Private ruling: children's bank accounts
Published: November 2011
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the interest earned on money held in a term deposit in your child's name assessable to you? | A1: 

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. A term deposit was opened in the name of your young child. The funds placed in the term deposit were your funds. You placed the funds in an account in your child's name due to family issues. The money belongs to you and you can spend the money at your own discretion.

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 states that if you are an Australian resident, your assessable income includes ordinary income received from all sources, whether in or out of Australia. The definition of ordinary income includes interest income. Taxation Ruling IT 2486 provides guidelines on who is assessable for children's income. The ruling states that children's savings accounts may be held with a bank, credit union, building society or other financial institution. The accounts are usually opened and operated by parents but some may be opened by others such as grandparents. Many accounts are opened in the names of the children while others are called trust accounts. Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?'. If the money really belongs to the parent, in the sense that they provided the money and may spend it as they like, then the parent should include the interest in their return. If the account is made up of money the child has received as birthday or Christmas presents, pocket-money or money from activities such as newspaper rounds, then the money in the account should be regarded as that of the child. On the other hand, where an account is opened by a parent with funds from the parent in a child's name, and the parent spends or intends to use the funds in the account as if they belonged to the parent, the money in the account will be treated as belonging to the parent. In this case money was placed in a term deposit in the child's name. The funds used to open the term deposit were funds belonging to you. The money belongs to you and you intend to spend it as you wish. The interest earned from this account is considered to be yours and should be declared in your tax return.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.