Edited version of private advice

Authorisation Number: 1051703371552

Date of advice: 20 July 2020

Ruling

Subject: Interest from foreign bank account jointly held with your parent

Question

Do you have the beneficial ownership of the foreign bank account you jointly have with your parent 1 and any interest received assessable income under section 6-5 of Income Tax Assessment Act 1997?

Answer

No, the interest from the joint foreign bank account received by your parent 1 does not form part of your assessable income.

This ruling applies for the following periods:

01 July 2020 to 30 June 2021

01 July 2021 to 30 June 2022

01 July 2022 to 30 June 2023

The scheme commences on:

01 July 2018

Relevant facts and circumstances

You advised that you have a joint bank account with your parent 1 with XXXX.

You do not use this bank account and is solely for your parent 1, XXXX who has the beneficial ownership of the money.

You are a joint account holder with your parent 1 since your parent 2 passed away in XXXX.

You have committed to be a joint account holder to help your parent 1 should a need arise since your older sibling lives in XXXX.

You have sent gifts to this account to be used by your parent 1 and late parent 2 for their expenses over the years.

You have not drawn any money for yourself from these accounts as the money belongs to your parent 1. They make all withdrawals and deposits as they desire.

While the bank interest is credited to the joint account, you advised that you have never used any interest received from the account. The interest is used solely by your parent 1 and is of no benefit to you.

You have furnished a declaration from your parent 1 witnessed by a solicitor to advice that the bank interest that is credited to the joint account is for the sole use of your parent 1.

You also advised that in 2021 you will have a life insurance that will mature and benefits from this insurance will be deposited in the joint account.

Relevant legislative provisions

Income Tax Assessment Act 1997, section 6-5

Reasons for Decision

Summary

Interest from foreign bank account jointly held with your parent 1.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) defines income according to ordinary concepts (ordinary income) as:

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3) If you are a foreign resident, your assessable income includes:

(a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

(b) other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.

(4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

If you're an Australian resident and you receive interest, you must declare it as income. Interest income includes:

·        interest earned from financial institution accounts and term deposits

·        interest earned from any other source including penalty interest received on an investment

·        interest earned from children's savings accounts if you opened or operated an account for a child and the funds in the account belonged to you, or you spent or used the funds in the account

·        interest we paid or credited to you

·        life insurance bonuses (you may be entitled to a tax offset equal to 30% of any bonus amounts included in your income)

·        interest from foreign sources (you may be entitled to a tax offset for any tax paid on this income).

Unless there is evidence to the contrary, the ATO assumes that joint account holders own the money in equal shares and benefit equally. However, this can be refuted if there is clear evidence to show that one of the joint account holders manages the money in the account for the benefit of the other person.

Taxation Determination TD 2017/11 outlines that for income tax purposes, interest income on a bank account is assessable to the person or persons who "beneficially" own the money in the account. Therefore, for income tax purposes, interest income on a bank account is assessable to the person or persons who beneficially own the money in the account in proportion to their beneficial ownership.

When you receive a bonus because your life insurance policy or friendly society insurance bond matured, or was terminated, forfeited, or surrendered in full or in part you do not have to declare this as income if the following circumstances apply:

·        any bonus amounts received after the 10th year of the policy

·        any life insurance bonuses from policies that

˗        you started before 28 August 1982

˗        matured due to the death of the person insured

˗        you surrendered due to an accident, illness or other disability of the person insured

˗        you surrendered due to severe financial hardship

˗        are retirement savings accounts

Application to your circumstances

In your circumstance, you have advised that your parent 1, XXXX owns all of the money in the account and your parent 1 treats all of the interest as their money. They have beneficial ownership of the money in the account and is therefore assessed on all of the interest income in XXXX.

While you are a joint account holder and a joint signatory to the account you will only operate the account if your parent 1 who is XX years is unable to do so due to ill health. Presently, your parent 1 is able to operate the account on their own.

Having considered your circumstances and as all the funds in the account belong to your parent 1, you are not entitled to personally receive any interest from the account and do not hold any beneficial ownership of the money in all the accounts, the foreign interest income received on these accounts are not assessable to you under section 6-5 of the ITAA 1997.

Depending on the benefits you receive from your life insurance on maturity you may or may not have to include it as income in your tax return. If the benefits are within the criteria as explained in our reasons of decision, you do not have to include it in your tax return as your income.

You should apply for a new ruling if there are any changes to the operation and beneficial ownership of the account in future, as you cannot rely on this ruling.

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