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Edited version of your private ruling
Authorisation Number: 1012550955252
Ruling
Subject: Children's bank account
Question
Does interest income earned from a savings account held in your child's name form part of your assessable income?
Answer
Yes.
This ruling applies for the following periods
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 20 June 2018
The scheme commences on
1 July 2013
Relevant facts and circumstances
You have opened a savings account in your child's name.
You are the signatory on the account.
You have made all the deposits to this account from your spare money.
You have full control of the account and can transfer amounts in and out of the accounts as you require.
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.
If, for example, the account is made up of money the child has received as birthday or Christmas presents, pocket-money or money from newspaper rounds, childminding, etc., then the money in the account should be regarded as that of the child.
If the parent provided the money and can spend it as he or she likes, the money is the parent's and the parent will be assessed (even if it is intended to use the money for the benefit of the child, for example, for his or her education).
In your case, you opened a saving account in your child's name. The funds deposited were funds belonging to you. You have full control of the account and can transfer funds in and out of the account as you require.
In accordance with IT 2486 it is accepted that the monies held in your child's savings account belong to you. Therefore, the interest earned on the account is assessable to you.