Private ruling: Interest income of a minor
Published: March 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the income earned as a result of investment of your inheritance be classed as excepted income and taxed at normal rates? | A1: Yes.

Relevant facts and circumstances: You are a minor. Your relative left you an amount in their will. The money has been continuously administered in a dedicated bank account with no other deposits other than interest. Your relative's will stipulates that you will have no use of the money until you are 21 years old, with the exception of use for health and education purposes.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6-5 | Income Tax Assessment Act 1936 Division 6AA | Income Tax Assessment Act 1936 Sub-paragraph 102AE(2)(c)(i)

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts that was derived by you. Interest received is generally considered to be ordinary income. Taxation Ruling IT 2486 considers the question of who should pay tax on the interest earned in children's bank accounts. As a general rule, where the Australian 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. Where the interest is shown in a tax return lodged by a child a trust tax return will not be necessary. In your case, money was left to you in your relative's will. It is the intention of the will that the money be used to provide for your future and only be able to be used for education or health purposes prior to you attaining the age of 21. In these circumstances, in accordance with IT 2486, the money in the account is considered to belong to you. Therefore, income earned by this money is assessable to you. Special rules under Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) apply when calculating the tax payable on income of children or minors (that is persons under the age of 18). Under these rules, certain types of income are taxed at higher rates. This includes interest income earned on investment of monies received as gifts. However, there are several categories of income, referred to as excepted income, which are excluded from these special rules. Sub-paragraph 102AE(2)(c)(i) of the ITAA 1936 excludes any income received from the investment of an inheritance from a deceased estate as assessable income. In your case, any income earned from the investment of your inheritance meets the requirements under sub-paragraph 102AE(2)(c)(i) of the ITAA 1936 and is subsequently excluded from being taxed under the special rules under Division 6AA of the ITAA 1936. Therefore, the income earned from the investment of your inheritance will be subject to the normal taxation rates that apply to individuals resident in Australia.

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