Edited version of your written advice

Authorisation Number: 1051275029803

Date of advice: 29 August 2017

Ruling

Subject: Interest income

Question

Does the interest income on money’s bequeathed to your children from a deceased estate form part of your assessable income?

Answer

No.

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

Money was left to your children under a Will.

The money was invested in a bank account for the children. The bank required an adult to be also named on the account.

You did not contribute to the children’s bank account. Nor did any withdrawals occur.

Your tax agent incorrectly advised you to move the money into your own bank account to avoid the high rate of tax.

You opened up a joint account with your spouse and put the children’s money into this account. This account was used to pay the children’s tax bills. Some other withdrawals were also made following incorrect advice from your tax agent. No other money was deposited in the account.

You are now going to move the money from your joint account back into your children’s bank account. Previous money withdrawn will be paid back into the account.

An adult will be named on the children’s account as per the bank’s requirements.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 6-5.

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, your children received money from a deceased estate. Your children have beneficial ownership of the money. Any interest income earned on the funds belongs to your children. The fact that a parent’s name is also on the account does not change this. The full amount of interest income belongs to your children.

Following incorrect advice you transferred the children’s money into a joint bank account held in you and your spouse’s name. After reviewing your specific circumstances, it is considered that the funds in this joint bank account belong to your children and not you. The money consisted only of the children’s share of the deceased estate, therefore, it is considered that the funds and the associated interest income belong to your children and should be declared on their tax return.

Applying the principles of TD 2017/11, as your children are the beneficial owner of the funds, the income from the joint bank account is not assessable income to you. The money is beneficially owned by your children and therefore the interest is assessable to them.

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