Private ruling: Children's savings accounts
Published: February 2013
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Is the interest derived on money received from a deceased estate excepted income and subject to the ordinary rates of tax? | Yes.

Relevant facts and circumstances: You are a minor. You inherited money from a deceased estate. The money is used solely for your benefit. To date the money has been used to pay your school fees. The money is not used by anyone else for any other purpose other than your welfare.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1936 Subsection 102AC(2). | Income Tax Assessment Act 1936 Subsection 102AE(2). | Income Tax Assessment Act 1936 Subsection 102AE(1).

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you should include in your assessable income, any ordinary income you derive. Interest would normally be included as ordinary income. Income Tax Ruling IT 2486 provides that if the funds in a child's savings account is made up of money received as gifts, pocket money, or from odd jobs etc and these funds are not used by any person other than the child then the interest earned is considered to be the child's income. The money in the account is not used for any other purpose other than your welfare and is not used by any other person. Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) sets out special rules that apply in working out the tax payable on the income of a minor. A person to whom the special rules apply is called a prescribed person which means they are not an 'excepted person' as defined by subsection 102AC(2) of the ITAA 1936 and they are under 18 years of age. Under these rules, certain types of income are taxed at higher rates (special rates). A minor is an 'excepted person' if, on 30 June, they were: · classed as being in a full-time occupation · permanently blind · an incapacitated child in respect of whom a carer allowance or a disability support pension was paid or would, but for eligibility tests, be payable; and · a double orphan or a permanently disabled person, provided they are not dependent on a relative for support. Ordinary rates of tax apply to all the income of an 'excepted person'. However, even though a minor may not be an excepted person, ordinary rates of tax may still apply to certain types of income. Such income is called excepted income. Excepted income is defined in subsection 102AE(2) of the ITAA 1936 and includes: · income derived by the minor from the investment of any property they inherit from a deceased estate; and · income derived from any capitalised amounts of such earnings. In your case, the interest income you will earn in respect to the account which holds your inherited money is considered to be excepted income. This is because the interest income wholly relates to the monies you inherited from the deceased estate. Consequently, ordinary rates of tax will apply to the interest income earned on the account. This applies irrespective of whether you are classed as an excepted person or not. Note: Special rates of tax may apply to the interest income earned on any additional money that is deposited into the account that is not excepted income.

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