Family trusts lose Low Income Tax Offset for distributions to children

By John Kelly on June 8th, 2011

Dear Reader,

Throughout the debate surrounding the new budget, one thing is for certain – the Gillard Government will be remembered for its sobriety, rather than for any dramatic changes to tax legislation.

Changes to individuals, small businesses and superannuation have been made with a view to return the budget to surplus in 2012/2013, such as the scrapping of the low income tax offset for minors who earn ‘unearned income’.

This means that compared to 2010/11, when the maximum amount that could be distributed annually tax free was $3,333, from 1 July 2011 you will only be able to distribute a maximum of $416 tax free to minors of a family trust.

Other changes for individuals include:

  • the scrapping of the dependant spouse rebate for dependant spouses born after 1 July 1971 (i.e. aged under 40);
  • the uplift in the PAYG GDP Instalment rate will reduce for 2011 / 2012 from 8% to 4%.

Read on for more information from our editor- in-chief, John Kelly, about the changes to trust distributions to minors.

Thanks for reading!

Holly Hutchinson

Holly Hutchinson
Smart Tax Handbook

P.S. I would love to hear from you…If you enjoy reading the Smart Tax Handbook and you have any topic requests or feedback about the bulletin, why not tell me about it? Pop an email to me at

And now over to our editor-in-chief John Kelly…

Crackdown on family trust distributions to children

On 8 May 2011, the Government announced that minors (children under 18 years old) who earn ‘unearned income’ will not be able to access the low income tax offset to reduce the tax payable on that unearned income. Unearned income includes income such as:

  • dividends,
  • interest,
  • royalties, and
  • other income from property.

The low income tax offset will still be available to reduce the tax payable on income that the minor has earned through their work, such as morning paper runs or part-time work at McDonalds.

Currently, a minor can receive up to $3,333 tax free and has led to parents paying out distributions from a family trust to their children. This measure is therefore designed to discourage the use of discretionary trusts to split income between the parents and their children.

Accordingly, if you have used a family trust in the past to distribute income to minors in order to take advantage of the low income tax offset and avoid paying tax on that income, you will no longer be able to do so.

The measure will be effective from 1 July 2011.

Warm regards,

John Kelly

John Kelly,
Smart Tax Handbook

Please note that this response does not constitute legal advice and is intended to be general
advice only.


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