“And we’ll throw in a company car”

It’s a tantalising lure for some, the prospect of a company car. A prestigious and valuable perq. And all perfectly legal with a big thumbs-up from the ATO.

Hold on a moment, boy and girl racers.

If you see a large black car with the number plate “FBT” looming in your rear-view mirror, a suited-up driver with a look of intent behind the wheel, you might notice that driver mouthing the words “not so fast”.

As a general rule, if an employer provides a vehicle to an employee, for the employee’s private use, the employer will be liable for fringe benefits tax (“FBT”) on the value of the benefit provided. The FBT rate is currently 47%, which corresponds to the highest individual marginal income tax rate of 45% plus the 2% Medicare levy. The idea is that there is generally no tax advantage in providing remuneration in the form of a vehicle, as a substitute for the payment of a salary.

But it’s not all bad news.

Under FBT law, the provision of certain vehicles is exempt where private use is limited to certain work-related travel, and non-work-related use that is minor, infrequent and irregular.

The provision of motor vehicles to employees attracts FBT as either a ‘car fringe benefit’ or a ‘residual fringe benefit’. The classification comes down to the vehicle type. The exemption is not available to all vehicle types. For example, a 5-seater ‘crew cab ute’ with a carrying capacity of less than one tonne would not qualify for the exemption.

The exemption is clearly and deliberately restrictive. So actually it’s mostly bad news.

The ATO recently issued guidelines that can be relied on where an employer provides a vehicle to an employee essentially to perform work duties, and which is not provided as a substitute for salary. Additionally, the employer must take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use.

The ATO’s guidelines state that the following travel falls within the meaning of ‘minor, infrequent and irregular’:

  • Diversions from the ordinary length of a trip between home and work that add no more than 2 kilometres to the journey.
  • Travel of no more than 750 kilometres in total for each FBT year for multiple journeys taken for wholly private purposes.
  • Single return trips for a wholly-private purpose that do not exceed 200 kilometres.

Note that a failure to satisfy the minor, infrequent and irregular criterion will result in the application of FBT to all private use for which the vehicle was put.

Roger Karlsson

Tax Consultant

Nexia Canberra

Selling Up – Are we in business?

Not often we begin an article with a quote from children’s fiction, but here goes:

      A person’s a person, no matter how small. ― Dr. Seuss, Horton Hears a Who!

So it’s ok to be small. In fact, if you’re in business of the small kind, it’s decidedly good. Even when you’ve had enough…

You’ve built up your business, watched it grow and flourish. And now the time has arrived to cash in your chips. You’ve decided to sell up, maybe even retire, or simply reinvest in another enterprise. But how can you maximise the fruits of your labour without seeing your windfall frittered away by the hungry hand of the tax man? Turns out avoiding his clutches may be easier than you think through application of the Small Business Capital Gains Tax (“SBCGT”) concessions.

Common knowledge among the Australian business community is the size of the contribution made to our economy, and indeed to our society, by the small business sector. Earlier this year, the Australian Bureau of Statistics reported:

            Of the 2,238,299 actively trading businesses operating at the end of 2016-17, most                 (98% or 2,085,729) had annual turnover of less than $2m.

What is less well understood is the extent to which government supports those in small business, through incentives and concessions aimed at making small businesses easier to operate and more attractive to commence.

Much of this assistance comes in the form of compliance relief whereby regulatory burdens are reduced, eliminating ‘red tape’ and the frequency and detail with which small business are required to report their activities.

Under Australian tax law, small businesses are also entitled to tax relief not available to larger enterprises. In the 2018-19 income tax year for instance, companies with turnover of less than $50 million and assessable income of which no more than 80% is passively derived, can take advantage of a concessional income tax rate of 27.5% instead of the standard rate of 30% applicable to other companies.

The SBCGT concessions are a set of tax breaks available to small businesses which allow small business owners to avoid, defer or simply reduce their business’ tax liabilities where the business makes a capital gain by disposing of an asset.

