Private ruling: Interest income
Date of advice: 8 June 2020
Published: July 2020
Ruling period: Year ended30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Does 50% of the interest credited to the bank accounts form part of your assessable income? | A1: Yes.

Relevant facts and circumstances: You separated from your spouse. You became concerned that your former spouse would not have funds for a forthcoming property settlement so you applied for a Family Court Order to ensure the funds remained available for the settlement. The first court order provided the balance of the property sale be deposited in a bank account in joint names. The second court order finalised the property settlement and directed the joint bank accounts be closed and the funds were distributed between both parties. You received $XXX from one bank account and the balance was paid to your former spouse. The balance of the second bank account was also paid to your former spouse. Within a period of time of making the second court order your former spouse was to pay you a further $XXX as part of the settlement.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include interest income and the general principle is that interest is derived when it is received or credited. Interest income is assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). TD 2017/11 Income tax: who should be assessed to interest on bank accounts looks at joint accounts and who is required to declare the interest income. Interest income on a joint bank account is assessable to the account holders in proportion to their beneficial ownership of the money in the account. Unless there is evidence to the contrary, it is presumed that joint account holders beneficially own the money in equal shares. In your case you have joint accounts, where interest income has been derived, used to hold property settlement proceeds you had a beneficial interest in. The family court order provided bank accounts to be closed for you to receive your interest in the remaining proceeds of the property settlement. You had a legal and beneficial interest in the funds in the bank accounts. You have not provided evidence to support that you did not have less than an equal beneficial ownership in the funds held in the two bank accounts. Therefore as they are joint accounts the view in TD 2017/11 is supported that you have an equal share in the accounts and you are assessable on 50% of the interest income on the two bank accounts over the two years.