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Edited version of private ruling
Authorisation Number: 1011617495627
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Ruling
Subject: Interest income
Question:
Is interest income assessable in the year it is credited to your account?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You have several savings accounts.
You provided a print out of an on-line transaction history for one of your accounts which shows interest credited to your account for the month of June. The interest credit had a transaction date of 1 July and a statement date of 30 June.
When your tax agent was completing your income tax return, it was found that the bank had included the interest accrued on your accounts in the month of June in your total interest income for the income year.
The bank has since confirmed that the interest accrued on your accounts in the month of June is credited to your account in June and, therefore, included in your total interest income for the year.
With your permission, we contacted the bank to make a general enquiry and they confirmed that the interest is credited to accounts at the end of the last day of the month. This is also confirmed by the bank's savings account brochure.
Reasons for decision
Section 6-5 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 income is regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997.
Income is assessable for income tax purposes, under section 6-5 of the ITAA 1997, when the person is taken to have derived it. The term derived is explained in the subsection to mean when it is received or applied or dealt with in any way at the person's direction.
Taxation Ruling TR 98/1 sets out the Commissioner's guidelines on the cash or accruals methods for the treatment of income. In the case of interest or investment income, the general principle is that it is only derived, or arises, when it is received or credited (paragraph 47).
In your case, all evidence suggests that the interest accrued on your savings accounts in the month of June is credited to your accounts at the end of the last day of the month. Therefore, the interest income is derived in June when it is credited to your account. As interest income is assessable in the year it is derived, the interest is included in your assessable income for that income year.
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