Private ruling: Income – interest – minors
Date of advice: 28 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you assessable on the interest income derived from the investment of compensation monies granted to your minor children? | A1: No

Relevant facts and circumstances: You received a compensation payment in relation to the death of your spouse. As part of the compensation payment the court ordered you to hold funds in trust for each of your children. The funds were established with you listed as in trust for each child’s account. Each account earned interest. No formal trust was established. The funds cannot be accessed until each child turns 18 years of age. Your children are under the age of 18.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5

Reasons for decision: Summary: Interest income Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)). Interest income is ordinary income. Regardless of the name on a bank account, or the tax file number assigned or attached to a bank account, interest income is assessable to whoever is beneficially entitled to the income. That entitlement depends on the beneficial ownership of the monies in the account. Taxation Determination 2017/11 Income tax: who should be assessed to interest on bank accounts? (TD 2017/11) considers the question of who should pay tax on the interest earned in children’s bank accounts. TD 2017/11 states that the interest income on a bank account is assessable to the person who beneficially owns the money in the account. Paragraph five of TD 2017/11 states that where a parent operates an account on behalf of a child, but the child beneficially owns the money in the account, the parent can show the interest in a tax return lodged for a child. The lodgement of a trust tax return will not be necessary. In your case the compensation payments were left to your children by way of a court order. The money in each of the accounts belongs to each of the applicable children and the income earned is assessable to them. Therefore you will not be assessable on the interest income earned on the compensation payments held in trust for your children.