When parents separate, the cost of raising children doesn't go down. It often goes up, across two homes. For a parent on a high income, there's an extra sting: child support and school fees come out of after-tax money. On the top rate, every $1 of school fees costs close to $1.90 of pre-tax income.
A child maintenance trust (CMT) is one of the few structures the tax law specifically allows to fix that. Done properly, income used for the children is taxed at their rates, not yours. Done carelessly, it's taxed at the penalty rates for minors and you've given away the asset anyway. This guide explains how CMTs work, the conditions, what they really cost, and the order to do things in. It's general information. Every family's situation is different, and these decisions sit alongside your family law settlement, so take advice on yours.
What is a child maintenance trust?
A CMT is a trust that holds property transferred "as the result of a family breakdown" for the benefit of a child. The income from investing that property is "excepted trust income" under section 102AG of the Income Tax Assessment Act 1936. That label is what matters: excepted income is taxed at normal adult rates even though the child is under 18.
In practice:
- A parent (or both) transfers cash, shares or property into a trust, usually under family law orders or as part of a child support arrangement.
- The trust invests it. Income is paid or applied for the children's school fees, living costs and other maintenance.
- Each child is taxed on their share at adult rates.
- When the trust ends, the children take the property.
How are children normally taxed on trust income?
Children under 18 who receive "unearned" income, such as an ordinary family trust distribution, pay tax at special rates designed to stop income splitting. The table compares those rates with what a child pays on excepted income.
| Child's income | Ordinary family trust distribution (minor rates, latest published by the ATO for 2025–26) | Excepted income from a CMT (adult rates, 2026–27) |
|---|---|---|
| Up to $416 | Nil | Nil |
| $417 to $1,307 | 66% of the excess over $416 | Nil |
| $1,308 to $18,200 | 45% of the whole amount | Nil |
| $18,201 to $45,000 | 45% of the whole amount | 15% of the excess over $18,200, less the low income tax offset |
| $45,001 to $135,000 | 45% of the whole amount | $4,020 plus 30% of the excess over $45,000 |
The Medicare levy can apply on top, depending on income. A child receiving excepted income can earn about $22,800 a year with no income tax, once the $700 low income tax offset is applied.
What conditions must a child maintenance trust meet?
The conditions come from section 102AG, section 102AGA (which defines a family breakdown) and the ATO's ruling on child maintenance trust arrangements, TR 98/4. Miss one and the whole concession goes.
| Condition | What it means in practice |
|---|---|
| A family breakdown | Two people stopped living together as a couple, at least one of them is a parent of the child (or has custody or guardianship), and a court, person or body has made an order, determination or assessment, partly because of the separation, creating a legal obligation to support or transfer property for the child. It also covers parents who weren't living together when the child was born |
| A transfer to give effect to that obligation | The property is transferred to the trustee to carry out the obligation. A gift made years later out of goodwill is much harder to support |
| Real property, not income streaming | The income must come from investing property actually transferred into the trust. Yearly distributions from another trust don't count. A loan isn't a transfer |
| The children get the capital | Under the terms of the trust, the child must acquire the trust property when the trust ends. It can't go back to a parent or an associate |
| Arm's length returns | If any dealing is not at arm's length, for example the trust lends to a parent's business at an inflated rate, only an arm's length return is excepted |
| No tax-driven arrangement | Income derived under an arrangement entered into for the purpose of turning it into excepted income loses the concession. An incidental tax purpose is disregarded |
Key point: The children owning the capital at the end is the condition that changes the decision for most parents. A CMT is not a way to park an asset for ten years and take it back. If you aren't comfortable with the children eventually owning it, a CMT isn't for you.
Getting the paperwork right
The order or assessment is the legal backbone of the trust. Most families record the transfer and the maintenance arrangement in consent orders, a binding child support agreement under child support law, or both, drafted by their family lawyers. Each parent needs independent legal advice for a binding agreement. The deed itself is drafted by a solicitor to match: named children as the beneficiaries, parents excluded from income and capital, capital vesting in the children (or their estates), and those clauses protected from later variation.
