Private ruling: Income - interest
Published: June 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Is interest earned from a private loan arrangement to family members assessable income? | A1: Yes.

Relevant facts and circumstances: You and your spouse lent a sum of money in the form of a private loan to family members. They have purchased a property with the funds. This transaction has been legally documented by your solicitor, and you and your spouse hold a mortgage over the property. It has been agreed between the parties that the funds will be repaid under a principal and interest loan arrangement on a weekly basis. The interest rate charged is comparable to a commercial/financial institution variable rate home loan at current market rates where the interest accrues daily and is charged monthly in arrears.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10

Reasons for decision: Summary: Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary and statutory income derived directly or indirectly from all sources, whether in or out of Australia during the income year Interest income is considered ordinary income and therefore is assessable under section 6-5 of the ITAA 1997. The arrangement is considered to be undertaken on a commercial basis and the fact that the interest is paid to you by a family member does not change the character of the receipt, it remains ordinary income. The portion of the repayments that relates to the interest is considered a profit or gain and will need to be included in your income tax return as assessable interest received in the financial year the interest is received.