Who pays tax on a child’s savings account depends on who really owns and controls the money, not on whose name is on the account. If a parent opens an account for their child but provides the money, controls it, and spends it, the ATO treats the interest as the parent’s income, and the parent declares it in their own return at their marginal rate. If the money genuinely belongs to the child, for example birthday money and gifts that the child controls, then it is the child’s income. That matters because children face special penalty tax rates on investment income, designed to stop adults sheltering their own money in a child’s name. So the answer turns on a simple question of substance: whose money is it really, and who decides how it is used.
The test: who owns and uses the money
The ATO does not simply assume the interest belongs to whoever the account is labelled for. Instead it looks at who provides the money going in, and who decides how it is spent. These two questions settle who declares the interest.
If you, as the parent, put the money in, treat it as your own, and dip into it for family expenses, then in substance it is your money sitting in an account with your child’s name attached, and the interest is yours to declare. If instead the account holds money that genuinely belongs to the child, that the child owns and controls, then the interest is the child’s income. The name on the account is not the deciding factor; the reality of ownership and control is.
When the parent declares the interest
In most everyday cases where a parent opens an account and funds it themselves, the interest is the parent’s to declare. A common example is a parent who sets up an account in a child’s name, deposits their own money into it regularly, and uses the funds from time to time for things like school costs or family expenses. Because the parent is providing the money and controlling how it is used, the ATO treats the interest as belonging to the parent, who includes it in their own tax return and pays tax on it at their marginal rate, the same as any other interest they earn.
This is the outcome a lot of parents do not expect, because they assume an account in the child’s name is somehow the child’s for tax purposes. It is not, if the parent is the real owner of the money. The practical effect is that this interest is just more of the parent’s assessable income, taxed in exactly the way our guide on how interest on savings is taxed describes for any adult.
When the child declares the interest
The interest is the child’s when the money genuinely belongs to the child and the child controls it. The clearest case is money a child has received as their own, birthday and Christmas gifts from relatives, or their own earnings, held in an account that is treated as the child’s and not drawn on by the parent for family spending. Here the ATO accepts that the interest is the child’s income.
When the interest is the child’s, how it is taxed depends on how much it is and, crucially, on the special rules that apply to minors, which is where parents often get an unpleasant surprise.
The penalty tax rates on a child’s investment income
This is the part that catches people out. To stop adults from splitting their income by putting money in their children’s names, the tax law taxes a minor’s investment income, called eligible income, at penalty rates rather than the normal adult scale. For the 2025 to 2026 year, a minor’s eligible income up to $416 is tax-free. Income from $417 to $1,307 is taxed at 66% on the amount over $416. And once eligible income exceeds $1,307, the whole amount is taxed at 45%.
These rates are deliberately harsh, and they are the reason a child’s account is not a tax shelter. Interest, dividends, and similar passive income all fall into this eligible-income category. So a child’s account holding a large sum of the child’s own money can end up taxed far more heavily than if the same money were held by a low-earning adult. The rules exist precisely to remove the incentive to divert income to children, and they do that job well.
What income is not caught by the penalty rates
Not all of a child’s income is hit with these rates. The penalty rates apply only to eligible income, broadly passive investment income. A separate category, called excepted income, is taxed at the normal adult rates instead, with the usual tax-free threshold. Excepted income includes money a child earns from their own work, such as a part-time or casual job, and certain other amounts like some payments relating to a deceased estate or the child’s own earlier compensation.
So a teenager earning wages from an after-school job is taxed on those wages like any adult, with the benefit of the $18,200 tax-free threshold, and will usually pay no tax on modest earnings. It is only the investment income, the interest and dividends, that is pushed into the penalty brackets. This distinction between money the child earned and money that is simply earning passive returns is central to how minors are taxed.
Quoting a tax file number on a child’s account
Separate from who pays the tax is the question of withholding at the account itself, and here the amounts are small but worth knowing. For a child’s account, if no tax file number or date of birth is provided, the bank must start withholding tax from the interest once it reaches certain thresholds. For children under 16, no tax is withheld while the account earns less than $120 of interest a year. Between $120 and $420, the bank withholds unless the child’s date of birth is provided. And once interest reaches $420 or more a year, tax is withheld at the top rate of 47% unless a tax file number is quoted.
That 47% withholding is not an extra tax; it is money taken upfront that then has to be claimed back through a tax return if too much was withheld. But it is a hassle, and it ties up the money in the meantime, so where an account genuinely belongs to the child and is earning enough to cross these thresholds, it is worth quoting a tax file number. A child can have their own tax file number at any age. Our guide on how to pay less tax on interest income covers the no-TFN withholding trap for adults, and the principle for children is the same: quoting the TFN keeps your money with you.
Does the child need to lodge a tax return?
Whether a return is needed depends on the amounts and on whether tax was withheld. If a child’s only income is a small amount of interest below the tax-free threshold for eligible income, and no tax was withheld, a return is generally not required. But if tax was withheld, for example the 47% no-TFN withholding, a return is usually the only way to get that money refunded. And if the child’s eligible income is high enough to fall into the penalty brackets, a return is needed so the correct tax is worked out and paid.
For most children with a modest account, no return is needed and nothing has to be declared. It is the larger balances, and the cases where withholding has kicked in, that bring a lodgment obligation. If you are unsure whether your child needs to lodge, it is worth checking rather than assuming, because an unclaimed refund of withheld tax is simply money left behind.
A common mistake worth avoiding
The mistake parents most often make is assuming that putting their own savings into a child’s account will lower the family’s tax, because the child has an unused tax-free threshold. The penalty rates are designed to defeat exactly this. Shift a meaningful sum of your own money into your child’s name and the interest is still likely to be treated as yours, because you own and control it; and even if it were the child’s, the penalty rates would tax it harshly once it passed $416. Either way, there is no easy saving to be had, and trying to engineer one can create problems rather than solve them.
The sensible approach is to treat a child’s account honestly: if the money is really the child’s, let the child’s rules apply and quote a tax file number once the balance earns enough to matter; if the money is really yours, accept that the interest is yours to declare. Where genuine planning for children is possible, it usually involves structures beyond a bank account and is worth proper advice. Our business and tax advisers can talk through the options if the amounts are large enough to warrant it.
