• Investing in bank accounts and income bonds

    Interest from a bank or other financial institution is part of your assessable income for the year, even if you are a foreign resident for tax purposes or the account is in a child's name.

    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 wouldn't 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 and other investment bodies report to the ATO the interest they pay to account holders and investors. We match this information with the amounts people report in their tax returns to ensure that all income is being declared. If we find a discrepancy, we do adjust returns and penalties can apply.

    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 account and distributes regular bonuses. For tax purposes, these bonuses are treated in the same way as interest.

    Tax File Number (TFN) withholding tax

    If your bank doesn't have your tax file number (TFN) it will withhold tax from your interest at the highest marginal tax rate. You can claim a credit for the amount of tax withheld when you lodge your tax return.

    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.

    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.

    See also:

    Bank accounts held by foreign residents

    Financial institutions automatically withhold tax from interest earned on accounts held by foreign residents.

    If you've given the financial institution your overseas address, the tax will be withheld at the rate of 10%. Without your overseas address tax is withheld at 47% (from 1 July 2017).

    You do not include this interest as income on your Australian tax return.

    See also:

    Last modified: 30 Jun 2017QC 22809