The SBCGT concessions take four forms:

  • Small Business 15-year exemption
  • Small Business 50% reduction
  • Small Business Retirement Exemption
  • Small Business Roll-over.

In order to qualify for these concessions, you and your business must satisfy a set of basic conditions, some of which involve straightforward tests; others are inordinately complex.

In some cases, these benefits extend to business owners themselves. For instance, if you hold shares in a company that operates a small business and you decide to sell those shares, you may be eligible for tax relief in relation to the gain you make on the sale of those shares.

Parliament has recently tightened the special conditions that determine eligibility for the SBCGT concessions where the asset disposed of is a share in a company or an interest in a trust. The new rules require careful analysis of the activities and financial position of not only the entity in which the taxpayer holds the interest, but the taxpayer himself or herself, and any other entities in which the entity may have an interest.

So celebrate small and when you’re all done, grab hold of those tax breaks, boots and all!

Roger Karlsson

Tax Consultant

Nexia Canberra

Developing an aged care plan




    5 JULY 2018
    5.00PM TO 6.30PM (REGISTRATION AT 4:45PM)
    Pavilion Hotel
    242 Northbourne Avenue,Dickson ACT 2602
    Drinks and nibbles to follow.

Join Nexia Australia and BAL Lawyers who have partnered to deliver this informative session on developing an aged care plan.

We often see the negative impact on families when an accident occurs and there has been no discussion about an aged care plan or estate plan.

Some of the topics that will be covered:

  • Tips and traps in drafting Enduring Powers of Attorney
  • Family Agreements, care and shared living arrangements
  • Legal and regulatory ramifications for independent living
  • Estate Planning implications of residential aged care
  • Tax issues on moving out of the family home
  • Superannuation planning for retirement and end of life
  • Q&A Session

Take the first step towards developing your plan today, so you’re ready when tomorrow comes.

Click here to register.

Changing Trustee – who needs to know?

Trusts are unusual creatures, not being legal entities in their own right, but at the same time acting as a legal vehicle for income re-distribution, asset protection and tax minimisation.

In its own right, a trust cannot sue or be sued, own assets or accrue debts. This is based on longstanding common law and is reflected in legislative provisions such as subsection 960-100(2) of the Income Tax Assessment Act 1997 (the 1997 Act) which notes: ‘a right or obligation cannot be conferred or imposed on an entity that is not a legal person’.

Nevertheless, subsection 95(1) of the Income Tax Assessment Act 1936 deems the trustee of a trust to be a taxpayer for the purposes of calculating the trust’s assessable income and allowable deductions; effectively, the tax law deems the trust to be a taxpayer.

Historically, trust law emerged through the courts of equity, a branch of law which was designed to supplement the more literal application of rights and obligations found in common law and statute. The distinction between legal and beneficial interests in property is an example of the interaction of common law and equity.

Because trust deeds are conceived as private agreements between settlors, trustees and beneficiaries, the rights and obligations available are infinite in scope, allowing the parties to devise imaginative and complex arrangements which do not always lend themselves to straightforward application, both in practice and in relation to how the law might apply to them. Care must be taken therefore, to avoid making assumptions when dealing with trusts; detailed consideration should be given to the uniqueness of each trust arrangement.

Aside from trusts established for family or commercial reasons, trust arrangements also apply to superannuation funds and deceased estates.

Trusts, other than deceased estate trusts, are generally established through a legal ‘instrument’ know as a trust deed, in which the party who establishes the trust, the settlor, specifies the trustee, the appointor, the beneficiaries, and the use to which the funds contributed to the trust, including the ‘settled sum’, can be put. The trust deed also specifies the rules by which the capital and income of the trust can be distributed to the beneficiaries.

Among the functions commonly performed by a trust are the holding of assets or the operation of a business. A trust can only perform these functions through the agency of a third party, a third party with the legal capacity to trade, hold assets and carry out the wishes of the settlor. This third party, known as the trustee, usually takes the form of a natural person or company.

