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Edited version of private ruling
Authorisation Number: 1011807849119
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Ruling
Subject: interest free loan to church
Question
Will the interest earned by a church on money you lent them interest free be assessable to you?
Answer: No
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
You are a parishioner of a local church.
You made an interest free loan to the church on a short term basis.
The church placed the money in a fixed deposit and earned interest income.
You sought approval with the church in entering into the arrangement. Documentation comprises a memorandum of understanding signed by a representative of the church.
Previously you had made regular monthly contributions to the church.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.
Interest income is regarded as ordinary income.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on derivation of ordinary income. In relation to investment income, paragraph 47 of TR 98/1 provides that the general principle is that interest is only derived, or arises, when it is received or credited.
In your case you lent money on a short term basis to a church who then deposited the money in an interest bearing account. The interest earned on this money will neither be received nor credited to you. The interest earned becomes the property of the church.
As such you are not considered to have derived any income in relation to the loan money and will thus not be assessable on any interest earned.
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