On 26 April 2017, the Commissioner released Taxation Determination TD 2017/11, which outlines that for income tax purposes, interest income on a bank account is assessable to the person or persons who “beneficially” own the money in the account.
This Determination replaced Taxation Ruling IT 2486 and a number of early Determinations such as TD 92/106, TD 92/182 and TD 93/148.
Specifically, with respect to joint accounts and children’s saving accounts the Commissioner comments as follows:
Interest income on a joint bank account is assessable to the account holders in proportion to their beneficial ownership of the money in the account.
Unless there is evidence to the contrary, it is presumed that joint account holders beneficially own the money in equal shares. Relevant evidence can include information regarding who contributed to the account, in what proportions contributions were made, the nature of the contributions, who drew on the account and who used the money (and accrued interest) as their own property. Evidence may also be provided that joint account holders hold money in the account on trust for other persons.
Children’s savings accounts
Where a parent operates an account on behalf of a child, but the Commissioner is satisfied that the child beneficially owns the money in the account, the parent can nonetheless show the interest in a tax return lodged for a child. The lodgement of a trust tax return will not be necessary.
Where interest income on a bank account is assessable to a child under 18 and exceeds $416 per year, that income may be subject to higher rates of tax under the rules in Division 6AA of Part III of the 1936 Act that apply to the income of certain children.
The Determination then goes on to provide a number of examples which are reproduced below:
Example 1 – joint bank account – rebutting presumption of equal ownership
Barbara and Chelsey are each assessed to income tax on half of the interest not returned on their joint bank account. Barbara later establishes that Chelsey contributed all of the money to the account and usually treated all of the interest as her money. Barbara has only once drawn funds from the account.
Chelsey has beneficial ownership of the money in the account and is therefore assessable on all of the interest income. The Commissioner amends Chelsey’s and Barbara’s income tax assessments accordingly.
Example 2 – joint signatory – no beneficial ownership of account
Adrian’s elderly aunt has a bank account in her name and Adrian is a joint signatory to that account. Adrian will only operate the account if his aunt is unable to do so due to ill health. All the funds in the account are hers and Adrian is not entitled to personally receive any money from the account.
Adrian does not have any beneficial ownership of the money in the account and is therefore not assessable on the interest income.
Example 3 – child savings account – child does not have beneficial ownership
Shaun, aged 10, has an account in his name. The account was opened by his mother who initially deposited $7,000 of her own money into it. Shaun’s mother is a signatory to the account, and makes regular deposits and withdrawals to pay for Shaun’s school and other expenses.
Shaun’s mother spends the money in the account as if it belongs to her. She is considered to be the beneficial owner. Shaun’s mother is assessable on the interest income earned from the account.
Example 4 – child savings account – parent operates as trustee
Raymond, aged 14, has accumulated $7,000 over the years from birthdays and other special occasions. Raymond’s mother has placed the money into a bank account in his name, which she operates on his behalf. Raymond’s mother does not use the money in the account for herself or others. Raymond earns $490 in interest during an income year.
Raymond has beneficial ownership of the money in the account and is therefore assessable on all of the interest income. The birthday gifts are not assessable income.
However, as Raymond is under 18 years of age, he will be subject to higher rates of tax under the rules in Division 6AA of Part III of the 1936 Act. If Raymond shows the interest in his tax return for that income year, his mother will not need to lodge a trust tax return.