Do you have, or do any of your friends or family have, a disabled child? Is that parent self-employed?

Disabled children are treated as adults for tax purposes even if under age 18. This means that they can receive distributions of net income from family trusts and hybrid trusts. This income is taxed normally, rather than under the penalty tax arrangements that usually apply to the unearned income of minors.

This can save more a lot of cash each year for parents, and help take some of the sting out of the extra costs of disabled kids.

A disabled child can also be superannuated if they are genuinely employed (obviously this depends on the nature of the disability). This is as a general law employee (minimum age rules apply) or as a deemed employee under the special rules applying to company directors (aged 18 and above).

For example, a 19 year-old vision-impaired daughter might work in the business during Uni holidays, and can be paid an arm’s length salary. She can also be superannuated up to $25,000 a year, creating a tax benefit of $7,500 for her family. She can even pay non-concessional contributions of up to $500,000 across her lifetime, and these can be in effect paid for her by her family.

These strategies will help create a better financial future for the daughter later in life: SMSFs can pay pension benefits to disabled members under age 55, provided certain conditions are met. Disabled children, especially if the disability is degenerative, often meet these conditions well before the normal retirement age.

It’s remarkable how often advisers sit down with a new client and discover they have, say, a ten year old disabled child. If the client is self-employed, that’s usually ten years of unnecessarily high tax bills.

Any questions? Give us a call. This is one area in which we really love to help.

General Advice and Tax Warning

The above suggestions may not be suitable to you. They contain general advice which does not take into consideration any of your personal circumstances. All strategies and information provided on this website are general advice only.

Please arrange an appointment to seek personal financial and/or taxation advice prior to acting on anything you see on this website.