Private ruling: Interest
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you assessable on interest paid to you? | A1: Yes.


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 specifies that residents of Australia are assessable on income derived from all sources in and out of Australia. As the amount of interest is to be paid in advance and is approximately the amount calculated as per the sale contract, it is clear that the amount you receive is interest and not payment toward the principal amount. Therefore, you are assessable on the interest amount your relative pays to you.

Relevant facts: You have owned an investment property since prior to 1985. | You sold the property to your relative. | The sale contract states that your relative will pay the principal sum, or that part of the principal sum that remains unpaid, on or before the date being Y years from the date of the mortgage. | The sale contract further states that your relative will pay you interest on the principal sum or on that part of the principal sum that remains unpaid. The amount of interest is the higher of: | • X% per annum of the principal sum or: | • An amount equal to a percentage of the total rent received by the relative from the property each financial year after deduction of land tax, goods and services tax, council and water rates, management fees and maintenance expenses. | The interest is to be paid monthly in advance. | Your relative has not paid you anything toward the principal for the property.