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Edited version of private ruling
Authorisation Number: 1011480012658
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Ruling
Subject: Assessability of interest received
Question and answer
Are you assessable on the total interest earned on an investment account?
No.
This ruling applies for the following period:
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commences on:
1 July 2008
Relevant facts and circumstances
While you and your ex partner were still together you sold a rental property.
The proceeds after capital gains tax were banked in xxx (Account number xxx) with you and your ex partner as account holders.
You later withdrew the proceeds of the sale and put it in your own account in xxx because you were concerned that your ex partner was planning to withdraw the funds.
The Family Court has put an order on you and your ex partner, accessing the investment account, during a hearing.
Interest income has been earned from the deposit which is banked in your account.
You are likely to incur additional tax from the interest income earned.
Your ex partner has put in a claim on a portion of the money.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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 interest income.
Tax Determination 92/106 (TD 92/06) states that interest income on a joint bank account should be assessed to the persons who are beneficially entitled to the income (see MacFarlane v. FC of T 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the moneys in the account.
Evidence relevant in determining an individual's beneficial entitlement includes information as to who contributed to the account, in what proportions the contributions were made, who drew on the account, who used the money and who the interest is distributed to. Although TD 92/106 relates to joint bank accounts, the same principal applies to interest earned on a bank account which is in the name of only one person.
The relevant facts in your case are:
- You and your ex partner sold the rental property that was jointly owned.
- You and your ex partner banked the proceeds after paying CGT into a joint account.
- You withdrew the funds and transferred it into your single account.
- Family court has put a restraining order on the access of the fund.
- Your ex partner has put in a claim on a portion of the money.
On the basis of the above facts, you and your spouse are the beneficial owners of the account, even though the account is solely in your name.
Therefore you and your ex partner are each assessable on a proportion of the interest in accordance with your beneficial interest in the investment.
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