Minor Tax Assessment Codes: Essential Guide for Trust Taxation
Understanding minor tax assessment codes is crucial when dealing with trust taxation for children. In this guide, I’ll break down how these codes work and what they mean for taxation purposes. The minor tax assessment code system helps determine how income is taxed when received by minors through trusts.
The Australian Taxation Office (ATO) uses specific assessment codes to identify different taxation scenarios for minors. These codes are particularly important when lodging tax returns that involve trust distributions to children under 18 years of age.
How Minor Tax Assessment Codes Work
When determining the appropriate minor tax assessment code, you need to work from left to right in the following table. First, identify the age category, then follow through the decision tree to find the correct code.
| Age | First Classification | Second Classification | Minor Tax Assessment Code |
| Child (under 18) | Prescribed person (102AC) – person is less than 18 years of age on the last day of the income year and is not an excepted person | Excepted assessable income (102AE) – employment income or business income | 26 – prescribed person receiving excepted income only |
| Eligible assessable income (102AE) – income from investments (not excepted assessable income) | 27 – prescribed person receiving eligible income only | ||
| Excepted person (102AC) – minor engaged in full-time occupation on the last day of income year | 25 – over 18 years of age and under a legal disability or an excepted person | ||
| Adult | 30 – not under any legal disability |
Understanding Prescribed Persons and Excepted Income
A key distinction in minor tax assessment codes is between “prescribed persons” and “excepted persons.” The tax implications vary significantly depending on this classification:
- Prescribed person: Generally, any child under 18 at the end of the financial year
- Excepted person: A minor engaged in full-time occupation at the end of the financial year
Similarly, income is classified as either:
- Excepted income: Income from employment or business activities
- Eligible income: Investment income, including trust distributions
The distinction between these categories is crucial as it determines the applicable tax rates. Eligible income for prescribed persons is typically taxed at higher rates to prevent income splitting arrangements.
Practical Application of Minor Tax Assessment Codes
When preparing tax returns for minors receiving trust distributions, these codes must be correctly applied. For example, a 16-year-old student receiving dividend income through a family trust would use code 27, while the same child earning income from a part-time job would use code 26 for that portion of their income.
The ATO scrutinizes trust distributions to minors carefully, so understanding these assessment codes is essential for proper compliance with tax regulations.
Resources for Further Information
For more detailed information about minor tax assessment codes and trust taxation, you can refer to these authoritative sources:
- The ATO’s guide on children’s income
- The Income Tax Assessment Act 1936, particularly Division 6AA
- CPA Australia’s resources on trust taxation
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Assessment Code Quick Reference:
25 - Excepted person (minor in full-time work or adult under legal disability)
26 - Prescribed person (minor) with excepted income (employment/business)
27 - Prescribed person (minor) with eligible income (investments)
30 - Adult not under legal disability
*/Understanding minor tax assessment codes can save you from costly mistakes when dealing with trust distributions to children. Make sure to consult with a qualified tax professional if you’re unsure about which code applies to your specific situation.