Government taxes on bank accounts
With the introduction of the Goods and Services Tax (GST) on 1 July 2000 the old Financial Institutions Duty (FID) and the Bank Accounts Debit Tax (BAD) were abolished. Taxes still do apply to many banks accounts, however, and, ironically, the introduction of GST has lead to an increase in many fees the banks charge for the privilege of having an account.
Hidden bank fees
According to ANZ Bank, since GST was introduced banks have not been able to claim back from the Australian Taxation Office GST incurred on goods they need to purchase to deliver products to customers.
While the GST was supposed to save consumers money, in fact, many banks have increased their fees to offset the rise in operating costs under the GST tax legislation. Australians are still charged some of the highest account fees in the world. According to a 2006 study by Fujitsu Research, the average bank customer in Australia pays $95.63 in monthly fees, while customers in the UK only pay $55.67. Australians also pay more than Canadians ($71.79) and Americans ($71.79).
The other problem has been the recent hike in the minimum bank account balance required to avoid fees. In what has always been seen as a charge for poor people for being poor, many banks only charge fees when people don’t have the minimum deposit sitting in their account.
Banking terms and conditions
Recently, St.George Bank raised their minimum deposit from $1000 to $3000, but still only pay 0.1 percent in interest. While it is likely no consumer will be charged tax on an account they cannot earn any money from, they would be better off finding an account that pays more interest – the going rate for a deposit of this size could be around six percent or more. Some higher interest alternatives may also be more flexible on the minimum deposit amount required as well.
Bank account taxes still in effect
Taxes on bank accounts do still exist. If an account earns income, then this will be taxed as assessable income. This is why every bank account holder in Australia must submit their Tax File Number to their bank when opening an account. Another important area where taxes are still charged is on transactions. If a bank charges additional transactions fees, then GST will be charged on those. In most cases, a $2.20 transaction fee includes a 20c GST charge.
Let’s consider the example of Emily Arnu. Emily’s bank account earned no interest. As she earned no income from the account, she did not have to declare any additional income in her tax return. However, she was charged $40.50 in bank fees throughout the year. Emily did have to pay tax on extra services, however. As she would regularly use other banks’ ATMs and go over her monthly electronic allocation, she ended up paying more than $20 a year in GST charged for the transactions.
By comparison, James Gray held an account with ING, which earns more than six percent interest. While this account charges no fees, he will have to pay tax on the amount of interest earned. For Australians residing overseas, a withholding tax is charged to accounts. While James was living in the US for a time, his ING account was charged $1 per month, which was 10 percent of the interest he earned.
Avoiding bank fees
To minimise fees use only compatible ATMs, keep your accounts above the minimum required deposit and shop around: seek out products that offer you the highest possible interest rate for your investment with the least “catches”. It may also be worth your while paying a monthly fee to have unlimited transactions on your account and, in this way, saving money by reducing your excess transaction charges.