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Edited version of private ruling

Authorisation Number: 1011530213034

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Ruling

Subject: Assessability of interest

Question and answer:

Is the interest earned on a term deposit included in your assessable income in the income year in which the interest is paid to you?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2011.

The scheme commenced on:

1 July 2009.

Relevant facts:

You invested money in a 12 month term deposit with a bank.

You chose the compound six monthly interest option and were credited with an amount of interest after six months.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Interest earned on an investment such as a term deposit with a bank is a form of ordinary income.

Subsection 6-5(4) of the ITAA 1997 provides that an amount of ordinary income is derived by a taxpayer when the amount is:

The Australian Tax Office view on when different types of income are derived is discussed in Taxation Ruling TR 98/1 which specifies, in relation to interest income, that interest is derived by a taxpayer when it is received or credited.

Conclusion and application to your facts

Interest is ordinary income that is assessable in the income year it is derived.

You derived the interest when it was credited to you.

Your assessable income for the relevant tax years will include the interest earned on the term deposit in each year.

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