ATO Interpretative Decision
ATO ID 2001/610 (Withdrawn)
Income Tax
Assessable Income - Interest income calculated at a higher rate (normal rate plus penalty)FOI status: may be released
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This ATO ID is withdrawn. Guidance relating to the issue addressed in this ATO ID can be found in Investment income (QC 31937).This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are interest payments made to the taxpayer on an investment at a higher rate (normal rate plus penalty) for breaches of loan conditions, assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Interest payments made to the taxpayer on an investment at a higher rate (normal rate plus penalty) for breaches of loan conditions are assessable income under section 6-5 of the ITAA 1997 as the payments are ordinary income.
Facts
The taxpayer made a substantial investment in a mortgage fund. Subsequently, the mortgage fund was placed under external administration.
The taxpayer received from the administrator an amount less than the original investment in the mortgage fund. The receipt from the administrator comprised:
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- return of capital;
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- interest calculated at the higher rate (normal rate plus penalty); and
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- interest calculated at the normal rate for compliance with the loan conditions.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include three categories, namely, income from rendering personal service, income from property and income from carrying on a business. In many instances there can be no dispute as to the character of a receipt, for example salary, wages and interest payments are clearly ordinary income. Interest calculated at a higher rate (normal rate plus penalty) is income from property and the higher interest rate was imposed as a penalty for non-compliance with the loan conditions.
Interest payments made to the taxpayer on an investment at a higher rate (normal rate plus penalty) for breaches of loan conditions are ordinary income and are therefore assessable income under section 6-5 of the ITAA 1997.
Date of decision: 23 July 2001Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 6-5(2)
Keywords
Interest income
Date reviewed: 30 April 2014
ISSN: 1445-2782
| Date: | Version: | |
| 23 July 2001 | Original statement | |
| You are here | 5 May 2017 | Archived |
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