Ask Paul: I'm a 73-year-old pensioner raising my 11-year-old grandson

Dear Paul,

My grandson is 11 years old and lives with me. His father, who my grandson never met, contributes to his child support payments and I always put the child support payments in my grandson's savings account.

His savings account now has a balance of $30,000.

This money is just sitting there and does not bring any interest.

How much tax would my grandson have to pay if his account is changed to interest-earning?

I'm paying his daily expenses, and I'm a 73-year-old pensioner. - Dana

Dana, you are a wonderful example of so many people in our community who do so much.

Looking after your grandson must be difficult for you at times, while being very rewarding. Your family is lucky to have you, as of course is your 11-year-old grandson.

It is also really kind of you to put child support payments, which could of course be used to support your grandson, into his account. It will be immensely valuable to him in his later life.

But that is not answering your question.

You can put this money into an interest-bearing account, a term deposit or whatever you decide. What happens is this. As he is under 16, he can earn $420 a year in interest tax free. So, you could switch to an account paying a bit over 1% interest. You simply need to supply the bank his date of birth

But you could also put it in, say a 5% term deposit. Here he would be earning $1500 a year and the bank would withhold 47% tax. But around 2.5% he would retain is much better than zero.

The final option depends very much on your income and assets. If you were well below the level of income and assets test, you could invest this money for him, as his Trustee.

In other words, the account would be in your name as trustee for your grandson. You would be assessed on the income for your pension. You need to be very cautious here, it would be important to speaks with the Department of Human Services to ensure your pension was not impacted.

I cannot tell you if you would pay tax or not on this income, but if you are on a full pension, it may well be that you do not. Again, you would need to check.

Your grandson is a lucky young man, the love and care you are providing is of course the critical factor. But a very good sum of money in time to come, to start him on his adult life will be very valuable.

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