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Ruling

Subject: Interest income

Question

Is 50% of the interest income from the bank account included in your assessable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

In the particular year you and your spouse sold your home.

The proceeds from the sale were invested in term deposits in joint names.

When the term deposits matured, a new bank account was opened because it was expected that you would purchase a new home within six months.

Your spouse opened the account over the telephone which only allowed one name to be on the account. The account was opened in your spouse's name only.

No other funds were put into the bank account and the funds were used in the recent year to purchase an apartment in joint names.

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 during the income year. Ordinary income has generally been held to include interest income.

Interest income from bank accounts is assessable to the person who derives the income and is beneficially entitled to the income. The person/s in whose name the investment is taken out will generally be considered to be beneficially entitled to the income from the bank account unless there is evidence to the contrary.

Taxation Determination TD 92/106 which deals with who should be assessed to interest earned on a joint bank account states that interest income on a joint bank account is assessed to the persons who are beneficially entitled to the income. The entitlement depends on the beneficial ownership of the money in the account. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary.

Evidence relevant in determining an individuals 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.

Similarly, on an individual account, the associated interest income generally belongs to the account holder.

In your case, your spouse opened an account in their name as there was no provision to put it in joint names when opened over the phone. The funds in the account were from the sale of your jointly owned home and were used to purchase a new place which is also jointly owned. Based on the information provided, it is considered that the funds belong to both you and your spouse. Therefore 50% of the associated interest income should be declared on your 2011-12 income tax return.

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