In Australia, minors under 18 years old are subject to special tax rules on their income. The Australian Taxation Office (ATO) defines "excepted net income" for minors, which is taxed at the ordinary marginal rates rather than the higher rates applied to unearned income of minors. Understanding and correctly applying these rules is essential when preparing tax returns for clients under 18.
To handle excepted net income properly, first activate the Adjustments feature in LodgeiT via the manage section (the icon withfour little squares)
Once activated, an Adjustments tab will be added to the individual tax return form, allowing specific entries relevant to excepted income.
What Constitutes Excepted Net Income for Minors
According to the ATO, excepted net income includes income falling into the following categories when earned by individuals under 18:
1. Employment or business income.
2. Centrelink payments.
3. Pensions, annuities, and superannuation income streams.
4. Compensation, superannuation, and insurance payouts.
5. Income from a deceased person's estate.
6. Income from property transferred because of a family breakdown or death.
7. Income from the minor's own investments or property, where the ATO agrees no tax avoidance occurred by shifting income to the child.
8. Income from a partnership or trust, if it stems from the minor’s own effort or property and not from discretionary distributions of family trusts.
Tax Implications and Lodgement
> Excepted net income is taxed at ordinary marginal tax rates, not at the higher rates that normally apply to minors’ unearned income.
> The Low and Middle Income Tax Offset (LMITO) can also apply if eligible.
> Tax is calculated based on the amount entered in the A1J field as excepted income.
> Occasionally, excepted income can be higher than taxable income; specific situations should be carefully reviewed to ensure compliance. Learn more
Important Note:
- If the Adjustments (A1) tab is not visible in LodgeiT, ensure that the client's Date of Birth is correctly entered in the Settings section, reflecting that they are under 18 years old. 
- Always refer to the latest ATO guidance to confirm current rules and thresholds as they can change.
Learn more HERE
Official ATO guides on excepted income for minors:
Your income if you are under 18 years old