Private ruling: Assessable income
Date of advice: 17 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Q1: Does the interest income derived from money lent form part of your assessable income? | A1: Yes. | Q2: Does the repayment of capital form part of your assessable income? | A2: No.


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

Reasons for decision: Summary: Interest income Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 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 considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 and is therefore assessable income. However, a return of capital is not regarded as ordinary assessable income. In your case, you have lent money. Your relation will pay you the market rate of interest on the funds borrowed. The interest income is regarded as assessable income. Therefore the amount of interest earned from the money lent is assessable as ordinary income under section 6-5 of ITAA 1997. Please note where interest income is derived from a joint account it is only your share of the interest income that forms part of your assessable income. Repayment of capital The amounts received from your relation represent a combination of a repayment of money previously lent, that is, a repayment of capital, as well as an interest or income component. A repayment of capital or a return of capital is not regarded as ordinary income and is not assessable under section 6-5 of the ITAA 1997. The repayments of capital are also not assessable under any other tax provision.

Relevant facts: You and your spouse have money in a term deposit account. | You wish to close the term deposit early and loan the money to your relation. | You will charge the same variable interest rate as your current home loan. | The capital and interest repayments will be paid fortnightly over the relevant years.