Technical article

Australia: When a Trust Pays a Child Under 18

The scale is different again for a child who is not an Australian resident.

By Neil Solomon · 3 min read

Picture a grandmother who wants a family trust to help a nine-year-old grandchild in Australia. The plan is simple. The trust earns income each year and pays part of it to the child. A child with no other income may seem likely to pay little tax.

The tax office has a different scale for this. Trust income paid to a resident child under 18 is taxed at penalty rates.

Here are the 2025-26 figures for a child who is an Australian resident.

The rate climbs quickly past AUD 416, then drops to 45% once the child's total passes AUD 1,307. Say the trust pays a grandchild AUD 5,000 (approximately US$3,250) in a year, as an example. The whole of that sum is at 45%, because it is above the AUD 1,307 line.

The amounts are small next to what an adult can receive. An adult resident pays 45% only on income above AUD 190,000 (approximately US$123,000), plus 2% for the Medicare levy.

A family might read the table and decide to keep the money inside the trust instead. The sources show a price for that choice. Net income that no beneficiary is entitled to is taxed to the trustee at the top rate, 45%. One practitioner source adds the Medicare levy and gives 47%. So the penalty scale for the child and the top rate for the trustee end up at the same 45% for larger sums.

Some income is treated differently. The tax office calls it excepted income, and it is taxed at adult rates. The sources do not list every kind, so the family could ask the trustee which of the trust's receipts fall into that group.

The scale is different again for a child who is not an Australian resident. The tax office gives these figures: 30% up to AUD 416, 66% on AUD 417 to AUD 713 (approximately US$460), then 45% on the whole amount above AUD 713. A grandchild in Spain or Canada, with a trust paying from Australia, meets this table and not the resident one.

You might say: "A small gift to a child is not worth this much attention." For a few hundred dollars that may be right. The scale matters more as the trust grows.

The trustee also matters. When a trustee pays tax on behalf of a beneficiary under 18, the trustee is assumed to claim the AUD 18,200 tax-free threshold for a resident child. That threshold is reduced if the child becomes or stops being a resident during the year. A family moving a child between countries may find the threshold shrinks in the move year.

You could look at two doors. One is to ask the trustee how income is shared each year, and what happens to income that no beneficiary is entitled to. That income is taxed to the trustee at the top rate, so that door has its own price. The other is to compare the cost with trusts in other places.

The question touches the grandchild, the parents who may help run the trust, and the trustee who decides each year what to pay. It also touches the papers: one practitioner guide (tier U) says trustees need to record in writing how income is shared by 30 June, or the trustee may be assessed on what remains.

Where a trust pays a young person in your family, what did the rate tell you about the way the trust was set up? Share it here. Someone with a grandchild close in age may be glad of the account.

Figures are estimates for planning, based on public data. Date read: October 2026.