Under trust law, and usually pursuant to the trust’s deed, the trustee is liable for the trust’s debts.  Because a trustee can be sued, limited liability companies are often used to perform the trustee role – such companies usually have no net assets of their own.

Trustees have what is known as a fiduciary duty towards beneficiaries, to apply the terms of the deed, under which the trustee was appointed, in good faith. Trustees are also bound by statutory obligations. Courts enforce these duties rigorously.

The trust deed may provide for multiple trustees and the replacement of a trustee. The appointor of a trust, usually nominated in the trust deed, has the power to change the trustee; for this reason, determining who should be the appointor when establishing a trust is a critical consideration.

A number of tax and administrative consequences arise when a trustee is replaced.

Who must be notified of a change of trustee?

 For constitutional reasons, each State and Territory of Australia has its own legislation which provides basic powers and responsibilities of trustees. In the ACT, for instance, these are found in the Trustee Act 1925 (ACT) which was based on the NSW statute of the same name.

Subsection 6(1) of the Trustee Act 1925 (ACT) states:

A new trustee may by registered deed be appointed in place of a trustee, either original or substituted, and whether appointed by the Supreme Court or otherwise.

Subsection 12(1) of the Trustee Act 1925 (ACT) states:

Any instrument by which a new trustee is appointed, or by which a trustee retires or disclaims, or by which the executor declares that he or she holds as trustee or as beneficiary, as the case may be, shall be deemed not to be registered for this Act unless it has been registered under the Registration of Deeds Act 1957.

The Registration of Deeds Act 1957 (ACT) defines a deed as ‘any instrument or document’. The mechanism by which the trustee is formally changed, which must be in accordance with the terms of the trust deed, must therefore be formally recorded.

In the ACT, the deed must be lodged with the relevant Government agency in person,  accompanied by a prescribed form and filing fee.

Do special rules apply where a trust ‘owns’ real property?


Throughout Australia, most real property is registered under what is known as the Torrens Title system. Under this system, legal ownership of real property is established with reference to the ‘title’ recorded by the relevant government authority. This allows buyers of real property to have confidence, when dealing with a property vendor, that the vendor is the lawful owner of the property and is therefore legally entitled to dispose of the property. When a change of ownership occurs, evidence of the transfer must be provided to the relevant authority in order for the title record to be updated.

A change of trustee involves a change in legal ownership of trust property. The title register must therefore be updated to reflect the new legal owner of the real property.

Each jurisdiction imposes its own formalities in this regard, prescribing the use of certain forms and the payment of fees. Other formal documents such as Buyer and Buyer Verification Declarations may also be required.

In addition, in the interests of the trust’s beneficiaries, a ‘caveat’ should be recorded on the title. A caveat is a warning to prospective buyers that title to the real property is not entirely unencumbered. In a trust situation, for instance, the trustee’s legal capacity to dispose of the land may be limited by the terms of the trust deed.

The ACT Registrar-General’s Land Titles Practice Manual outlines the consequences of lodging such a caveat (from Chapter 16):

Upon lodgement of a dealing, where the land is subject to a Registrar-General’s Caveat, the Registrar-General may inquire as to whether the dealing is contrary to the interests of the beneficiaries and may refuse to register if this is found to be the case eg conflict of interests situations. Supporting evidence in the form of a declaration may be required.

The purpose of entry of the Registrar-General’s Caveat is to afford protection to persons with beneficial or equitable interests in the land by warning persons dealing, and where appropriate preventing registration of dealings, contrary to the interests of those persons.

What are the capital gains tax (CGT) consequences of trust assets held in the name of one trustee being transferred to a new trustee?

Subsection 104-10(2) of the 1997 Act notes: ‘a change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust … this means that CGT event A1 will not happen merely because of a change in the trustee.’  Therefore, CGT should not be payable when a change of trustee occurs and where underlying beneficial ownership of the trust’s property has not changed.