Worked example: what a child maintenance trust saves
Hypothetical, rounded, 2026–27 rates, before Medicare levy.
Say Sam earns well over $190,000. Sam and Alex separate and have two children, 8 and 10. As part of their settlement, Sam transfers $1,000,000 of cash and listed shares into a CMT. It earns about $50,000 a year, and the trustee applies $25,000 for each child's school fees and maintenance.
| How the $50,000 is taxed | Tax per year |
|---|---|
| Sam earns it personally and pays the costs from after-tax income (47%) | $23,500 |
| Sam's existing family trust distributes $25,000 to each child (minor rates, 45% of the whole amount) | $22,500 |
| A compliant CMT: each child taxed at adult rates on $25,000 ($1,020 less $700 offset) | $640 |
That's a saving of roughly $22,800 a year compared with Sam paying from after-tax income, or about $228,000 over ten years before any investment return on the saving.
The honest other side of the ledger: Sam no longer owns the $1,000,000. The children will. If the assets would have gone to them anyway, through Sam's will, that may not matter much. If Sam needs that capital for retirement or a new household, the saving may not be worth it.
Who is a child maintenance trust right for?
| Your situation | Our usual view |
|---|---|
| High-income parent, children under about 12, substantial school and living costs, settlement not yet finalised | Worth modelling seriously |
| Children are 16 or 17 | Few years left at minor rates. Rarely worth the setup cost |
| Not enough assets to spare once each household is housed | Usually not. Housing both homes comes first |
| Parents can't agree on who controls the trust | A professional or independent trustee can help, but conflict adds cost |
| Settlement already sealed, with no mention of a trust | Harder. Talk to your family lawyer about whether the orders or an agreement can properly support a transfer now |
| The children's other parent is on a modest income | The saving is your rate versus the children's rate, not theirs. Still worth comparing |
How does a child maintenance trust fit with child support?
A CMT doesn't automatically reduce a child support assessment. If payments from the trust are meant to count towards what a parent owes, that needs to be agreed and recorded, usually in a binding child support agreement or orders. Without that, a parent can end up funding the trust and still owing assessed child support.
Payments from the trust can also affect family assistance. For example, maintenance received can count in the receiving parent's Family Tax Benefit Part A assessment. Ask your family lawyer and Services Australia how your arrangement will be treated before it's signed.
What does it cost to put assets into the trust?
Choosing which asset to transfer is where most of the tax risk sits.
- Capital gains tax. Moving an asset that has grown in value is a CGT event at market value. The marriage breakdown rollover generally covers transfers between spouses, not transfers to a trustee for the children, so expect CGT on a gain. Cash and assets with little unrealised gain are simpler.
- The 2027 CGT changes. From 1 July 2027 the 50% CGT discount is replaced by indexation for gains accruing from that date (this is law). If a transfer of a growth asset is on the cards anyway, the timing around 30 June 2027 is worth modelling. See CGT discount changes in 2027.
- Stamp duty. States have relationship breakdown duty exemptions, but some only cover transfers between the parties. Whether a transfer to a trustee for the children is covered depends on the state and the exact terms. Get it confirmed before land is transferred.
- Division 7A. Funding the trust from a private company, or by a company paying or lending money for a parent, can be a deemed dividend. Read our Division 7A guide before company money goes anywhere near a CMT.
- Family trust elections. A family trust that has made an election and pays amounts to a trust outside its family group can trigger family trust distribution tax at 47%.
How to set up a child maintenance trust, step by step
- Model it. Children's ages, yearly costs to 18 (or later), the asset needed, and the tax saving against the setup and running costs and the loss of the capital.
- Pick the asset. Check each candidate for CGT, duty, Division 7A and family trust election issues.
