Private ruling: interest income
Published: April 2012
Ruling period: Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2006

Ruling: Q1: Is interest income assessable in the year it is credited to your account? Answer: Yes.

Relevant facts and circumstances: You are less than 16 years of age. You placed some money into a start up fund with a bank. You do not have a tax file number (TFN) and therefore did not provide one to your financial institution. You did however provide your date of birth. A deposit was placed into a five year term deposit. Interest was credited to the bank account as separate amounts each financial year. The bank has requested a payment of withholding tax due to the amount of interest you received.

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 assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Interest income is regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997. Income is assessable for income tax purposes, under section 6-5 of the ITAA 1997 , when the person is taken to have derived it. The term derived is explained in the subsection to mean when it is received or applied or dealt with in any way at the person's direction. Taxation Ruling TR 98/1 sets out the Commissioner's guidelines on the cash or accruals methods for the treatment of income. In the case of interest or investment income, the general principle is that it is only derived, or arises, when it is received or credited (paragraph 47). In your case, the interest earned on your term deposit was credited to your account on a yearly basis. Therefore, the interest is considered to be derived in the financial year that it was credited to your account.

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