

As someone who works in financial planning that's a great piece of information to have.

Mark

 

[redsquash]

If a child earns $5999 , ht etax threshold,then there is no tax,
After that amount is is at normal tax rates ?

Can $1334 be added to $5999 son no tax is payed?

 

[Twitch]

If a child earns $5999 , ht etax threshold,then there is no tax,
After that amount is is at normal tax rates ?

That's right, same as for an adult

Can $1334 be added to $5999 son no tax is payed?

No, for an exempt minor it's normal adult tax scales. The $1334 threshold is for a non-exempt minor.

 

[Mry]

Here is an ID on the subject.

102AC is the relevant section so you need to review the legislative requirements to get this tax break for disabled / handicapped children.

There is a rather onerous demand though, you need to have a trust that generates taxable income not subject to Personal Services Income rules and views from the ATO. Once that occurs, you can stream away.

If adult rates apply, that "tax free threshold" $1,332 goes up to $10,000 for 2007 and $11,000 for 2008, taking into account the low income offsets.

 

[Twitch]

There is a rather onerous demand though, you need to have a trust that generates taxable income not subject to Personal Services Income rules and views from the ATO.

Mry, could you expand on this please? Does this mean you can't stream income from a service trust? So the trust must be one with investments generating income rather than income generated from individual effort?

 

[Mry]

Mry, could you expand on this please? Does this mean you can't stream income from a service trust? So the trust must be one with investments generating income rather than income generated from individual effort?

As long as the ATO is happy with the service trust, you can distribute from that to whoever you wish. The income does need to come merely from investments, a manufacturing plant owned within a trust can distribute to whomever the deed allows them to distribute to.