If your child’s bank account has a balance that is earning interest, you need to know how this income is taxed, or whether you’ll need to pay tax at all. The person who contributes money to the kid’s bank account and uses the money must include any interest earnings on their tax return. Read on to find out more about this topic.
Are there any tax implications?
There are no taxation guidelines for opening a kids’ bank account. A kids’ bank account can be opened in the name of the child (if the account type allows it), you can open an account on your child’s behalf as a trustee or a bank account can be opened in the name of a controlling trust.
You’ll need to pay attention to the Australian Taxation Office (ATO) guidelines if funds in your child’s bank account are generating interest. The ATO has specific rules about taxation of interest earnings from a child’s bank account. You’ll need to look at who is providing the money and who is using the money to work out how this income is taxed.
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Who declares interest income from a child’s bank account?
The ATO states the person who declares interest earnings from a kid’s bank account 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).”
What is the minimum amount of interest you can earn before it needs to be declared?
A financial institution will withhold tax at the highest rate in the following situations:
Your child earns more than $120 a year in interest from funds held in their bank account
Your child is younger than 16 and earns more than $120 but less than $420 in interest and they have given their Tax File Number (TFN) and date of birth to the account provider
As part of your yearly tax return, it might be worth considering an overhaul of your situation. Learn more about tax returns, what you can claim and what you need to declare to the ATO.
Does my child need a Tax File Number (TFN)?
A child of any age can apply for a TFN, and they can do this at school. Your child will need a Tax File Number to lodge a tax return and declare any interest earnings above the aforementioned thresholds.
Open a kids’ bank account to give your child the best financial start in life. Make sure you’re aware of the taxation implications of interest income from the bank account, especially if there’s a large balance. Compare kids’ bank accounts on finder.com.au today.
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