Private ruling: interest free loan to church
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the interest earned by a church on money you lent them interest free be assessable to you? | A1: 

Relevant facts and circumstances: You are a parishioner of a local church. You made an interest free loan to the church on a short term basis. The church placed the money in a fixed deposit and earned interest income. You sought approval with the church in entering into the arrangement. Documentation comprises a memorandum of understanding signed by a representative of the church. Previously you had made regular monthly contributions to the church.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5(2)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Interest income is regarded as ordinary income. Taxation Ruling TR 98/1 sets out the Commissioner's policy on derivation of ordinary income. In relation to investment income, paragraph 47 of TR 98/1 provides that the general principle is that interest is only derived, or arises, when it is received or credited. In your case you lent money on a short term basis to a church who then deposited the money in an interest bearing account. The interest earned on this money will neither be received nor credited to you. The interest earned becomes the property of the church. As such you are not considered to have derived any income in relation to the loan money and will thus not be assessable on any interest earned.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.