Private ruling: Interest on children's bank account
Published: November 2011
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Does the interest from an account held in trust by you for your children form part of your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: You received money as a gift to your children which you have deposited into an account. You do not make withdrawals from the account, it is held in trust for your children until they reach adulthood and all interests earned are reinvested. You intend to continue operating the account in that manner for a number of years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5. Taxation Ruling IT 2486

Reasons for decision: Summary: Section 6-5 of the ITAA 1997 provides that 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 (IT 2486) considers the question of who should pay tax on the interest earned in a child's bank account, the essential question to be asked is whose money is it? Paragraph 6 of IT 2486 states that although an account is opened by a parent in a child's name and the parent spends or intends to use the funds in the account as if they belonged to the parent. In such cases the money in the account will be treated as belonging to the parent. In your case you received money as a gift to your children and you have deposited the money into an account held in trust for your children. It is intended that this money be used at a later time to assist the children. You do not make withdrawals from this account and the interests earned get reinvested each year. You operated the account solely for the benefit of your children so in accordance with Taxation Ruling IT 2486 the monies in that account do not belong to you. Therefore the interest from the trust account is not assessable to you.

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