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

As a parent or guardian, understanding how tax applies to your child’s money helps you manage their finances correctly and avoid unexpected tax issues. If your child earns income or holds money in savings or investments, specific tax rules may apply.

When Tax Applies to Your Child’s Income

Tax can apply to income your child receives, including:

• Interest earned from bank accounts
• Dividends from shares or other investments

For tax purposes, a minor is a person who is under 18 years of age at 30 June of the income year. Special tax rules apply to minors until they no longer meet this definition.

Special Tax Rates for Minors

Australian resident minors pay higher tax rates on certain types of income to discourage income splitting. For the 2024–2025 income year, the tax rates for minors are:

• $0 to $416: no tax
• $417 to $1,307: 66% of the amount over $416
• Over $1,307: 45% of the total income

These rates generally apply to non‑excepted income, such as interest and investment earnings.

Excepted Income and Excepted Persons

Some income and some children fall outside the higher minor tax rates.

Excepted income commonly includes:

• Employment income
• Certain taxable pensions and payments

Excepted persons include:

• Children who work full‑time
• Children with certain disabilities

Bank Account Interest Rules for Children

Different rules apply to interest earned by children under 16, up until the end of the calendar year they turn 16:

• Interest under $120 per year: banks generally do not withhold tax
• Interest between $120 and $420 per year: if the bank holds the child’s date of birth or Tax File Number (TFN), tax is usually not withheld and a tax return is not required for this income alone
• Interest of $420 or more per year: if a TFN is provided, tax is not withheld; without a TFN, tax is withheld at 47%

For children aged 16 or 17, providing a TFN prevents tax withholding on interest of $120 or more.

Does Your Child Need a Tax File Number?

There is no minimum age to apply for a TFN, and having one can be very useful.

Your child will need a TFN if:

• You lodge a tax return on their behalf
• They lodge their own return to claim a refund
• Their income requires a tax return to be lodged

Without a TFN, banks and share registries may withhold tax at the highest marginal rate of 47% from interest or unfranked dividends.

If the money and earnings genuinely belong to your child, quote your child’s TFN. Holding the money as a trustee without a formal trust, quote your TFN. If there is a formal trust, use the trust’s TFN.

Should the Income Go in Your Return or Your Child’s?

Whether income appears in your tax return or your child’s depends on who owns and controls the money.

If you:

• Provided the funds
• Control how the money is used
• Spend the earnings

then the income generally belongs to you and must be declared in your tax return.

Your child may need their own tax return if:

• The income genuinely belongs to them and tax was withheld, and you want to claim a refund
• They own shares and their dividend income (plus other assessable income) exceeds $416 for the year
• Their total non‑excepted income exceeds $416

Even if income is $416 or less, lodging a return may still allow your child to claim refunds or franking credits.

Helping Your Child Start Strong Financially

Helping your child manage money and understand tax obligations sets them up for good financial habits later in life. Understanding how tax applies to children’s income helps you report everything correctly and avoid unnecessary tax or penalties.