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					Minors & Tax Losses
2-160 to   2-250
2-160 to   2-250
   Most „unearned income‟ of resident minors is effectively
    taxed at the highest marginal rate of tax under ITAA36 Pt III
    Div 6AA. This is called „eligible income‟
   Minors (prescribed persons) is any person who is under 18
    years at the end of the income year except:
       A person who is classed as being in a “full time occupation”
       An incapacitated child in respect of whom a carer allowance of
        disability support pension was paid or would, but for eligibility tests,
        be payable
       A double orphan or permanently disable person, provided they are not
        dependent on a relative for support
Div 6AA
       Income caught by Div 6AA
          Unearned income
              Dividends
              Interest
              Royalties
              Rent
              Trust (other than deceased estates)
       Income excluded from application of Div 6AA („excepted‟ assessable
              Employment Income – PAYG w/h, services rendered, compensation, sickness or
               accident payments
              Business Income – „reasonable”
              Compensation payments
              Income from deceased estates or testamentary trusts
              Tfr of property due to family breakdown (legal obligation)
              Lottery wins – or income from investments thereof
Special Tax Rates
     Any eligible assessable income of a minor is taxed at
      penalty rates as follows:
1.    If the eligible income is $416 or less it is taxed at ordinary
      rates (ie the Div 6AAA rules do not apply)
2.    If the eligible assessable income is higher than $416 but less
      than $1308 it is taxed at the higher of:
     1.   Nil on the first $416 plus a flat rate of 66% on the excess over $416;
     2.   The difference between the normal tax on all the taxable income and
          the normal tax on the taxable income less that eligible assessable
          income. It is usual for the first calculation to produce the greater tax
3.    If the eligible assessable income is $1308 or higher the
      entire amount of eligible assessable income is taxed at a flat
      rate of 45%
Effect of the Low Income Rebate
   Taxpayers on low income are generally entitled to a low
    income rebate under section 159N
   Max rebate of $1200 applies when a taxpayers taxable income
    is less that $30000(post 1/7/08)
   The $1200 rebate reduces by 4 cents for every $ of taxable
    income exceeding $30000 so that no rebate is available once
    the income reaches $60,000
   The rebate can also be used by minors to reduce the amount
    of tax they would otherwise incur
   Prior to 01/07/08 Minors with eligible assessable income up
    to $1666 will escape paying Div 6AAA penalty tax by
    applying athe low income rebate of $750
   Post 1/07/08 Minors with eligible assessable income up to
    $1666 will escape paying Div 6AAA penalty tax by applying
    the low income rebate of $1200
   Income                  2666.00

   Tax payable(2666*.45)   1199.70
   Low income Rebate       1200
Fiona is 16 years old and                        Normal rates   Div 6AAA   Total
received $12,000 income during                   $              66%
the year, comprising of $11,600
from a part-time job and $400      Wages         11600                     11600
interest from a bank deposit her
parents made in her name. The
                                   Eligible      400                       400
whole $12000 is taxed at normal    assessable
rates because Fiona‟s eligible     income
assessable income (the $400                      12000                     12000
interest) is less than the $416
threshold. Fiona‟s tax is $150
(none on the first $6000); 15%     Primary tax   900                       900
on the next $6000 = $900 less
the $750 low income rebate         Less Low                                (900)
                                   Total Tax                               Nil
Tax Losses
Tax losses may be either:

 Normal tax losses (also known as „revenue
  losses‟); or
 Capital losses (under the capital gains rules)
Claiming tax losses as deductions
Tax losses arise when allowable deductions
exceed assessable income. In other words, there
is negative taxable income.

A tax loss is able to be carried forward as an
allowable deduction in the next year in which
there is taxable income.

Some restrictions apply to this process.
Limits on claiming loss deductions
Tax losses cannot arise to the extent that:

   Gifts/donations contributed toward the loss
   Superannuation contributions contributed
    toward the loss
   The taxpayer earned exempt income in the
Limits on claiming loss deductions
Tax losses cannot arise if:

   The taxpayer (usually a company or trust) did
    not satisfy either the „continuity of ownership‟
    or „same business‟ tests

   The losses arose from „non-commercial
    business activities‟
Continuity of ownership test
   If more than 50% of the ownership of a
    company changes between the start of the loss
    year and the end of the year in which a tax
    loss is to be claimed, a deduction is not
    allowed unless the company is conducting the
    same type of busines
Same business test
   If a company is not conducting the same type
    of business that it did in the year when the
    loss was made, a deduction is not allowed
    unless it satisfies the continuity of ownership
Losses from non-commercial
Division 35 operates to prevent losses from
certain business activities to be offset against
other assessable income in the year the loss

To avoid this, the taxpayer must:

   Have generated at least $20,000
    assessable income from the business
Losses from non-commercial
Have    generated profits from the business
    activity in at least three of the past five

 Have at least $500,000 in assets used by the
business activity; or

   Have certain assets worth at least     $100,000

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