Just when you thought managing your own personal tax was hard, a third wheel comes into the picture. As a new parent, managing your baby’s finances might not be at the top of your priority list – but believe it or not, understanding the tax obligations of your infant child can be important.
In Australia, there are actually specific circumstances under which you may need to file a tax return for your baby. Let’s explore when this might be necessary, and what you need to consider.
When is a tax return required for a baby?
Income from investments
If your baby has a bank account in their name that earns interest or receives dividends from shares, this income might need to be reported. The Australian Taxation Office (ATO) sets specific thresholds for unearned income (income not from employment, such as interest or dividends) for minors. As of the current tax year, if the total income exceeds $416, you might need to lodge a tax return for your child.
Trust fund distributions
If your baby is a beneficiary of a trust fund and receives distributions, this income must be reported. Trust distributions are taxed differently, and it’s essential to keep accurate records of these amounts. If the trust income exceeds $416, a tax return is required.
Tax File Number (TFN)
For the income to be taxed correctly, your baby will need a Tax File Number. Without a TFN, any interest earned in a bank account could be taxed at the highest marginal rate. Applying for a TFN for your child can help ensure they are taxed at the correct rate.
Lodging the tax return
If your child’s income exceeds the threshold, you’ll need to prepare and lodge a tax return on their behalf. This can be done through the ATO’s online services or by submitting a paper tax return. Keeping detailed records of all income earned by your baby is crucial to ensure accuracy. You could also engage a tax agent to assist with this.
Practical Steps
Consider a dedicated account
To maximize your baby’s financial future (yes, really), consider setting up a high-interest savings account like our Scoot Super Saver. Not only does this provide a secure place to grow their savings, but it can also teach them valuable financial lessons as they grow older. Start planning today and give your child the gift of a secure financial foundation.
BCU Bank’s kids savings account, Scoot Super Saver, offers a total interest rate of 2.75% p.a. on amounts less than $50,000. Find out more.
Monitor income sources
Regularly check any accounts or investments held in your baby’s name to track interest, dividends, or trust distributions. You want to know what that kid’s up to.
Apply for a TFN
If your baby is likely to receive significant income (if they’re an Insta-famous baby influencer, for instance), you should apply for a TFN early to simplify the tax process.
Consult a tax professional
If you’re unsure about your obligations or how to manage your baby’s tax affairs, seeking advice from a tax professional can help ensure you comply with the regulations and optimise your tax situation.
While most babies in Australia won’t need to file a tax return, there are specific situations where it becomes necessary, particularly when they have income from investments or trust funds. By understanding the thresholds and tax rates applicable to minors, you can manage your child’s finances effectively and ensure compliance with the ATO’s requirements.
This information is general in nature and does not constitute tax advice. We recommend that you seek independent tax, legal and/or financial advice where appropriate.
Deposit products issued by Police & Nurses Limited (BCU Bank) ABN 69 087 651 876 AFSL 240701. Any advice does not take into account our objectives, financial situation or needs. Read the Product T&Cs, before acquiring any product in considering and deciding if it is right for you. Target Market Determinations (TMD’s) are available on our website or upon request.
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