Private ruling: Interest earned on children's accounts
Date of advice: 9 February 2017
Published: July 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you liable to pay tax on the interest income derived from accounts held in your name as trustee for your children? | A1: No.

Relevant facts and circumstances: In 201X your X children received a distribution from a deceased estate. Your children were still minors at the time of the distribution and have not yet attained the age of 18. The money was deposited into accounts opened in the joint names of yourself and another party (as executors of the Will). Your intention is to hold the monies on trust for each child until they reach 18. Account statements provided by you show at no time have withdrawals have been made by the executors for their own use.

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 provides that assessable income includes income according to ordinary concepts. Interest income is generally considered to be ordinary income. Taxation Ruling IT 2486 Income Tax: Children's Savings Accounts considers the question of who should pay tax on the interest earned in a child's bank account. Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?' The answer to this question is based on the specific fats of each case. If, for example, the account is made up of money the child has received as birthday or Christmas presents or pocket-money then the money in the account should be regarded as that of the child. However, if the money belongs to the parents, in the sense that they provided the money and may spend it as he or she likes, any interest should be included in the parent's return. As a general rule, where the Taxation Office is satisfied that the money in the account really belongs to the child, it will not insist on a strict application of the trust provisions of the Income Tax Assessment Act 1997 where the account is operated by a parent as trustee. Where the interest is shown in a tax return lodged by a child a trust tax return will not be necessary. In these circumstances, the money received was a distribution to your children of an inheritance from a deceased estate and is being held beneficially by you for your children. In accordance with IT 2486, the money in the accounts is considered to belong to your children and the interest income earned on this money is not assessable to you.