Interest income

Record keeping – source documents

Good record keeping underpins our ability to assure that Top 500 groups are paying, and will continue to pay, the correct amount of tax. It is also a requirement under s262A.

The tax governance policy of the group should include procedures for:

• maintaining a central repository for documentation that records details of:
  • accounts held by the group with financial institutions
  • investments in term deposits
  • the acquisition and disposal of traditional securities held by the group
• maintaining a central repository for documentation that records:
  • interest received by the group from general account and term deposits with financial institutions or other entities
  • interest (coupon) income from traditional securities.

Completeness of interest income disclosures

Has all interest income derived by the group been captured?

The tax governance policy of the group should include procedures for:

• correctly capturing and recording all the interest income derived by the group
• reconciling interest income recorded in the group’s general ledger with deposits into the relevant bank accounts.

Interest income is reported in the correct period

Has interest income been reported in the correct income year?

The tax governance policy of the group should include procedures for:

• recognising when interest income is to be recognised for both accounting and tax purposes
• ensuring any timing differences between accounting and tax treatments is captured on the recipient entity’s tax reconciliation.

Characterisation and calculation of gains and losses on the disposal of traditional securities

Have gains and losses on the disposal of traditional securities been correctly characterised and reported on revenue account?

The tax governance policy of the group should include procedures for correctly calculating gains or losses on sale of traditional securities.

Correct reporting

Has the entity who derived the interest income or who made the gain or loss, reported correctly?

The tax governance policy of the group should include procedures for:

• ensuring that interest income and any gain/loss on sale of traditional securities information is migrated across from the working papers and correctly disclosed in the relevant entity’s tax return
• adjusting tax payable for any TFN withholding withheld by the entity paying the interest.

1

Maintenance of a central repository for documentation concerning statements recording interest income.

Bill Bookkeeper

Good record keeping practices.

2

At the end of each month back up electronic copies of documentation in the central repository to a plug-in hard drive, or memory stick.

Bill Bookkeeper

Ensure records of Mr Simple’s are not lost in the event primary information sources are compromised.

3

Financial institutions or other entities paying interest are notified of Mr Simple’s TFN and the bank account to pay interest.

Bill Bookkeeper

Remove TFN withholding risk. Ensure interest received into the correct bank account.

4

The timing and amount of the interest income should be recorded in the Excel spreadsheet entitled 'interest income register', within 3 days of interest being received. Accumulated totals should be maintained within the spreadsheet.

Bill Bookkeeper

Ensuring Mr Simple’s interest income disclosure is complete and referable to the correct year of income.

5

Reconcile cash interest payments deposited to investment bank account with interest income statements.

Bill Bookkeeper

Helping ensure Mr Simple’s interest income disclosure is complete.

6

Before forwarding information to tax Agent, review spreadsheet, bank accounts and term deposit confirmations, to sense-check interest income has been captured and correctly recorded as expected.

Bill Bookkeeper

Helping ensure that Mr Simple’s interest income disclosure is complete.

7

At least 4 weeks before the due date for lodgment of Mr Simple’s tax return, provide Mr Simple’s tax agent with:

• Mr Simple’s interest income register spreadsheet for the income year
• related source documents as required by the tax agent.

Bill Bookkeeper

Ensuring Mr Simple’s tax return is lodged on time.

Helping the tax agent with the process of preparing Mr Simple’s tax return.

8

Tax agent to provide an annual engagement letter to Mr Simple that specifies the tax agents and Mr Simple’s responsibilities under the engagement.

TAG & Mr Simple

To provide clarity around:

• Mr Simple’s responsibility for providing complete and accurate information
• tax agents responsibility for ensuring that all interest income is correctly recorded in Mr Simple’s income tax return.

9

Logic check interest income calculations in Mr Simple’s interest income register spreadsheet.

Tax agent

Integrity check over primary data source from which interest income information is obtained.

10

Retain and file working papers

Tax agent

Retention of records that support tax return disclosures.

11

Interest income received during the year is migrated across from the interest income register spreadsheet across to Mr Simple’s income tax return.

Tax agent

Correctly capture interest income in the return.