Who is Assessable on the Interest Income from a Child’s Investment
We know that extended family can be very generous particularly when the new pitter patter of tiny feet join the clan. On many occasions aunts and uncles, grandparents and parents start a savings account for a new addition. However, in the euphoria and excitement of a newly arrived family member, the taxation obligations that may eventually come along due to this generosity doesn’t really get a look in.
A young child may not have a clue about the financial generosity its family is showering them with; they may not be able to navigate a Bank or read the Financial Review; however, they can have a bank account and there are ways for them to have investments. This means, by way of example, a love one or guardian may say operate a savings account on behalf of a child.
For taxation purposes, while the account may be in the child’s name and the funds in that account are the property of that child, the underlying legal principle that prevails is that investment income (in this case, the bank account’s interest) is assessable to the person who beneficially owns the money (and not necessarily who legally owns it).
The tax rules in operation here are not limited to children’s saving accounts, but it is an example that is useful in describing the principles at work. In fact, the Taxation Commissioner has recently issued a Tax Determination (TD 2017/11, read it here) that consolidates previous rulings and determinations in relation to not just children’s savings accounts but also monetary gifts to a child, joint bank accounts, and joint signatories to a bank account.
In each situation, it has been determined that interest income on a bank account is assessable to the person or persons who beneficially own the money in the account.
We don’t want to take the gloss off the joy of a new arrival nor rain on a very generous parade. However, it is cautioned that anyone who wants to set up a new member of the clan with financial support seek professional advice about their intent before doing it so you can get on enjoying what matters. Call Balanix Solutions today on (07) 3264 4783 for our expert advice.