| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012415474514
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Children's savings accounts
Question and answer
Is the interest derived on money received from a deceased estate excepted income and subject to the ordinary rates of tax?
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You are a minor.
You inherited money from a deceased estate.
The money is used solely for your benefit.
To date the money has been used to pay your school fees.
The money is not used by anyone else for any other purpose other than your welfare.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1936 Subsection 102AC(2).
Income Tax Assessment Act 1936 Subsection 102AE(2).
Income Tax Assessment Act 1936 Subsection 102AE(1).
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you should include in your assessable income, any ordinary income you derive. Interest would normally be included as ordinary income.
Income Tax Ruling IT 2486 provides that if the funds in a child's savings account is made up of money received as gifts, pocket money, or from odd jobs etc and these funds are not used by any person other than the child then the interest earned is considered to be the child's income.
The money in the account is not used for any other purpose other than your welfare and is not used by any other person.
Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) sets out special rules that apply in working out the tax payable on the income of a minor. A person to whom the special rules apply is called a prescribed person which means they are not an 'excepted person' as defined by subsection 102AC(2) of the ITAA 1936 and they are under 18 years of age. Under these rules, certain types of income are taxed at higher rates (special rates).
A minor is an 'excepted person' if, on 30 June, they were:
· classed as being in a full-time occupation
· permanently blind
· an incapacitated child in respect of whom a carer allowance or a disability support pension was paid or would, but for eligibility tests, be payable; and
· a double orphan or a permanently disabled person, provided they are not dependent on a relative for support.
Ordinary rates of tax apply to all the income of an 'excepted person'. However, even though a minor may not be an excepted person, ordinary rates of tax may still apply to certain types of income. Such income is called excepted income. Excepted income is defined in subsection 102AE(2) of the ITAA 1936 and includes:
· income derived by the minor from the investment of any property they inherit from a deceased estate; and
· income derived from any capitalised amounts of such earnings.
In your case, the interest income you will earn in respect to the account which holds your inherited money is considered to be excepted income. This is because the interest income wholly relates to the monies you inherited from the deceased estate. Consequently, ordinary rates of tax will apply to the interest income earned on the account. This applies irrespective of whether you are classed as an excepted person or not.
Note: Special rates of tax may apply to the interest income earned on any additional money that is deposited into the account that is not excepted income.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
