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Re: Tax assessed by whom - Minor beneficiary of trust has full time job

Newbie

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Hello,

I have a question regarding to a client who has a trust fund.

One of the beneficiaries is 17 years old who has a full time employment. 

Wondering if the tax is assessed by the trustee or by the beneficiary himself?

Under the S98(1), tax should be assessed by the trustee if the beneficiary is a minor below 18 yr old who defined as legal disability. 

However, if a minor has a full time employment is difined as an execpted minor.

Can someone help confirm this? In this case, the amount distrubited from the trust should be assessed by the trustee or assessed by the beneficiary? 

Thanks.

 

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ATO Community Support

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Hi @Teddyjojo,

 

True, a minor is an excepted person if they intend to work full time for most of the year and were working for a total of three months or more full time in an income year.

 

As an excepted person, all income is treated equally and taxed at adult rates.

 

We have some great information on our website for further reading.

 

Excepted person

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ATO Community Support

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Hi @Teddyjojo,

 

True, a minor is an excepted person if they intend to work full time for most of the year and were working for a total of three months or more full time in an income year.

 

As an excepted person, all income is treated equally and taxed at adult rates.

 

We have some great information on our website for further reading.

 

Excepted person

Devotee

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@CaroATO Thanks for providing that, though it speaks about the perspective of the beneficiary receiving the income rather than the obligations of the trustee. I had a few thoughts on this...

 

ITAA 1936 SECT 98 covers where a beneficiary who is under a legal disability - which is not defined in the tax act - rather we look to the Limitation Act 1985:

"under a disability"—a person is under a disability

        (a)     while the person is under 18 years old; or....

 

Under s98(1), the trustee is assessed on the distribution - "as if it were the income of an individual and were not subject to any deduction" per s98(3). The minor (under a legal disability) is able to avoid the penality tax rates under Div 6AA by virtue of being an "excepted person" and accordingly, the trustee's withholding should reflect this. From what I can see in the legislation, being an excepted person does not absolve the trustee of its legal obligations to pay tax on the distribution.

 

In practice, this would mean that:

The trustee of the trust pay's the distribution less tax (based on adult marginal tax rates).

The minor picks up the trust income and gets a tax credit for the tax paid by the trust.

 

The ATO's guidance in Appendix 10 includes the following:

If a beneficiary is presently entitled to a share of the trust income and is under 18 years of age, the trustee is assessed and is liable to pay tax on that income as if it were the income of an individual. A beneficiary deriving income from other sources in addition to the trust income is assessed on the total income in their personal tax return. A credit is allowed in the individual’s return for the amount of tax paid or payable by the trustee on the trust income.

 

bon appetit