Is stamp duty payable on the transfer of land from one trustee to another?

The transfer of trust property from one trustee to another is generally (some exceptions apply) exempt from stamp duty. (e.g. section 54 Duties Act 1999 (ACT)).

What if there is a change in the directors or shareholders of a corporate trustee?

A change in the directorships or shareholdings in a corporate trustee do not represent a change of trustee. The company must update its own records such as its share registry. ASIC must be notified of the change in directorship or shareholding.

For assistance with tax and duty obligations applicable to trusts, trustees and beneficiaries, contact Nexia Canberra on 02 6279 5400.

Roger Karlsson

Tax Consultant

Nexia Canberra

Taxes and Death – Not so certain?

It is a cliché to be sure that the tax man and the undertaker will come for you with the persistence of a Terminator. As our hero in the movie, Kyle, chillingly explains to the target of the Terminator’s mission, Sarah Connor:

“It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity or remorse or fear, and it absolutely will not stop…………EVER, until you are dead.”

That’s perhaps a tough rap on our Tax Commissioner, but can we take something from our hero’s plea?

While Providence issues little guidance on the question of ones mortality, Courts, legislators and our friends at the ATO have not been shy in making pronouncements in that other sphere of inevitability, tax. Indeed when it comes to the collision of the twin evils of tax payable upon death, these institutions have been more than happy to furnish us with a pathway to salvation. While we’re alive however, we do have some say in what happens next. We have that say in our will.

A will allows a person to control what happens to the things over which they had control in their lifetime, such as their assets, after the person dies. This gives rise to a wide range of possibilities. For example, a will may direct that the executor of the will makes an immediate distribution of those assets to the beneficiaries named in the will – termed an in specie distribution – or that the assets are to be sold and the proceeds distributed in cash. Alternatively, a will may direct that a ‘testamentary trust’ be established in which the assets of the estate are to be invested by the executor\trustee in trust and the resulting income distributed to the beneficiaries, usually nominated in the will.

Before any of this can take place, the will must be located, the executor identified and probate granted by the Court to allow the executor to implement the terms of the will.

Even where the will does not declare the creation of a testamentary trust, the fundamental tenets of trust law apply in relation to the handling of the estate. The deceased assumes the role of settlor, the executor the role of trustee (though these roles can be separately appointed) and the beneficiaries of the will become beneficiaries of a trust.

Depending on the terms of a will, the timing and actions of the executor\trustee, a range of income tax issues may arise. So despite the fact Australia’s tax regime does not include death duties or other imposts directly relating to a person’s passing, the distribution of a deceased’s estate may still attract taxes payable by the beneficiaries and the estate itself.

An executor is required, for example, to arrange for the lodgement of an estate income tax return for financial years after the person’s date of death. Typically, the return will include all income and capital gains derived until the completion of the administration of the estate. This is complicated in the event the income and capital gains of the estate are made available to beneficiaries before completion. As with other trust matters, the question of whether or not the beneficiaries have become ‘presently entitled’ to the income and capital gains of the estate must be determined for tax purposes.

Careful consideration must therefore be given to the timing, and the party responsible for preparing the tax return of the deceased, and decisions on whether the income and capital gains are to be declared in the respective returns of the trust or the beneficiaries’.

Roger Karlsson


Tax Consultant

19 December 2017

ATO Checks on Tax Exempt Status of Not for Profit Organisations

Are you a charity or PBI? Received a letter from the ATO?

The ATO is recognising that a number of not-for-profit organisations have an ABN, are registered for GST, are paying GST and claiming GST input tax credits, yet the organisation has not lodged an income tax return.

Because income tax returns haven’t been lodged and the organisation has purportedly self-assessed itself to be exempt from income tax, the ATO is now enquiring under which provision in the income tax law the organisation is exempt from tax. In addition, these organisations are usually not registered with the Australian Charities and Not-for-profits Commission (ACNC).

