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Edited version of private ruling
Authorisation Number: 1011634484291
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Ruling
Subject: Interest income
Are you assessable on interest earned in accounts held in your grandchildren's names?
Yes.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
1 July 2009
Relevant facts
You placed money into two accounts in your grandchildren's names.
It was intended that the principle belongs to you and the interest would be given to the children for their schooling and clothing needs.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include interest income.
Taxation Ruling IT 2486 considers the question of who should pay tax on the interest earned in a child's bank account.
IT 2486 states that the essential question to be asked is "Whose money is it?" The answer inevitably depends upon the facts of each case. If, for example, the account is made up of money the child has received as birthday or Christmas presents, pocket-money or money from newspaper rounds, childminding, for example, then the money in the account should be regarded as that of the child.
On the other hand, if the account contains a large sum of money careful examination is needed to decide where it came from and whose money it really is. There will be other cases where, although an account is opened by a parent in a child's name, the parent spends or intends to use the funds in the account as if they belonged to the parent. In such cases, the money in the account will be treated as belonging to the parent.
In your case, the money in the account is yours and will remain yours. It is only the interest that will be available to the children. It is clear that the money is yours and not the children's. Therefore, you are assessable on the interest in the accounts.
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