Private ruling: Interest income
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is interest income earned on funds held in trust for two parties and granted to one party assessable income to the other party? | A1: No

Relevant facts and circumstances: Funds were held in trust pending the resolution of an outcome. The funds were held in a joint interest bearing account in two names. The outcome stipulated that only one party is entitled to the funds currently invested in trust.

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 provides that the assessable income includes income according to ordinary concepts that was derived by you. Interest received is generally considered to be ordinary income. Taxation Determination TD 92/106 provides guidance on who should be assessed to interest earned on a joint bank account. Interest income is assessed to the persons who are beneficially entitled to the income (MacFarlane v. Federal Commissioner of Taxation (1986) 13 FCR 356; 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the monies in the account. The general presumption is that the account holders have joint beneficial ownership of the moneys in equal shares. This presumption can be rebutted with evidence to the contrary. In your case the interest bearing account which held the funds in trust pending an outcome, was opened in two names. This would indicate that both parties have joint beneficial ownership of these funds. However, the outcome stipulated that only one party is entitled to the funds currently invested in trust. It is therefore the party who has beneficial entitlement to the funds that would be assessed on the interest income.