In order to be exempt from income tax as a charity or public benevolent institution (PBI), the income tax law requires that the organisation must be endorsed by the Commissioner of Taxation. One of the requirements to be endorsed by the Commissioner is that the organisation must be registered with the ACNC as a charity or PBI. The Commissioner has stated he will accept the charity or PBI status of an organisation if registered with the ACNC.

What does this mean for your organisation?

Any entity that is self-assessing itself to be a tax exempt charity or PBI without ACNC registration and not lodging income tax returns will be targeted by the ATO.

To be registered as a charity or PBI, you must fit within one of the 12 charitable purposes listed in the Charities Act 2013. Examples of some of the eligible charitable purposes are advancing health, advancing education, advancing social or public welfare and advancing religion. PBI’s are a type of charitable institution whose main purpose is to relieve suffering that is serious enough as to arouse a feeling of compassion from members of the community. PBI status can be more difficult to achieve for an organisation.

Aside from not complying with the tax law, not being registered with the ACNC as an income tax exempt charity or PBI can have serious tax and cash flow consequences for organisations. That is, if the organisation is unable to obtain ACNC registration, income tax returns may be required by the Australian Taxation Office (ATO) from the time the organisation commenced operations.  The consequent tax liability may be so great that the organisation ceases operations and potentially falls into bankruptcy or liquidation.

When an organisation claiming to be a charity or PBI receives a query letter from the ATO, I do not recommend simply completing the ATO’s fact finder questionnaire.  The response to the ATO must be carefully prepared by supplying full and relevant facts and appropriately analysing the relevant ACNC and tax laws and public rulings issued by the ACNC and the ATO.  By not doing so, ACNC registration is likely to be denied.  After denial of registration, reapplying can be complex.

Please contact Michael Bannon or Ingrid Sevil on 02 6279 5400 for further advice.

Ingrid Sevil


Tax Consultant

26 October 2017

Division 7A Loans and Deceased Estates

Many private companies make loans to their shareholders for a variety of reasons. Such loans made to shareholders may be deemed to be dividends to those shareholders under Division 7A of the Australian tax law unless certain criteria are met. Where the criteria are met, the loan amounts will continue to be treated as loans to the shareholders under the Division 7A rules.

In a peculiar situation where a shareholder of a private company dies before an outstanding Division 7A loan made to the shareholder has been repaid, various tax outcomes may arise depending on the circumstances of the shareholder’s deceased estate.

Upon the death of a shareholder to which a Division 7A loan has been made, the private company may forgive the loan on compassionate grounds to reduce the economic burden on the deceased estate to repay the loan. However, the ATO may deem a dividend to have been paid by the private company to the deceased estate. That is, a deemed dividend can arise on forgiveness of a loan and be taxable to the deceased estate.

Practically, though the amount of tax payable is likely to be less than the full repayment of the loan, the tax payable on the deemed dividend may not be an insignificant sum.

However, in the same situation but where the deceased estate declares bankruptcy as a result of having insufficient assets to settle its liabilities, a particular provision in tax law may operate to not treat the forgiveness of the loan as a deemed dividend. For this provision to operate, the cause of the debt forgiveness must be the bankruptcy of the deceased estate.

Evidently, no deemed dividend results in no additional tax liability for the deceased estate which may be seen as a positive outcome. However, bankruptcy law is complex and there may be undesirable outcomes as a result of declaring bankruptcy.

From the view of the private company, forgiving a loan assigned to a bankrupt deceased estate may result in a capital loss, but this would require the legal personal representative of the deceased estate to be discharged from all provable debts in accordance with the Bankruptcy Act 1966, or that the debt is forgiven under a deed of release.  Note that the capital loss is only deductible against assessable capital gains and not against other forms of income.

The interactions between shareholder loans, deceased estates and bankruptcy give rise to peculiar outcomes. Please contact us if you need advice relating to such situations.

