A Teenager's Guide to Tax in Australia (Step-by-Step)

A 16-year-old family member recently asked me how tax works in Australia. As I was answering his questions, I realised that tax can actually be more complicated for teens than it is for adults.

This guide will walk you through how to lodge a tax return online for a teenager and explain the unique rules that apply. For all the teens out there, hopefully this makes the grown-up world of tax a little clearer. And if you're a parent, this is for you too. Chatting about money as a family is a great way to teach, connect, and build good habits early on.

Meet John: A Real-Life Teen Tax Scenario

Let's use my 16-year-old family member as our example. We'll call him John. In the last financial year (FY25), John was a full-time student with a part-time job, and he had a few different sources of income:

• Part-time Job: He earned a gross income of $35,000, with $2,688 in tax withheld.
• Savings from Work: He had a savings account with a balance of around $15,000, which earned $750 in interest.
• Savings from Gifts: He had a separate account with pocket money and gifts from birthdays, which earned $210 in interest.
• Family Trust: He received a $200 distribution from a family trust.

Getting Started: What You'll Need

Before you can lodge a return, a teen will need:

• A Tax File Number (TFN).
• A myGov account.
• Their myGov account linked to the ATO.

It's possible to set this up even for very young children, so age isn't a barrier.

Lodging Your Tax Return Online: A Step-by-Step Walkthrough

Once you're logged in to the ATO via myGov, the system will automatically recognise you are under 18 and give you the minor's version of the tax return.

Step 1: Personal and Bank Details

First, check that all your contact details (phone, email, address) are up to date. Then, make sure your bank account information is correct. If you're due a tax refund, you want it to land in the right place.

Step 2: Personalising Your Return

Next, you’ll be asked a few questions to tailor the tax return to your situation. This is a huge benefit of lodging online, as you only see the sections that apply to you.

For John, we need to select:

• Salary or wages.
• Australian interest.
• Trust distributions.

He doesn't have any deductions, but it's a good idea to tick that box to see what the section looks like.

Step 3: Entering Your Income

This is where you fill in the numbers. If you wait a couple of months after the end of the financial year, most of this information will be pre-filled for you by the ATO.

• For John, his employment income is pre-filled.
• His bank interest is also pre-filled.
• The only thing we need to enter manually is the $200 distribution from the family trust.

The Most Important Step: Under 18 Adjustments

This is the most critical section for any teen's tax return. In Australia, we have the normal adult tax rates and much higher, punitive tax rates for minors.

Don't worry, not all income earned by a minor is taxed at the higher rate. The penalty tax only applies to "non-excepted income." This is typically unearned income, like interest from money received as gifts or distributions from a family trust. This rule exists to prevent adults from shifting income to their children just to pay less tax.

Income you earn from working a job, or interest you earn on money you saved from that job, is considered "excepted income" and is taxed at the normal, more generous adult rates.

In this section, the ATO asks you to separate these two types of income. If you skip this step, the ATO will treat all of your income as non-excepted and tax it at the higher minor rate.

For John, we need to declare:

• Excepted Income: His $35,000 part-time salary and the $750 interest he earned from saving that salary.
• Non-Excepted Income: The $210 interest from his gift money and the $200 trust distribution are left out of this section, as they are not excepted income.

The Final Calculation: How Your Tax is Worked Out

After completing the adjustments, the ATO calculates the tax.

Excepted Income:

John has $35,750 of excepted income, which is taxed at the adult rates. The tax on this is $2,823. Since his employer already withheld $2,688, he still owes $135 on this portion.

Non-Excepted Income:

John has $410 of non-excepted income ($210 interest + $200 trust distribution). At first glance, this looks like it would be tax-free, as it's below the minor's tax-free threshold of $416.

However, there's a tricky rule. The ATO also checks what tax rate would apply if the non-excepted income was added on top of the total income and taxed at normal adult rates. It then uses whichever rate is higher.

In John's case, his excepted income already puts him in the 16% tax bracket (plus the 2% Medicare levy). Therefore, his $410 of non-excepted income is taxed at 18%, resulting in an extra $73.80 in tax.

Total Tax to Pay:

$135 (from excepted income) + $73.80 (from non-excepted income) = $208.80.

This is the final amount John needs to pay to the ATO.