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Ruling
Subject: interest income
Question
Does the interest earned on the bank accounts held in your name as financial trustee for your relative form part of your assessable income?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
On or after 1 July 2012
Relevant facts and circumstances
You have opened accounts in your name.
The money contributed into one account is wages earned by your relative.
The money withdrawn from this account is for your relative's living expenses such as rent, utilities, entertainment etc.
The other account is an online savings account. The only funds deposited into this account are from your relative.
Your relative is unwell and is undergoing counselling and medical treatment.
You have been appointed as your relative's financial trustee.
Your relative will return any interest earned on these accounts in their personal tax return.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Interest income is ordinary income.
Taxation Determination TD 92/106 explains who should be assessed on interest earned in a joint bank account. Although TD 92/106 relates to joint accounts, the same principal applies to interest earned on accounts held in trust. TD 92/106 states that interest should be assessed to those who have beneficial entitlement to the funds.
The principle established in TD 92/106 means that interest is assessable to the account holders unless there is evidence to show that others have beneficial entitlement.
In this case, you opened bank accounts in your own name which are used solely by your relative. Your relative has a medical condition and you are their financial trustee. The only funds deposited into the accounts are your relative's wages, and any funds drawn are used to pay for their living expenses. You do not have beneficial entitlement to the funds in these accounts. Therefore, any interest earned on the bank accounts will not be included in your assessable income.