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Thread: Child bank accounts do I pay tax on interest?

  1. #1
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    Child bank accounts do I pay tax on interest?

    Hi I signed up to ask questions about tax I have a child's bank account with a bank I'm only 14 and have sum savings from parents and grandparents the bank told me I have to supply a Tax File Number or they have to remove PAYG tax from my account. Is that right? Can they do that?

    I want to get a part time job soon. Do I have to get a tax file number for that to?



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    Hi not16yet, I gather by your username that you may know a little about the changes in tax age, and good for you it's never too early to start learning about finances, savings and interest rates. I wish I had of done!

    Basically the rules go that the money has to be yours and you have to be receiving the interest, it can not be put in by a parent or guardian that's after a higher interest rate, at present the BankWest kids account pays more than the best accounts for adults. 5.75% for a kids account and 4.76% for adults! You do need to have over $20,000 and be under 16 to get that sort of interest.

    Lets start with the bank account:

    Under 16:

    The money is yours and you earn less than $420 in interest:
    if the money is yours and you earn interest under $420 a year you do not need a TFN.

    The money is someone else's and the account earns less than $420 in interest:
    If the money in your account is not yours, this does not include birthday/Christmas gifts and the interest is going to someone else then you have to supply a TFN and be charged the appropriate taxes.

    The money is yours and you earn more than $420 in a year
    IF the money is yours and you earn more than $420 in a year you will have to supply a TFN or the bank will withhold PAYG tax at 46.5%. This is for the total amount of interest not just the interest above the $420 mark, this can be a problem.

    To earn $420 a year in interest and you've got a childrens account with BankWest: Childrens Savings Account - Fee free kids bank account - Bankwest you have to have at least $11,200 earning the second highest rate of 3.75%. Obviously if you've got enough to get the top interest rate of 5.75%, need over $20,000 for that, you will need to supply a TFN.

    16 or over
    The amount of interest someone over 16 can earn before they have to quote a TFN is only $120. If you do not earn over $120 you do not need to quote a TFN, that's really all there is to the 16 and over category. You are considered 16 after the year you turn 16, if you're born on June 16th in the case of banking you are not considered 16 until January 1st the year after giving you more time not to need a TFN.


    The ATO amazingly cover this subject well, a lot of their other pages are very vague:

    Children's savings accounts
    Does a child have to quote a tax file number (TFN)
    Children's savings accounts

    Children's savings accounts
    PAYG tax and children's accounts
    At what age can a child get a TFN?
    Children's savings accounts



    TFN number for a job.

    In basic you have to have one or you will be taxed at an emergency rate of 48.5% and you don't want that, as you then have to go about claiming your tax back, a frustrating task, however a good learning experience of dealing with the ATO.

    This is from the The PAYG withholding system:
    If the payee has not provided a tax file number (TFN) declaration, 48.5% of the payment will be withheld

    If you don't have a Tax File Number you should be able to apply through your school:
    Guide to tax file numbers

    Please do let me know if I can be of any more assistance.

    MrMSE

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    I've added the tags: Children's bank accounts and tax file numbers, for this post to help others find it easier, it's a very valuable question for many young Australians.

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    I wish I had of been that interested as a child and started saving my money, I will admit I did enjoy spending my money, but would be nice to be getting money from interest or something similar to pay for bills etc, or even a holiday now and then. If you put a bit away over time you could easily get to that point.

    nice reply moneysavingexpert, but you didn't answer the topic of this subject if you have to pay tax on interest?

    I know for adults once you reach $18,200 in earnings you start paying tax and that includes:

    Income you must declare

    You must declare all your assessable income in your tax return. This includes:

    • salary or wages
    • cash payments for work you do
    • pensions
    • investment income from rent, bank interest or dividends
    • capital gains from selling assets like shares, property or goodwill
    • income from overseas
    • income from running a business.


    It seems to change for Under 18 and investments:

    Under 18

    If you are under 18 years old and receive income you have not earned through your own efforts (for example, investment income) it is taxed at higher rates. This is to discourage adults from diverting their income to their children.


    To find out more about tax and young people, read Income of individuals under the age of 18.

    I gather this will not include interest from a bank account and only stocks and shares investments. However it'd be worth asking someone that knows a bit more about it than me, a few pages to look at:

    Understanding Tax:
    http://www.ato.gov.au/individuals/Pr...t/00249149.htm

    Income of Minors:
    Income of individuals under the age of 18

    Income not covered by the special rules:
    Income of individuals under the age of 18

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    thank you for your responses, I didn't think I needed a tax file number until I started my job, I'm not quite old enough 4 a job yet & won't be getting that sort of interest. Can I have an adult bank account at 14?

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    Gav
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    Of the best instant access interest rates you can with ING Direct from 13, which means you can still get the second best interest rate of 4.75%, top's only 4.76% neither as good as the kids account offering 5.75%, if you have under $20,000 over 13 but under 16 best interest is 4.75% with ING Direct:

    https://www.ingdirect.com.au/oa/sm/index.aspx
    ING Direct What you Need to Apply

    • You are an Australian resident for taxation purposes (13 years or older) and have an Australian residential address and phone number
    • Details of the bank account you want to link to your Savings Maximiser
    • Your Tax File Number or Exemption Code (optional)
    • Have your Medicare Card, Australian Drivers Licence, Passport or Australian Birth Certificate handy as you may need them if you elect to confirm your identity electronically (NB: We can't accept Victorian Licences at the moment, sorry)
    • To apply for a joint account you need a joint bank account to link to your joint Savings Maximiser. The first applicant starts the application by entering their details and will be provided with instructions to give to Applicant 2 once they 'submit' the application. The second applicant then retrieves the same application and completes it with their own information



    Sadly RaboDirect and Rams Direct you have to be 16 or 18!

    RaboDirect:


    • Yes, I am over 16 years of age
    • Yes, I have a residential address in Australia
    • Yes, I am an Australian resident for tax purposes
    • Yes, I have a bank account in my name with another financial institution in Australia



    Rams Direct

    A guide to using your account
    1.

    Opening your accounts
    1.1

    Who’s eligible to open a RAMS account?
    You can open a RAMS account provided the following
    conditions are satisfied:

    the account is in personal names only

    you are an Australian resident for taxation purposes

    you have an Australian residential address (overseas
    residential addresses are not acceptable)

    you are 18 years of age or over

    you hold a valid email address and Australian mobile phone number - I find the fact you have to have a mobile interesting, I guess these days more people have them than landlines!

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    Actually, I am not sure that a regular bank account is the same as an in trust account. However, on our in trust account, it follows the attribution rules for interest.
    Be Happy

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    Hi emily66013, the articles I've posted and from the look of others posted by others are about regular bank accounts and not trust accounts.

    You are correct about the fact if it is a trust account controlled by an adult then the income from interest is added to the Adult's earnings:

    Children's savings accounts | Australian Taxation Office

    Children's savings accounts
    Who declares interest earned by the child's savings account?


    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).
    The parent owns the money if they provided the money and they spend it as they like, whether or not the parent spends the money upon resources for the child. The parent includes the interest in their income tax return.
    When an account is held in trust for the child by the parent and the parent controls the income and expenditure in the account, interest earned in that account is included in the parent's income tax return.


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