Private ruling: Interest derived from the investment of a settlement
Date of advice: 14 December 2017
Published: May 2018
Ruling period: Financial year ended 30 June 2018 | Financial year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and Answer | Are amounts of interest derived from the investment of a compensation settlement excepted assessable income? | Yes

Relevant facts and circumstances: You are under the age of 18 You have accepted a settlement payment in relation to an accident resulting in personal injury. You have invested the amount of the settlement payment in an interest bearing bank account in your own name.

Relevant legislative provisions: Section 102AC of the Income Tax Assessment Act 1936 | Section 102AE of the Income Tax Assessment Act 1936

Reasons for decision: Summary: Where interest income on a bank account is assessable to a child under 18, that income may be subject to higher rates of tax under the rules in Division 6AA of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) that apply to the income of certain children. Subparagraph 102AE(2)(b)(i)B of the ITAA 1936 states Subject to this section, an amount included in the assessable income of a person (in this subsection referred to as the minor) is excepted assessable income to the extent to which the amount is derived by the minor from the investment of any property transferred to the minor by way of, or in satisfaction of a claim for, damages in respect of personal injury to the minor, any disease suffered by the minor or any impairment of the minor's physical or mental condition. Amounts of interest which are paid as a result of your compensation settlement are excepted assessable income and taxed at ordinary rates.