- Agree governance. Usually a company as trustee set up only for this trust, with directors both parents can live with, or an independent trustee where there's conflict.
- Brief the lawyers together. The family lawyers draft orders and any child support agreement, and a solicitor drafts the deed. We review the drafts side by side so the parties, property and wording line up.
- Sign in the right order. The trust exists, then the orders or agreement are made, then the transfer happens to give effect to them.
- Register and fund. Tax file numbers for the trust and each child, a bank and investment account in the trust's name, then the transfer.
- Run it properly. Investments at arm's length, a written resolution each year by 30 June, and tax returns that show the income as excepted.
Running the trust each year
- Resolutions by 30 June. The trustee decides how each year's income is paid or applied for each child. Income that isn't dealt with can be taxed to the trustee at the top rate.
- Records. Pay school fees and costs directly from the trust account and keep the invoices.
- Reinvested income. Income a child is entitled to but doesn't spend can be kept for them. Income earned on reinvested excepted income can also be excepted, if the records track each child's amounts.
- Tax returns. A trust return each year, and returns for children where needed, with the excepted income shown correctly.
- Investment returns. Keep investments commercial. Lending to a parent's business, or deals at non-market rates, is where trouble starts.
Mistakes we see with child maintenance trusts
- An off-the-shelf family trust deed with parents as beneficiaries and capital able to go anywhere.
- Orders sealed first, with the trust as an afterthought.
- A $10 trust fed by yearly family trust distributions. There's no transferred property, so there's no excepted income.
- A loan instead of a transfer, especially an interest-free one from a company.
- Transferring a growth asset without modelling the CGT and duty.
- Children's returns coded wrongly, so the ATO applies the minor rates.
- Using trust money for a parent's own costs.
How BPAG helps separating parents
We model the numbers, check the funding assets, review the draft orders, agreement and deed with your lawyers, and run the trust's accounts, resolutions and returns each year. Our trust distribution resolution agent drafts each 30 June resolution with the deed's terms checked, and our capital gains tax agent works out the cost of transferring each candidate asset. Your accountant reviews and signs off everything, and nothing goes to you, your lawyer or the ATO without a person approving it.
Family law orders, child support agreements and the trust deed are prepared by your lawyers. We brief them and work alongside them. For how existing trusts are treated in a separation, see trusts and family law. If you're reorganising your own structures after separating, our asset protection service and trust tax returns cover the rest of the group, and the estate planning checklist helps you update your will and nominations, which a separation often leaves out of date.
Frequently asked questions
Can we set up a child maintenance trust if we never lived together?
Possibly. The family breakdown rules also cover parents who weren't living together as a couple when the child was born, provided an order, determination or assessment creates a legal obligation to support the child and the transfer gives effect to it. The other conditions still apply.
Do I get the asset back when the children turn 18?
No. For the income to be taxed at adult rates, the children must acquire the trust property when the trust ends. A deed that returns the capital to a parent, or lets a parent's family trust take it, fails. The trust can run past 18 if the deed sets a later end date, but the property still goes to the children.
Can my existing family trust just distribute to a child maintenance trust each year?
That doesn't work. The concession applies to income from investing property transferred as a result of the family breakdown. Yearly distributions from another trust aren't that, so the children would be taxed at the penalty rates.
Can I lend money to the trust instead of giving it?
Lending isn't a transfer of property for the children's benefit, because the trust owes the money back. Only what is genuinely transferred counts, and an interest-free loan can also run into the arm's length rule. Plan on giving the assets.
Do the children need tax file numbers?
Yes. Each child should have a tax file number, and the trust and any returns for the children must show the income as excepted income. If it isn't coded correctly, the ATO's systems apply the minor rates and you'll have to fix it later.
What happens if we get back together?
The trust exists because of the family breakdown. If you reconcile, talk to us straight away, because the basis for treating later income as excepted income can be lost.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.