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Edited version of your private ruling
Authorisation Number: 1012594211717
Ruling
Subject: Funds held in trust for child
Question
Does interest income earned from accounts held in trust for your child form part of your assessable income?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on
1 July 2010
Relevant facts and circumstances
Your child sustained injuries and a personal injury claim was lodged through the District Court.
Monies have been awarded via a court order.
Pursuant to the orders a specified amount has been invested and is managed jointly and severally by you and your spouse as trustees.
As the court appointed trustees, you have provided your tax file numbers to the financial institution.
The purpose of the accounts is to assist your child with their medical and rehabilitation and other reasonable costs.
Funds held in the accounts will be released to your child upon instructions from the courts.
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) 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 spouse opened several accounts in trust for your child as instructed by the Court. You and your spouse jointly and severally manage these funds which are applied for medical, rehabilitation and reasonable costs and disbursements on behalf of your child. The funds held in the account will be released to your child upon instruction from the courts.
In accordance with IT 2486 it is accepted that the monies held in the accounts do not belong to you. Therefore, the interest earned on the trust accounts is not assessable to you or your spouse.