Low Income Tax rebate removed for kids

[Terryw]

In the new Federal Budget the Government has announced they will remove the Low Income Tax Rebate for children for passive income.

This will have a big effect on those with trusts who have been distributing to children. Previously kids could get up to $16,000 (or a bt over actually) each pa tax free. So if you had 5 or so kids in your extended family you could have saved a lot of tax.

 

[alexlee]

In the new Federal Budget the Government has announced they will remove the Low Income Tax Rebate for children for passive income.

This will have a big effect on those with trusts who have been distributing to children. Previously kids could get up to $16,000 (or a bt over actually) each pa tax free. So if you had 5 or so kids in your extended family you could have saved a lot of tax.

It wasn't 16,000, surely, since minor rates are higher. $16,000 would assume the kids are taxed as adults. It was about 3k from memory?

Does this affect taxing of children as adults in the case if distributions from testamentary trusts?

 

[dan c]

It wasn't $16,000. Due to the low income rebate, a minor could receive a trust distribution of $3000 tax free, for the 2010 tax year.

On trust distributions, minors receive the first $416 tax free, from $416 to $1350 is taxed at 66%, and anything over $1350 means the whole amount is taxed at 45%.

With a low income rebate of $1350, minors could receive (1350 / 0.45) = $3000.

The amount has increased as the low income rebate increased, so it's correcting an unintended consequence of the increase in low income rebate.

 

[Terryw]

Yes, sorry that is right. the $16,000 is what adults could earn without paying tax. Kids was much lower.

 

[Terryw]

I don't think it will affect income received from a testamentary trust or will as this is excepted income and adult tax rates apply. So children receiving this sort of income could still have distributions up to $16,000 pa (this figure will probably change too) tax free.