Yes, kids can pay tax on savings account interest — but in most families, they pay nothing at all. Whether tax applies depends on whose money is in the account, how much interest it earns, and whether the bank has your child’s tax file number (TFN). Here is how the rules work, in plain English.
This article is general information only, based on the Australian Taxation Office (ATO) guidance on children’s savings accounts. It is not personal tax advice. If your child’s situation is unusual, check with a registered tax agent.
The Short Answer
Interest earned on a child’s savings account is taxable income. But who declares it — you or your child — depends on who really owns and controls the money. If you put the money in and you decide how it is spent, the interest is your income, even though the account is in your child’s name. If the money genuinely belongs to your child, such as birthday and Christmas gifts, the interest is your child’s income.
And even when the interest is your child’s, most kids never reach the point of paying tax. In the 2025–26 year, a child pays no tax on the first $416 of unearned income, which covers the interest most kids’ accounts earn in a year.
Who Has to Declare the Interest?
The ATO does not care whose name is on the account. It looks at two things: who provides the money going in, and who decides how the money is spent.
You declare the interest when: you deposit the money, you are the signatory, and you use the account for family spending — for example, dipping into it to pay school fees or other household costs. The ATO treats that money as yours, so the interest goes on your tax return at your marginal tax rate.
Your child declares the interest when: the money genuinely belongs to them and they control it. The classic example is an account holding birthday and Christmas money from relatives, which the parent does not touch. Then the interest is the child’s income.
Joint accounts are split. If you hold a joint account with your child, the interest is divided equally between the account holders, and each person declares their share.
The key point is that you cannot dodge tax by parking your own money in your child’s name. If you provide the money and control it, the ATO will treat the interest as yours.
How Much Tax Do Kids Pay on Interest?
Children under 18 at 30 June of the income year pay special tax rates on unearned income — and bank interest counts as unearned income. These rates exist to stop adults from splitting their income through their kids’ accounts. The rates for 2025–26 are:
| Your child’s unearned income | Tax payable |
|---|---|
| $0 – $416 | Nil |
| $417 – $1,307 | 66% of the amount over $416 |
| Over $1,307 | 45% of the whole amount |
Two things catch parents out. First, there is no $18,200 tax-free threshold for this kind of income — that threshold only applies to adults and to a child’s excepted income, such as wages from a part-time job. Second, once interest passes $1,307, the 45% rate applies to the entire amount, not just the part above $1,307.
Worked examples:
- If your child earns $300 in interest for the year, no tax is payable. It is under the $416 limit.
- If your child earns $1,000 in interest, the first $416 is tax-free and the remaining $584 is taxed at 66% — that is $385.44 in tax.
- If your child earns $2,000 in interest, the whole amount is taxed at 45% — that is $900 in tax.
Minors also cannot claim the low income tax offset on unearned income, so the $416 tax-free amount is the real limit. In practice, a child’s account would need a balance of roughly $8,000 to $10,000 at current kids’ savings rates before the interest even reaches $416 — which is why most families never pay tax on it.
Will the Bank Withhold Tax From My Child’s Account?
Separate from the tax rates above, banks have their own withholding rules. If the bank does not have the right details, it must withhold pay as you go (PAYG) tax at 47% from the interest — and it withholds on the total interest earned, not just the amount above the threshold.
| Your child’s situation | Interest earned per year | Tax withheld? |
|---|---|---|
| Any age | Under $120 | No withholding |
| Under 16 | $120 – $420 | No, if the bank has your child’s date of birth or TFN |
| Under 16 | $120 – $420 | Yes, 47% if the bank has neither |
| Under 16 | $420 or more | No, if the bank has your child’s TFN; otherwise 47% |
| 16 or 17 | $120 or more | No, if the bank has your child’s TFN; otherwise 47% |
The fix is simple: give the bank your child’s date of birth or TFN when you open the account. A child can apply for a TFN at any age — there is no minimum age — and children are not exempt from quoting one. For a joint account between an adult and a child under 16, the same rules apply as for a 16 or 17 year old.
If you are opening the account, our step-by-step guide explains how to open a bank account for a child, including what ID to bring.
What If Tax Has Already Been Withheld?
If the bank has withheld 47% and your child did not actually owe that much tax — which is common, since most kids owe nothing — you can get it back. Lodge a tax return on your child’s behalf and claim the refund. Your child will need a TFN before you can lodge a return for them.
Keep in mind that withholding is not the same as the final tax bill. The bank withholds at a flat 47%, but the actual tax owed is worked out at the minor rates above. If the interest was really your income (because you provided and controlled the money), you declare it on your own return instead, and the withholding is credited against your tax.
How to Keep Things Simple
- Give the bank your child’s TFN or date of birth when you open the account, so no tax is withheld unnecessarily.
- Keep gift money separate from your money. If grandparents’ gifts and your own savings sit in the same account and you spend from it, the ATO will treat the interest as yours.
- Do not use a child’s account as a tax shelter. The penalty rates — 66%, then 45% — are designed to make income splitting through kids pointless.
- Check the interest each June. If it is under $416 for the year and the money is genuinely your child’s, there is usually nothing to lodge and nothing to pay.
- Compare accounts on interest, not just tax. A slightly higher rate makes a bigger difference to your child’s balance than the tax rules do at these small amounts. See our round-up of the best kids savings accounts to see what is on offer.
If you are still deciding what type of account suits your child, read what a kids savings account is first — it explains how these accounts work and how they differ from everyday transaction accounts.
Frequently Asked Questions
Do kids need to lodge a tax return?
Only if they need to. If your child’s interest is under $416 for the year and it is genuinely their money, they usually do not need to lodge a return. They do need to lodge one if tax was withheld by the bank and you want it refunded, or if their unearned income is over $416.
Does my child need a tax file number?
Not always, but it helps. A child can apply for a TFN at any age. Without a TFN (or date of birth, for under-16s), the bank must withhold 47% of interest above the thresholds. Giving the bank the TFN stops that withholding.
Is birthday money itself taxed?
No. Gifts are not income, so the birthday money itself is never taxed. Only the interest the money earns in the account can be taxed — and only if it passes the $416 threshold for the child’s own income.
What if the account is in my name, not my child’s?
Then the interest is yours, plain and simple. You declare it in your own tax return at your marginal rate, no matter who the money is intended for.
Do the same rules apply to shares or trust distributions in a child’s name?
Broadly, yes — dividends, rent and trust distributions are also unearned income taxed at the same minor rates. But bank interest has its own withholding thresholds ($120 and $420), while dividends do not. If your child holds shares, the rules around TFNs and tax returns still apply, so get advice before setting it up.
