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Edited version of private ruling

Authorisation Number: 1011709060754

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Subject: Children's bank accounts

Question

Does the interest from an account held in trust for your child form part of their assessable income?

Answer:

Yes

This ruling applies for the following periods

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2009

Relevant facts and circumstances

Your child is a minor.

You (the parents) have opened a number of bank accounts for them. All accounts are currently active.

The money in the accounts has been accrued through a variety of means but substantially through small deposits made by you over the years.

All of the small deposits in the accounts have been accumulated through bonuses made by you for good behaviour, good school work, personal achievements and general household chores.

On occasion there have been larger lump sum deposits and these can normally be explained through grandparent gifts or deceased relative bequests.

Your intention is that your child will take control of the accounts when you deem them mature enough to control the money or when they become legally able to run their own accounts. The parental role with regards to the use of the money will be providing guidance as to what is prudent and safe.

The only withdrawals that you have made have been transfers between accounts.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 states that an Australian resident taxpayer is liable to pay tax on income derived from all sources whether in or out of Australia, during the income year. Interest income is considered to be ordinary income.

Taxation Ruling IT 2486 considers the question of who should pay tax on interest earned in children's bank accounts.

IT 2486 provides that the essential question that must be asked is 'whose money is it?' The answer to this question is based on the facts of the case.

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.

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, etc., then the money in the account should be regarded as that of the child.

If the parent provided the money and can spend it as he or she likes, the money is the parent's and the parent will be assessed (even if it is intended to use the money for the benefit of the child, for example, for his or her education).

In your case you have opened a number of accounts in which money has been deposited for your child. The majority of the money in these accounts has been deposited by you for good behaviour, good school work, personal achievements and general household chores. Money has also been received from grandparents and from deceased relative bequeaths.

The only withdrawals that you have made have been transfers between accounts and you intend to transfer the money to your child when you deem them mature enough to control the money or they become legally able to run their own accounts.

In accordance with IT 2486 it is accepted that the monies in the account do not belong to you. Therefore the interest from the trust account is not assessable to you, but is assessable to your child.

Taxation of income earned by minors from investment

Special rules under Division 6AA of the Income Tax Assessment Act 1936 apply when calculating the tax payable on income of children or minors (that is persons under the age of 18). Under these rules, certain types of income are taxed at higher rates. This includes interest income earned on investment of monies received as gifts.

The tax rates featured in the table below apply in 2009-2010 for minors who:

· are Australian residents

· are not excepted persons, and

· have no excepted income.

Other income

Tax rates

$0 - $416

Nil

$417 - $1,307

Nil + 66% of the excess over $416

Over $1,307

45% of the total amount of income that is not excepted income


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