CASE Y23
Members:KL Beddoe
Tribunal:
Administrative Appeals Tribunal
KL Beddoe (Senior Member)
The question to be decided is whether the amount of $1,866 interest, derived as income by the applicant during the year ended 30 June 1989, is eligible assessable income within the terms of Division 6AA of Part III of the Income Tax Assessment Act 1936 (``the Act'').
2. Section 13 of the Income Tax Rates Act 1986 imposes rates of income tax on prescribed persons who have an eligible taxable income within the terms of Division 6AA. Those special rates apply to an eligible taxable income which exceeds $416.
3. Division 6AA applies to unmarried minors (less than 18 years of age) who are not in a full-time occupation (prescribed persons). It has the general effect of treating the assessable income of a prescribed person as eligible assessable income except to the extent that the assessable income is ``excepted assessable income''. Section 102AE of the Act determines the items of assessable income which are excepted assessable income and therefore not to be included in eligible assessable income.
4. An amount included in the assessable income of a minor is, by virtue of section 102AE of the Act, excepted assessable income to the extent, and so far as is here relevant, that the amount is:
- (a) employment income; or
- (b) derived by the minor from accumulations of excepted assessable income derived during a year of income to which the Division applies (and income of this nature derived during years of income to which the Division does not apply).
5. The applicant had a deposit with a building society of $63,774 (Exhibit C) at 11.25% upon which he derived $1,866 during the year of income ended 30 June 1989. The issue is whether the amount of $63,774
ATC 267
represents accumulations of excepted assessable income or income of that character in the terms of section 102AE.6. The story commences when the applicant was 5 or 6 years of age. He undertook light manual work for his parents both inside and outside of their business. For this he was paid ``wages'' in respect to the business and ``pocket-money'' in relation to domestic matters. It was the habit of his parents to accumulate these funds for the applicant's benefit but to use the funds in the meantime for their own purposes. Funds also flowed to this accumulation from presents and child endowment payments. So far as I am aware a separate bank account was not maintained for the applicant until May 1985 when an account was opened with an initial deposit of $932 (Exhibit B). In March 1986 the balance of the account stood at $1,114 until $1,100 was withdrawn from the account. After that the account has been used, in the main, as a depository for Austudy payments received with regular withdrawals made against those deposits. The $1,100 withdrawn from the account was used by the applicant's parents for their own purposes and not for the benefit of the applicant.
7. Around 1978 the applicant's parents decided to purchase three blocks of land for the benefit of their three sons jointly. The purchases are evidenced by Exhibit 1 but there is no evidence in writing that the land was held in trust for the sons except Exhibit F which includes a recital to that effect.
8. Those properties were purchased for a total consideration of $15,125. They were subsequently sold for a total consideration of $45,800 and the proceeds invested in the construction of holiday flats operated by a partnership in which the applicant's parents each had a 25% share.
9. The partnership operating the holiday flats proved troublesome to the applicant's parents and was eventually dissolved; the parents buying out the other partners.
10. One of the deeds contained in Exhibit F recites:
``Now that the Partnership which has proved so troublesome has been removed and the whole of the holiday complex now belongs to us, there no longer remains a need for reference to shares for the above children and are now removed.
The children from now on being adequately safeguarded in the normal provisions of our wills.
This effectively negates all of our previous intentions.''
The deed was executed by both parents on 27 May 1986 and had its genesis in an earlier deed dated 30 September 1984 wherein the parents revoked a promise to pay interest on the proceeds of the three blocks of land said to be held in trust for their three sons including the applicant.
11. Following the eventual sale of the holiday units in 1988 the parents transferred the amount of $62,289 to the applicant's bank account (Exhibit B) which became the basis for the deposit of $63,774 (Exhibit C) on which the interest income now in question was derived.
12. It is the applicant's case that the amount paid over by the parents was the return of borrowed funds made up of the accumulated wages, the share of the proceeds from the sale of the three blocks of land adjusted to present day values, interest on the unpaid accumulated wages and a component for legal expenses likely to be incurred when and if another block of land is purchased. The evidence regarding the calculation of these amounts by the applicant's father leaves me in no doubt that the calculations were made much later than in May 1988 when the payment was received by the applicant.
13. The evidence supports a finding that the amounts for wages declared in the applicant's 1984 to 1988 income tax returns were properly paid as wages for services rendered by the applicant in connection with the operation of the holiday units. The applicant said in evidence that he did cleaning and maintenance work at the holiday units. I accept that evidence and I infer from the evidence that the amounts paid to the applicant were in fact for services rendered and were reasonable in amount.
14. It therefore follows that because the applicant only received payment of the wages when his parents paid the amount of $62,289 in May 1988, the amount included accumulated unpaid wages. Those wages have been quantified as follows:
I am satisfied that the interest derived on the relevant proportion of the investment represented by the accumulated wages falls within paragraph 102AE(2)(f) of the Act. I am not satisfied that any other amount of accumulated wages can be traced to the payment made in May 1988.
15. It therefore follows that a proportion of the interest income is excepted assessable income. That proportion can be found by the following calculation:
9,779/63,774 X 1,866/1 = $286
16. The objection decision under review will be set aside and substituted therefor a decision that the objection is allowed in part by reducing the eligible taxable income by an amount of $286.
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