Bank accounts and income bonds
Interest from a bank or other financial institution is part of your income for the year, even if you are a non-resident for tax purposes or the account is in a child's name. So are bonuses from friendly society income bonds.
Even if the funds earning the interest were not subject to tax, the interest is. For example, if you won some prize money and banked it, you would not usually include the prize money on your tax return, but you would include the interest you earned on it.
You can also claim a tax deduction for expenses incurred in earning interest income or income from friendly society income bonds.
Banks withhold tax from your interest at the highest marginal rate if they don't have your tax file number (TFN). This may be a higher rate than you need to pay. However, you can claim a credit for the tax on your tax return.
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We check that you include on your tax return all the interest you received during the year. If you haven't, we send you a notice of amended assessment that includes the omitted interest, requiring you to pay the tax on it, probably with penalties.
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Children's accounts
If you open or operate an account for a child and the funds in that account belong to you, or you use the funds in the account as if they belong to you, you must include any interest from the account in your tax return.
Special rules apply in taxing the income of people under the age of 18 years. These rules are to discourage adults from splitting their income and diverting it to their children. Under these rules, certain types of income received by minors may be taxed at higher rates.
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For more information, refer to:
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TFN withholding tax
Financial institutions withhold tax from your interest if you haven't given them your TFN. They do this at the highest marginal tax rate. The amount withheld in this way is referred to as TFN withholding tax.
You need to include interest as income on your tax return. You can also claim a credit for any TFN withholding tax you have paid.
You don't need to provide your TFN if:
- you are under 16 years of age
- the account is in your name, and
- the account earns less than $420 interest each year.
This exemption from TFN withholding tax lasts until the end of the calendar year in which you turn 16.
If you are under 18 years old on 30 June of a financial year, your interest may be taxed under the special high tax rates for minors.
Foreign resident withholding tax
Financial institutions automatically withhold tax from interest earned on accounts held by foreign residents. This is called non-resident withholding tax.
If you have given the financial institution your overseas address, the tax will be withheld at the rate of 10%. Without your overseas address it is withheld at the highest marginal rate of 46.5%.
You do not include this interest as income on your Australian tax return if non-resident withholding tax was deducted from it.
If you are an Australian resident living overseas temporarily you can avoid having tax withheld from your interest by:
- advising your financial institution that you continue to be an Australian resident
- giving your financial institution your TFN or ABN.
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For more information about what to do if you are:
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Income bonds
Income bonds are a type of life insurance policy only friendly societies issue. They are sometimes marketed as 'bonus bonds' or 'savings bonds'.
Unlike other life insurance policies, which pay bonuses on maturity or surrender, an income bond is like a savings investment account and distributes regular bonuses. For tax purposes, these bonuses are treated in the same way as interest - that is, you must include these bonuses in your income in your tax return.
Last Modified: Tuesday, 27 November 2012