As more Australian families encourage their children to invest, the so-called ‘Kiddie Tax’ has emerged as a key consideration in 2025. With policy tweaks and growing interest in financial literacy for kids, understanding how the Kiddie Tax works can save families from unpleasant surprises at tax time. Whether you’re helping your child buy their first shares or manage a savings account, here’s your essential guide to navigating the rules this year.

What Is the Kiddie Tax and Who Does It Affect?

The Kiddie Tax, officially known as the ‘tax on unearned income of minors,’ is the set of rules that determine how investment income earned by children under 18 is taxed in Australia. Designed to prevent income splitting—where parents might shift assets into their children’s names to take advantage of lower tax rates—the Kiddie Tax ensures most unearned income is taxed at higher rates.

Applies to: Children under 18 at the end of the financial year who are not in full-time employment.
Types of income: Interest from bank accounts, dividends, trust distributions, and capital gains on investments held in a child’s name.

Notably, earned income (like part-time jobs) is taxed at normal rates, but unearned income faces a tiered system designed to discourage excessive income shifting.

2025 Kiddie Tax Rates and New Thresholds

For the 2024–25 financial year, the Australian Taxation Office (ATO) has indexed the Kiddie Tax thresholds to account for inflation. Here’s how the rates break down:

First $416: Tax-free
$417 to $1,307: Taxed at 66%
Over $1,307: Taxed at 45%

These rates apply only to unearned income. For example, if a 12-year-old earns $2,000 in dividends and bank interest this year, the first $416 is tax-free, the next $891 is taxed at 66%, and the remainder is taxed at 45%—significantly higher than adult tax rates at similar income levels.

Policy update for 2025: The ATO has increased compliance checks on trust distributions to minors, targeting family trusts that distribute income to children to minimise tax. Parents should keep records and ensure any trust distributions are legitimate and properly documented.

Practical Tips for Parents: Navigating the Kiddie Tax

With the growing popularity of investing apps for kids and youth savings accounts, it’s easy for young Australians to cross Kiddie Tax thresholds without realising it. Here’s how families can stay on top of their tax game:

Monitor investment income: Keep track of dividends, interest, and trust distributions in your child’s name. Even small balances can add up over a year.
Consider investment structures: Family trusts and other vehicles can be effective, but must be managed carefully to avoid unexpected tax bills.
Encourage earned income: Part-time jobs or microbusiness ventures are taxed at normal rates and can help kids build financial skills without hitting punitive tax rates.
Stay updated: 2025 sees increased ATO scrutiny on family trust arrangements, so seek professional advice if you’re unsure about your family’s setup.

Example: Olivia, 15, receives $1,200 in bank interest and $500 in trust income in 2025. Her total unearned income ($1,700) means $416 is tax-free, $891 is taxed at 66%, and $393 is taxed at 45%. Her parents need to report this income on Olivia’s tax return, and be ready for a sizeable tax bill—despite the modest amounts involved.

Looking Ahead: Teaching Financial Literacy While Avoiding Tax Traps

Australia’s Kiddie Tax rules aren’t designed to punish financial education, but they do require vigilance. As digital investing and youth-focused fintech platforms grow, more families are likely to encounter these rules. In 2025, the focus is on balancing savvy investing for young Australians with a clear-eyed understanding of the tax implications.

By staying informed and proactive, parents can help their kids build wealth the smart way—without stumbling into the Kiddie Tax trap.