Damien Lee


Tax Consultant

25 October 2017


Australian Tax Position for Canadian RRSP (Registered Retirement Savings Plans)

Canadian RRSPs receive favourable tax treatment in Canada. However, for Canadians who immigrate to Australia, the Australian taxation of Canadian RRSPs can be a complex and confusing area. Furthermore, the Canadian Revenue Agency frequently informs the ATO of withdrawals from Canadian RRSPs which has resulted in the ATO treating 100% of the withdrawal from the Canadian RRSP as taxable income in Australia in some instances.

What are the issues?

A Canadian RRSP is typically funded using capital, however in some cases RRSP contributions are tax deductible under Canadian tax law. On withdrawal from a Canadian RRSP typically the Canada Revenue Agency deducts tax at 15% for non-Canadian tax residents.

People with a Canadian RRSP may find that the ATO incorrectly seeks tax on 100% of the withdrawal from their RRSP even though a large amount of the withdrawal is capital, because of the way in which these payments are reported to the ATO by the Canadian Revenue Agency.

What is the correct Australian tax treatment?

The ATO does not view all Canadian RRSPs as foreign superannuation funds. The exact tax treatment depends on the precise terms of the Canadian RRSP.

Most main stream Canadian RRSPs are not foreign superannuation funds. This is principally because withdrawals can be made from RRSPs at times that would not be permitted under Australian superannuation legislation. Therefore, whilst RRSPs are “foreign” from an Australian tax perspective, they are not “superannuation” and consequently are not taxed as foreign superannuation funds.

The ATO takes the view that most Canadian RRSPs are foreign trusts. This means that on a lump sum withdrawal from the RRSP, the payment is apportioned between:

  • Income accumulated in the RRSP;
  • Capital gains accumulated in the RRSP; and
  • Corpus (or original capital) contributed to the RRSP.

The accumulated income and capital gains may include income and capital gains that have not been taxed in Australia in prior tax years. Therefore, effectively, the profit element in the RRSP is taxed in Australia, but the withdrawal of the original capital is not.

Temporary Residents of Australia

People who are in Australia on temporary visas should obtain Australian tax advice before obtaining permanent residency visa status in Australia. This is particularly the case for persons with Canadian RRSPs. Certain Australian tax advantages in relation to the taxation of foreign trusts are lost once a person changes their visa status from ‘temporary resident’ to ‘permanent resident’. Therefore, persons with Canadian RRSPs should seek Australian tax advice prior to applying for permanent residency with the Australian Department of Immigration and Border Protection.


The Australian taxation of Canadian RRSPs is a complex area. If you have a Canadian RRSP and plan to make a withdrawal, or have already made withdrawals, please contact Naomi Smith on 02 6279 5400 or nsmith@nexiacanberra.com.au .

Similarly, if you are in Australia on a temporary visa and plan to apply for a permanent residency visa, please request tax advice from us prior to changing your visa status.

We can also assist you if you have Canadian tax issues via our Network of accounting firms in Canada.




Bank Account Interest: Who Pays the Tax?

From time to time the ATO expresses its opinion on how certain tax laws should be interpreted.

In April this year the ATO released its opinion in Taxation Determination TD 2017/11 on the taxation of bank account interest.

The ATO focused on two areas:

  • bank accounts in children’s names, and
  • bank accounts in two or more names i.e. ‘joint accounts’.

While the answer to the question of who pays income tax on bank account interest may seem unequivocally clear — the account holders — in some situations the answer is not straightforward. Could, for example, the interest credited to an account held in two names be attributed entirely to the account holder falling in the lower tax bracket such as a child or stay-at-home spouse?

In order to determine who is liable for income tax on bank account interest, the ATO suggests we look beyond those merely named as account holders:

“for income tax purposes, interest income on a bank account is assessable to the person or persons who beneficially own the money in the account.”

