Taxation of Children’s Bank Accounts

27. June 2017

Tax pitfalls of “Children’s” Saver Accounts

The ATO recently released TD 2017/11 to provide guidance on the taxation of interest derived on interest bearing bank accounts. In consolidating a number of previous ATO releases dealing with the topic, the new ruling aims to clear the air and better define the taxpayer who is assessed on interest income generated by bank accounts held by minors.


It’s been a number of years since it was genuinely advantageous to maintain an investment in the name of a child or “minor. Unless certain criteria are met (e.g. excepted income), passive income derived by minors will be assessed at aggressive rates of tax.

These penal rates of tax, especially in light of the ATO’s data matching capabilities, require careful planning for parents in the establishment of bank accounts for their children so as to avoid any unwanted tax positions.

Legislation and Ruling:

In determining who is assessable on interest income according to TD 2017/11, the ATO focuses on “Beneficial Ownership”. The ruling confirms that:

“Interest income on a bank account is assessable to the person or persons who beneficially own the money in the account”[1]

and specifically in relation to 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…”[2]


Parents are generally required by financial institutions to be a signatory to a child’s bank account and thereby retain legal title. However, the broad concept of “Beneficial Ownership” used by the ATO refers to the ultimate rights of use and control under equity law[3].

To explain, TD 2017/11 provides a clear example of Beneficial Ownership:

“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.”[4]

In this example, Raymond has beneficial ownership of the money in the account; therefore, he will be assessed on the interest income received at his penal rates as a minor.

If however, Raymond’s mother used the account to pay for school fees or pay Raymond “pocket money”, she would be deemed the beneficial owner as she has operated the account as her own. The ATO would assess the interest income on her marginal rates.

Practical Application:

With interest rates for savings accounts at the lowest seen in recent times, perspective is key. As an example, your child would need to have at least $13,500 in their bank account at 3% interest for the year to be assessed at penal rates.

There are still a number of practical considerations to make when dealing with children’s bank accounts:

Whose money is it?

As above, the ATO focuses on “beneficial ownership” rather than legal title of the bank account.

It’s therefore important to clearly determine the purpose of the bank account up-front and retain that purpose.

Is the account for:

  1. The child to accumulate savings, generate interest and eventually take control of; or
  2. For the Adult to control the funds in the account to benefit the child?

A clear distinction will confirm to both you and the ATO (should they ask) who is to be assessed on the interest generated by the bank account.

You should lodge a return for your child if necessary.

When should I apply for a Child’s Tax File Number (TFN)?

There is no minimum age for a child to apply for a TFN, nevertheless, they are still eligible to apply at any age. It may therefore be a proactive idea on the parents’ behalf to apply for a TFN for their child so as avoid over-withholding (sometimes at 46.5% or above) in the event of:

  • TFN non-disclosure where the bank account held by the child generates more than $416 of interest in a year; or
  • PAYG Withholding when the child is old enough to commence part-time/casual employment.

Be thankful but wary of large sums of money as “birthday gifts”

Whilst “gifts” are not taxable in the hands of the child who receives them, the child may be assessed on the interest (or other income) generated as a result. Large sums of money may quickly accumulate in a bank account held solely for the child, so parents should be careful to ensure penal rates of tax don’t apply to the interest received.

Consideration should also be made with regard to the impact of eligibility on the recipient or donor of large gifts to government entitlements.

Children in receipt of other income

Although special concessions may apply to certain income received by a child, the penal rates of tax may outweigh the benefit of having your child receive income from other sources (i.e. a family trust distribution).

Care should be taken to ensure investments for children are not held to the detriment of the income being received.

Contact us if you would like to discuss your family tax arrangements.

[1] TD 2017/11 para 2

[2] TD 2017/11 para 5


[4] TD 2017/11 para 13