It is a fairly well-established and welcome act for an aunt or uncle or of course a parent to start a savings account for a new addition to the next generation. It is not so common however, among the warm and generous emotions that accompany giving such a gift to the newly arrived family member, to factor in the taxation obligations that may eventually come along due to this generosity.
A young child may not be able to reach the buttons at the ATM or see over the counter at the bank, but they can certainly have bank accounts. Naturally it is a child’s guardian who will manage their financial matters, and therefore a parent may operate a savings account on behalf of a child.
For taxation however, 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 a scenario 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.
Tax rates for minors The ATO and other government agencies determine a “minor” to be those under the age of 18, however some people are surprised to find out that the tax rates that can be applied to the “unearned” income of such young taxpayers can seem so punitive.
For minors, the tax free threshold is a mere $416. Between $417 and $1,307 the rate is set at 68% (66% after June 30, 2017, when the Temporary Budget Repair levy expires). After $1,308, the top (adult) marginal rate applies.
But the reason for the seemingly harsh rates has little to do with punishing the kids and more to do with the behaviour of the older generation. These rates (and other measures, such as the exceptions dealt with below) were introduced to stop or discourage adults from channelling a portion of their income through their child’s bank account, thus taking advantage of lower marginal and effective tax rates for themselves.
Webinar: Monthly Tax Update
The June Monthly Tax Update will be dealing with the above issue, plus much more to do with interest income. In this webinar, you will be taken through recent key new cases, new legislation and regulator developments that have occurred over the previous month. You will get practical insights to help you understand how these changes will affect you and your clients. Tax & Super Australia is hosting the webinar, presented by Ken Mansell.
When: Wednesday, 7 June 2017 Time: 11.00am – 12.00pm AEST CPD: 1 hour Member price: $90.00 (inc GST) Non-Member price: $110.00 (inc GST) CPD+ subscribers: Recording included in subscription.
📷
interest income from a child’s investment interest income from a child’s investment interest income from a child’s investment interest income from a child’s investment interest income from a child’s investment interest income from a child’s investment
# [benecifiaries], [children's accounts], [interest income], [kids accounts], [tax]
Comentários