Taxation Ruling No. IT 2486
INCOME TAX : CHILDREN'S SAVINGS ACCOUNTS
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FOI status: May be released
This Ruling considers the question of who should pay tax on the interest earned on accounts often referred to as children's savings accounts.
2. Children's savings accounts may be held with a bank, credit union, building society or other financial institution. The requirements and practices of the financial institutions may vary. The accounts are usually opened and operated by parents but some may be opened by others such as grandparents. In some cases children open and operate their own accounts. Many accounts are opened in the names of the children while others are called trust accounts.
3. The problem for the Taxation Office is that some people are using children's savings accounts to hide their own money to avoid paying tax on the interest they earn.
4. 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 the parent
provided the money and may spend it as he or she likes, then the parent
should include the interest in his or her return. If it belongs to the
child and the child's total income from all sources is less than $416 no
tax is payable and no tax returns will be required.
5. The answer to the question 'Whose money is it?' must
inevitably depend upon the facts of each case. If, for example, the
account is made up of money the child has received as birthday or
Christmas presents, pocket-money or money from newspaper rounds,
childminding, etc., then the money in the account should be regarded as
that of the child.
6. On the other hand, if the account contains a large sum
of money careful examination is needed to decide where it came from and
whose money it really is. There will be other cases where, although an
account is opened by a parent in a child's name, the parent spends or
intends to use the funds in the account as if they belonged to the
parent. In such cases the money in the account will be treated as
belonging to the parent.
7. As a general rule, where the 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 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.
8. In contrast, the Taxation Office will rely on all
arguments available to it to combat the practice by some people of using
children's savings accounts to invest their own money and avoid paying
tax on the interest they earn.
COMMISSIONER OF TAXATION
18 July 1988
Date of effect:
CHILDREN'S SAVINGS ACCOUNTS
TRUSTS - CHILDREN'S SAVINGS ACCOUNTS
INTEREST - CHILDREN'S SAVINGS ACCOUNTS