Private ruling: interest - children's bank accounts
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1:  | A1: Yes

Relevant facts and circumstances: You inherited a sum of money from your parent's estate. Your surviving parent invested this money on your behalf. The account is held in their name as trustee for you, and was originally opened with their own tax file number.

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

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. IT 2486 provides that the essential question that must be asked is 'whose money is it?' The answer to this question is based on the facts of the case. If the account is made up of money the child has received as birthday or Christmas presents or pocket money, then the money in the account should be regarded as that of the child. However, if the money really belongs to the parent, in the sense that they provided the money and may spend it as he or she likes, any interest should be included in the parent's return. As a general rule, where the ATO 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 taxation law where the account is operated by a parent as trustee. 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 parent's will and is held in an account in your surviving parent's name as trustee for you. In these circumstances, in accordance with IT 2486, the money in the account is considered to belong to you. Therefore, the interest income earned on the account is assessable to you.