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Edited version of private ruling
Authorisation Number: 1011759179699
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.
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Ruling
Subject: Assessable income
Question
Are you assessable on interest earned on deposits held in trust for your grandchildren?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You have grandchildren.
You hope to provide each of the grandchildren with a lump sum on reaching their 18th birthdays.
You have opened children's savings accounts in the names of your grandchildren.
You are depositing a monthly amount into the bank accounts.
Your sole intention in setting up the bank accounts is for the money to benefit your grandchildren.
You will only access the money to transfer it to another institution/term deposit for reinvestment.
All interest will be reinvested
You will not access the money for personal use.
You no longer view the money in the bank accounts as your own; rather you consider it to be your grandchildren's money.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include interest income.
Taxation Ruling IT 2486 considers that regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?' If the money really belongs to the parent/grandparent, in the sense that the parent/grandparent provided the money and may spend it as he or she likes, then the parent/grandparent should include the interest in his or her return. If it belongs to the child and the child's total income from all sources is less than $3,333 no tax is payable and no tax returns will be required.
The answer to the question 'Whose money is it?' must inevitably depend upon the facts of each case.
As a general rule, where the Taxation Office is satisfied that the money in the account really belongs to the child, it will not insist on a strict application of the trust provisions of the Income Tax Assessment Act where the account is operated by a parent/grandparent as trustee. Where the interest is shown in a tax return lodged by a child a trust tax return will not be necessary.
In your case you deposit money in bank accounts for both of your grandchildren to be used by them when they turn 18. You make no withdrawals from the account.
In accordance with IT 2486 it is accepted that the monies in the account do not belong to you. Therefore the interest from the trust account is not assessable to you.