Private ruling: Interest income
Published: November 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Does 50% of the interest income from the term deposit form part of your assessable income, where the term deposit is in your assurer's name but you and your spouse supplied the funds and receive the interest? | A1: 


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 an Australian 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. Interest income from bank accounts is assessable to the person who derives the income and is beneficially entitled to the income. The person/s in whose name the investment is taken out will generally be considered to be beneficially entitled to the income from the bank account unless there is evidence to the contrary. In special circumstances, interest income that is earned by a person through monies held in an account in their name may not be assessable for the tax on that income. This is the case in situations where the money is held in trust. Taxation Ruling IT 2486 discusses the issue of money held in trust for another person. IT 2486 states that regardless of the name and type of the account, the essential question that must be asked is: 'whose money is it?'. The circumstances in each case must be considered when determining whose money it is. The types of evidence that may show that the ownership of the moneys in an account is someone other than the account holder/s are: · information showing who contributed funds to the account, · in what proportions the contributions were made, · who drew on the account, and · who used the money and accrued the interest as their own property. In your case, you and your spouse provided money to your assurer in order to meet the mandatory AOS requirements. Although the term deposit is in your assurer's name, you and your spouse provided the funds to be deposited. Any interest earned is provided to you and your spouse. We consider that the funds belong jointly to you and your spouse and are merely held in trust by your assurer, in accordance with the AOS requirements. Therefore, you are beneficially entitled to 50% of the interest income. For this reason, 50% of the interest income earned on the term deposit is assessable to you under section 6-5 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse want to obtain a permanent visa. | For a permanent visa to be granted, the Department of Immigration and Citizenship require you to obtain an Assurance of Support (AOS). | The AOS requires that your nominated assurer place a term deposit of a certain amount with a bank. | You and your spouse provided your assurer with this amount from a joint bank account. | Your assurer gives you and your spouse the interest earned on the term deposit.