Edited version of your written advice

Authorisation Number: 1012696038443

Ruling

Subject: Interest income

Question

Can interest income which has been earned on an account in one name be split between both spouses when beneficial entitlement can be proven?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2013

Relevant facts

You wish to split the interest income earned on a bank account held in only one of your names.

The bank account was opened from funds transferred from a jointly held account.

The funds in the account are used by both of you.

The account in question was opened in only one of your names as a matter of convenience and timeliness. As the relevant ID was not readily available for both of you at the time, the online account could only be opened immediately in one name in order to obtain the higher interest rate being offered.

The bank will not let you add another name to the account without a cost.

You wish to hold the money in the term deposit account until maturity which is in approximately 18 months, time.

Your other bank accounts contain monies singularly earned from salaries and welfare payments.

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.

Interest income is considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

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 Income tax: 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.

Although the relevant bank account in your case is not in joint names, the principles outlined in TD 92/106 apply.

In your case, the funds in the account came from a jointly held account and are used by both of you.

Even though the bank account is in one name, there is sufficient information to show that you are both entitled to 50% of the interest income derived on the bank account. As you are both beneficially entitled to the income from the bank account, 50% of the interest income derived from the account should be included in your assessable income.

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