The ATO will therefore seek to identify the real or ‘beneficial owners’ of the account, that is, the parties who enjoyed the benefits associated with the account, such as access to transaction-enabling facilities, secure storage of funds, and the source and use of the funds which passed through the account. That is not to say the ATO will disregard the identity of account holders, rather the ATO will consider factors in addition to strict legal title in order to determine who received the benefits of ownership. That is, the beneficial owner of a bank account may be a different party to the party named as the account holder or legal owner.

Children’s Accounts

Consider two scenarios where a bank account is opened in a child’s name: one where the child is the beneficial owner and one where the child is not.

Example 1 – account holder is beneficial owner

Five year-old Edwina has an account in her own name which was opened by her mother, Zelda.  Because of Edwina’s age, the bank requires Zelda to act as trustee over the account. Following the example set by her mother, Edwina is determined to build for herself a financial nest egg. This year, all of Edwina’s birthday money was deposited into the account. The bank has credited the account with $500 interest.

Despite being the only signatory to the account, Zelda has not deposited any of her own money into the account and has not used the funds in the account for her own purposes. Edwina is therefore the beneficial owner of the account and the interest income will form part of Edwina’s taxable income in the year in which the interest was credited.

At first glance this appears to allow Edwina to benefit of the $18,200 tax free threshold. Mindful that parents might exploit such an arrangement by channelling funds into children’s accounts, the government introduced anti-tax avoidance provisions that target interest income attributable to minors. The effect is that any interest attributable to Edwina, in excess of $416, will be taxed not at Edwina’s otherwise applicable marginal rate but at a special rate, as high as 66%.

Edwina must report $84 ($500 less $416) on her personal tax return as ‘eligible taxable income’. Note that despite being the account’s trustee, Zelda need not lodge a trust tax return in relation to the interest income derived from the account.

Example 2 – account holder is not beneficial owner

Fourteen year-old Freja has an account in her name which was opened by her father, Walter. Walter and Freja are both signatories to the account, but only Walter makes regular deposits and withdrawals, essentially to manage household expenses. This year the bank credited the account with $200 interest.

Under this scenario, Walter operates the account as if it were his own. Walter is therefore the beneficial owner of the account. Walter must include the interest credited to the account in his personal tax return in the year in which the interest was credited. The interest will be taxed at the marginal tax rates applicable to Walter.

Joint Accounts

Where an account is jointly held by two or more parties, the ATO presumes that any interest income credited to the account is attributable to the account holders in equal shares..

By applying the concept of beneficial ownership, the presumption may in some circumstances be rebutted. The ATO has determined that evidence in support of such a rebuttal can include ‘information regarding who contributed to the account, in what proportions contributions were made, the nature of the contributions, who drew on the account and who used the money (and accrued interest) as their own property. Evidence may also be provided that joint account holders hold money in the account on trust for other persons’.

Consider, for example, the situation where Nancy, an elderly nursing home resident, is the joint holder of a bank account with her nephew, Sid. Because of Nancy’s lack of mobility, Sid performs transactions on the account on Nancy’s behalf, depositing cheques payable to Nancy over-the-counter and making ATM withdrawals to provide Nancy with cash. Sid makes no use of the funds in the account for his own purposes, nor does he deposit his own funds into the account. Nancy is therefore the beneficial owner of the account.

Because Sid has no beneficial ownership of the funds on deposit, Nancy must declare all of the interest income credited to the account in her personal income tax return. The interest income will be taxed at the ordinary marginal rates applicable to Nancy.

Characterising an arrangement involving multiple parties as endowing one party with all of the benefits, and the others with none may not always be correct. To the extent that the benefits are divided among multiple beneficiaries, a degree of apportionment may be appropriate.

While ATO rulings are not legally binding on taxpayers, they give an indication of the kind of response taxpayers can expect from the ATO, particularly where bank account interest is excluded from a bank account holder’s income tax return.

Roger Karlsson


Tax Consultant

28 September 2017