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Edited version of private ruling
Authorisation Number: 1011656999437
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Ruling
Subject: Interest income
Are you assessable on income derived from accounts where you are trustees for your child and your child has beneficial ownership of the funds?
No.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2009
Relevant facts
Your adult child has been disabled from birth.
There are bank accounts which are in your names as trustee for your child.
The funds in the accounts comprise your child's disability support pension or interest and transfers between accounts.
The funds belong to your child and are only used for the benefit of your child.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) specifies that residents of Australia are assessable on income derived from all sources in and out of Australia.
Interest is considered ordinary income and therefore is assessable under section 6-5 of the ITAA 1997.
Taxation Determination TD 92/106 which deals with who should be assessed to interest earned on a joint bank account, states that interest income on a joint bank account is assessed to the persons who are beneficially entitled to the income (Macfarlane v. Federal Commissioner of Taxation (1986) 13 FCR 356; 86 ATC 4477; (1986) 17 ATR 808). The entitlement depends on the beneficial ownership of the money in the account. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).
Evidence relevant in determining an individual's beneficial entitlement includes information as to who contributed to the account, in what proportions the contributions were made, who drew on the account, who used the money and who the interest is distributed to.
In your case, all the funds in the bank accounts comprise your child's government pension or interest and transfers between accounts. The funds are only used by or for the benefit of your child.
While your names are on the accounts as trustees, your child is the only beneficial owner of the funds. Therefore, you are not assessable on the income derived from the accounts under section 6-5 of the ITAA 1997.
Other information
For the purposes of determining whether your child needs to lodge a tax return, please note that a disability support pension paid by Centrelink to a person who is under age-pension age is exempt from income tax.