It's quite wise to introduce children to the concept of saving when they are young. Many parents and grand-parents will start a small bank account for their children and encourage them to put their pocket money in it for something they really want. Over time, regular deposits plus money from birthdays or Christmas or even part-time earnings such as working at McDonald can really add up. Who pays the tax on any interest earned on these accounts? Is it the parent or the child?
It depends on who operates and uses the funds. If the parents make the deposits and use the funds, even if they spend it on the child, then they will declare the interest income in their tax return. Alternatively, if the child manages their own money, they may need to lodge a tax return for themselves.
Do the children need to lodge their own tax returns? The threshold on interest earned for under 16 years of age is $420 and above 16 years is $120 each year.
If the child is under 18, it is important they correctly claim Item A1 of the tax return: Under 18 Excepted Net Income. Otherwise, every dollar of the income will be taxed at 46.5% tax rate.