Private ruling: Assessable income - interest
Date of advice: 8 January 2026
Published: 2 March 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Does the interest credited to the term deposit held in a joint account and controlled by a third-party lawyer form part of your assessable income? | A1: Yes.

Relevant facts and circumstances: You separated from your spouse on DD MM 20YY. You are in dispute with your spouse. Legal proceedings commenced in MM 20YY. The dispute with your spouse is an unresolved family law dispute regarding proportionate allocation of assets. The assets in dispute are: • the matrimonial home, of which you have a XX per cent ownership interest • a XX percent interest in your parent's main residence. • both parties' individual superannuation balances. The matrimonial home was sold on DD MM 20YY. The proceeds from the sale were held in your legal representative's trust account until you and your spouse instructed the funds be transferred to a new term deposit high-interest banking account with a financial institution for an initial term of XX months pending a resolution of the dispute or a court decision. You and your spouse completed the authorisation for the transfer of the proceeds in late MM 20YY. Your legal representation receipted the deposit of the funds to the account on DD MM 20YY. The account is in the name of a legal firm's controlled monies account on behalf of your spouse and yourself - Matter Number xxxxx. You and your spouse's personal tax file numbers were provided to the financial institution when the account was opened. The high-interest account is a controlled monies account (CMA) held on behalf of you and your spouse. A controlled monies account (CMA) is used where money is held by a law practice under written direction from their client(s). The legal representation has management control of the account, but the funds are held for your and your spouse's benefit. Interest was earned on the funds in the CMA from when the account was opened to the present. You and your spouse have an indeterminate beneficial interest in the funds in the CMA which is yet to be determined either by an order of the court or agreement reached between you and your spouse. An amount of interest was pre-filled on your individual income tax return for the financial years ending 30 June 20YY and 30 June 20YY.

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

Reasons for decision: Summary: Subsection 6-5(2) 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. Interest income is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997. 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. Subsection 6-5(4) of the ITAA 1997 states that in working out whether you have derived an amount of ordinary income, and if so when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. Taxation Ruling TR 98/1 Income tax: determination of income; receipts versus earnings states thatinterest is generally derived and assessable when it is received or credited. For income tax purposes, interest income on a bank account is assessable to the person or persons who beneficially own the money in the account. Taxation Determination TD 2017/11 Income tax: who should be assessed to interest on bank accounts? provides guidance on tax issues with joint bank accounts. Interest income is assessed to the persons who are beneficially entitled to the income (MacFarlane v. Federal Commissioner of Taxation (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. TD 1017/11 explains that a person who is merely a signatory of a bank account is not assessable on the bank interest if the person is not beneficially entitled to the money in that account. If there is no evidence as to the beneficial entitlement to the interest, it is appropriate to assess the interest derived on a joint bank account to the account holders in equal shares. However, if a taxpayer disputes that assessing treatment and has evidence to support his or her claims as to a different entitlement to the interest, those claims should be accepted unless there is evidence to refute the claims. In your case, interest has been credited to the term deposit, however the funds are not accessible pending resolution of the dispute. The term deposit that holds the proceeds from the sale of a co-owned property, was opened in joint names. You previously owned 1/2 of the property. Your ownership interest in the property at the time of sale is considered sufficient evidence to show that your beneficial ownership of the funds is 50% until the terms of settlement or subsequent court order are determined. Until such time, you have beneficial entitlement to 50% of the funds in the term deposit. Under income tax law, whether or not you actually received any of the interest in the 20YY and 20YY financial years is not relevant. The test is whether the interest was credited to an account that you were beneficially entitled to at that time. We acknowledge your specific circumstances, however, as interest income has been credited and derived in each of the relevant years, your share of the interest income is derived and assessable to you in the relevant years. Under subsections 6-5(2) and (3) of the ITAA 1997 taxpayers must include in their assessable income the gross income derived. Further information From the information provided, it cannot be conclusively determined that a trust existed with respect to the monies held in the term deposit. However, if a trust did exist, it is considered that you were presently entitled to your share (being XX%) of the interest income. A beneficiary can be presently entitled whether or not the precise entitlement can be ascertained before the end of the relevant income year. Therefore, your assessable income would include XX% of the interest income, which is the same result as outlined above. The owning of a joint account does not generally constitute a trust for taxation purposes. Your case differs from the situations found in Harmer & Ors v. FC of T (1991) 104 ALR 117; (1991) 66 ALJR 89; (1991) 22 ATR 726; (1991) 173 CLR 264; 91 ATC 5000 and Walsh Bay Developments Pty Ltd & Anor v. FC of T (1995) 130 ALR 415; (1995) 31 ATR 15; 95 ATC 4378. In both these cases there were specific references for the money to be held on trust and the relevant terms of the trust were specified. In your case, there is not sufficient evidence to conclusively show that a trust was established. Therefore, the principles in the above cases cannot be applied in your circumstances.