Private ruling: Assessability of interest income
Date of advice: 9 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the interest income generated by the term deposits established in joint names to be returned in accordance to who has beneficial interest in the income? | A1: Yes.

Relevant facts and circumstances: You have correspondence from a solicitor in regard to the property settlement between you and your ex-spouse setting out the investment details for the joint bank accounts during the relevant period. Term deposit accounts were established by solicitors in trust for you and your ex-spouse in joint names. Interest income earned during the year ended 30 June 20XX was derived from these joint bank accounts. You have copies of bank records showing that the interest income was generated from the joint accounts during the relevant period.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) advises that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Interest income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Taxation Determination TD 92/106 addresses the question of who should be assessed on the interest earned from a joint bank account. TD 92/106 states the following: Interest income on a joint bank account should be assessed to income tax to the persons who are beneficially entitled to the income (see MacFarlane v. FC of T 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the moneys in the account. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591). In a self-assessment environment, interest income on a joint bank account should be returned by taxpayers according to who has the beneficial entitlement to the interest. The sort of relevant evidence includes information as to who contributed to the account, in what proportions the contributions were made, the nature of the contributions, who drew on the account and who used the money and the accrued interest as their own property. Evidence also might be provided that joint account holders hold moneys in the account on trust for other persons, e.g. dependants. The principles of TD 92/106 can also be applied to accounts held in only one name. The principal determinant is who has beneficial ownership of the funds in the account. Term deposits were established by solicitors in the joint names of you and your ex-spouse. In accordance with the guidance provided by TD 92/106, the interest income generated from the term deposits is to be returned according to who has the beneficial entitlement to the income.