The Income Tax Act requires a parent to include in his/her return, any income accrued to his/her minor child(ren) either directly or indirectly from himself/herself, or by reason of a donation, settlement or other disposition which is deemed to be his/her.
Important definitions
- A ‘minor child’ means a child who is under 18 years of age and is unmarried.
- A “child” also includes a step-child and a lawfully adopted child.
- A ‘lawful minor child’ means a child of the taxpayer who— was under the age of 17 on the last day of the immediately preceding year of assessment; or is born in the year of assessment; or was under the age of25 immediately prior to the commencement of the year of assessment and receives during any part of the year of assessment full-time instruction as a student at any educational institution.
A ‘parent’ is the natural father or mother of the minor child or a person liable to maintain a child.
Taxation of income for minor children
Minor children can receive or accrue income in their own right. However, the Income Tax law requires certain income to be taxed in the hands of the parent and not in the hands of the minor child(ren).
Which income of a minor child is subject to tax in the hands of the parent?
Notably, income resulting from transactions, which are unilateral in nature, is taxable in the hands of the parent. The income from such transactions is deemed to be received by the parent. Examples of such income includes the following;
- Where income arises to a minor child due to the parent, spouse or near relative having made a donation, settlement or other disposition to another person, that income is deemed to have been received by the parent, spouse or near relative;
- Reciprocal donations where income arises to a minor child as a result of a donation from a person, whose minor child also received a donation from the minor’s parent, spouse or near relative;
- Income diverted to minor child as a result of a parent effecting a donation, settlement or other disposition;
- If a minor child becomes entitled to income in pursuance of a donation, made by a third party, that is, a person other than his parent and the parent or near relative of the minor child has made a donation to the third party or his near relative, the child’s income will be taxable in the hands of the parent.
Which income of a minor child should not be included in the income tax return of the parent?
Income resulting from transactions which are essentially bilateral in nature are not taxed in the hands of the parents but minor child. Examples of such transactions include:
- Bona fide partnerships between parent and minor child;
- Services rendered as an employee;
- Activity involving application of one’s talent, skill, specialised knowledge and experience such as sport, dance and acting;
- Trade activities carried on by the minor child.
- What are the parent’s obligations?
- Ensure that the minor child who is supposed to register with ZIMRA and submit income tax returns complies with these requirements;
- Register and submit returns to ZIMRA where the law requires the parent to account for the tax in his or her name.
When are Income Tax returns submitted?
The returns should be submitted on due dates as publicised by the ZIMRA Commissioner General every year. For income received or accrued in 2016, the returns were due on 30 April 2017.