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Edited version of your written advice
Authorisation Number: 1051274817821
Date of advice: 29 August 2017
Ruling
Subject: Interest income
Question 1
Is the interest income on money’s bequeathed to you from a deceased estate form part of your assessable income?
Answer
Yes.
Question 2
Is the interest income on money’s bequeathed to you from a deceased estate regarded as excepted assessable income?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commenced on
1 July 2013
Relevant facts
You are under 18 years of age.
When your relation died, money was left to you under the Will.
The money was invested in a bank account held in joint ownership with you and your parent as required by the bank.
Your parent did not contribute to the invested sum. Nor did any withdrawals occur.
Your tax agent incorrectly lodged your tax returns without indicating the income as excepted income. To avoid the high rate of tax, your tax agent advised your parents to move the money into their own names.
Your parents opened up a joint account and put your money into this account. This account was used to pay your tax bills. No other money was deposited in the account.
Your parents are now going to move the money from their joint account back into your own bank account.
Your parent will be named on your account as per the bank’s requirements.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 6-5.
Income Tax Assessment Act 1936 Subsection 102AC(1).
Income Tax Assessment Act 1936 Subsection 102AC(2).
Income Tax Assessment Act 1936 Section 102AE.
Reasons for decision
Interest income
Subsection 6-5(2) 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, whether in or out of Australia, during the income year.
Interest income is regarded as ordinary income.
Taxation Determination TD 2017/11 Income tax: who should be assessed to interest on bank accounts? provides guidelines on who is assessable on income derived from bank accounts. For income tax purposes, interest income on a bank account is assessable to the person who beneficially owns the money in the account.
Where a parent operates an account on behalf of a child and the child beneficially owns the money in the account, the interest income belongs to the child and should be declared on their tax return.
In your case, you have money from your late relation’s estate. You have beneficial ownership of the money. Any interest income earned on the funds belongs to you. The fact that your parent’s name is also on the account does not change this. The full amount of interest income belongs to you.
Following incorrect advice your money was put into your parents’ joint bank account. After reviewing your specific circumstances, it is considered that the funds in this joint bank account belong to you and not your parents. The money consisted only of your share of the deceased estate; therefore, it is considered that the funds and the associated interest income belongs to you and should be declared on your tax return.
Applying the principles of TD 2017/11, as you are the beneficial owner of the funds, the income from the bank accounts that hold your money is assessable income to you.
Excepted assessable income
Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) sets out special rules that apply in working out the income tax liability on the income of persons who are prescribed persons.
A prescribed person is defined in subsection 102AC(1) of the ITAA 1936 to include any person, other than an 'excepted person' (as defined in subsection 102AC(2) of the ITAA 1936), under 18 years of age at the end of the income year.
You are under 18 years of age and regarded as a prescribed person for the purposes of Division 6AA of the ITAA 1936.
Division 6AA of the ITAA 1936 ensures that special rates of tax and a lower tax free threshold apply in working out the basic income tax liability on taxable income, other than excepted income, derived by a prescribed person.
Under subparagraph 102AE(2)(c)(i) of the ITAA 1936, excepted assessable income includes an amount derived by the minor from the investment of any property that devolved upon the minor from the estate of a deceased person.
In your case the interest income received from the investment of the funds from your relation’s estate is excepted assessable income.
Excepted income is taxed at general individual tax rates.
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