- June 6, 2019
Opening a bank account is a great way to introduce children to the concept of saving. If your child’s bank account is earning interest, you need to know how this income is taxed or whether you’ll need to pay tax. The ATO has specific rules about taxation of interest earnings from a child’s bank account. Generally, If your child is under 18 years, and they earn income on their savings account, you may need to consider who declares interest and whether to quote a TFN.
Who Declares Interest ?
Australian ATO focuses on beneficial ownership rather than official holders’ name of the bank account. As ATO states who declares the interest depends on who owns or uses the funds of that account (no matter what type of account it is or the name of the account holder). If parents provide the money and spend it as they like, they must include the interest in their tax return. If the child hold a joint account, interest earned is divided equally among the joint account holders and declared in their tax return.
Should I Apply For A Child’s Tax File Number (TFN)?
There is no minimum age requirements for a child to apply for a tax file number. When deciding whether to quote a TFN, you need to consider your child’s age and the amount of interest they receive. Parents can help to apply for a TFN on behalf of their child. Then the financial institution will not withhold tax. It can let you avoid to lodge tax return for the refund for some of situation’s as below paragraph.
How Much Interest You Can Earn Before It Needs To Be Declared?
A financial institution will withhold tax at 47% in the following situations:
– Your child is less than 16 years old and earns between $120 and $420 from savings accounts per year
– Your child is less than 16 and earns $420 or more from savings accounts per year
– Your child is 16 or 17 years old, earns $120 or more from their savings account per year
Without providing the TFN, the financial institution will withhold pay as you go (PAYG) tax at 47% and then you need to lodge a tax return if you want a refund (Source ATO).
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