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Edited version of private ruling
Authorisation Number: 1011803988702
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Ruling
Subject : Assessability of interest income
Question
Is interest income earned from an investment account held in trust for a child form part of your assessable income?
Answer
No
This ruling applies for the following period
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 commenced on
1 July 2010
Relevant facts
After the death of a family member, you and your siblings opened an investment account as trustee for their child.
More that one signature is required to operate the account and you have provided your TFN's to the financial institution.
The initial funds deposited into the account were monetary gifts received by the child from family and friends.
There have been no withdrawals from the account since it was opened.
Interest is paid quarterly, and interest has accrued and compounded.
Deposits to the account are expected to be nominal in amount and frequency.
No formal trust document has been executed.
The purpose of the account is to assist with their future expenses.
Funds in the account will be released to the child when they turn 18 years of age.
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 the question of who should pay tax on the interest earned on accounts often referred to as children's savings accounts which are usually opened and operated by parents but some may be opened by others such as grandparents. Many accounts are opened in the names of the children while others are called trust accounts.
Regardless of the name and type of the account, the essential question that must be asked is: 'whose money is it?'. The circumstances in each case must be considered when determining whose money it is.
The types of evidence that may show that the ownership of the moneys in an account is someone other than the account holder/s are:
· information showing who contributed funds to the account,
· in what proportions the contributions were made,
· who drew on the account, and
· who used the money and accrued the interest as their own property.
In your case, you and your siblings opened an investment account as trustees for a child. The initial deposits were monetary gifts and there have been no further deposits and no withdrawals made from the account, with interest accruing on the initial investment. The funds held in the account will be released to the child when they turn 18 years of age.
In accordance with IT 2486 it is accepted that the monies in the account do not belong to you. Therefore, the interest earned on the trust account is not assessable to you.