Private ruling: Funds held in trust for child
Published: February 2014
Ruling period: 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
Date scheme commenced: 1 July 2010

Ruling: Q1: Does interest income earned from accounts held in trust for your child form part of your assessable income? | A1: No.

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: Summary: 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.