What you need to know.
Income earned is income you need to declare on your tax return. That includes bank interest. In April, 2017, the commissioner released the tax determination TD 2017/11 which outlines that for income tax purposes, the interest income on a bank account belongs to the person/s who benefit from it therefore making it tax assessable.
In terms of beneficial ownership, this is often brought up if you have a joint account, joint signatory or your underage children have accounts.
What is beneficial ownership?
Beneficial ownership is defined as the right to own something in a situation where the legal title is owned by another.
This is often seen when parents create savings accounts in children’s names but make use of the money. Therefore, they don’t own the account but have beneficial ownership.
The difference between Joint Accounts and Joint Signatory
In the eyes of the Australian Taxation Department, if you own a joint account, the interest income is equally split for tax assessible purposes.
If that isn’t the case, you can choose to rebut the assumption of equal ownership, this is done by determining the beneficial ownership. If one person deposits majority of the money, and therefore treats the interest earned as her own, she is considered to have beneficial ownership of the money despite the already assumed equal ownership.
A joint account is one that is owned and possibly operated by multiple persons where as a joint signatory account is owned by a sole person but accessed by another.
A joint signatory account is accessed for the owner, the beneficial ownership of the account lies with the owner as the joint signatory only uses the account for the owners purposes. i.e. The owner is to sick to make their way to the bank.
It’s important to discuss your children’s accounts with your accountant and whether they are tax assessible for your own tax return. While the account ownership is in the child’s name, there are certain scenario’s where as the parent, you will be assessed on the interest income earned.
- Did you deposit the money into the account?
- Do you use it for expenses related to the child? i.e Birthdays, school fees and clothing.
- You treat the money and income earned as your own to use when you want or need it even though it sits in your child’s account.
If this is you, the interest income earned is tax assessible as you hold beneficial ownership of the account.
If you don’t hold beneficial ownership of the account but act a trustee, you will not need to include interest income earned on your tax return as the benefit is with the owner of the account.
If you have any questions regarding interest income earned and whether you need to include it on your tax return, please contact us on (08) 9474 6333 or click HERE for more information.