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Edited version of your written advice
Authorisation Number: 1012714000654
Ruling
Subject: Interest income
Question
Is the lump sum interest income paid to you in the 2013-14 financial year assessable in the 2013-14 financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You provided a loan to entity A.
You received monthly interest payments at a commercial rate in relation to this loan for several months.
Interest payments then stopped.
The matter later settled and you received a payment of interest.
Most of the interest related to prior years.
You are not in the business of providing loans.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Detailed reasoning
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 income is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.
Taxation Ruling TR 98/1 Income tax: determination of income; receipts versus earnings sets out the Commissioner's policy on the derivation of income. Paragraph 47 of TR 98/1 states that the general principle is that interest is only derived, or arises, when it is received or credited. Exceptions to the general rule include interest from a business of money lending carried on and interest derived by those whose income is calculated on an accruals basis, who invest in fixed or variable interest securities cum interest.
The exceptions listed in TR 98/1 do not apply in your circumstances. It is considered that the receipts basis is the correct method in your case. That is, interest is derived and assessable when it is received or credited.
Whilst we acknowledge your specific circumstances, the legislation does not give the Commissioner any discretion in relation to the above. As the interest income was credited and paid in the 2013-14 financial year the income is derived and assessable to you in the 2013-14 financial year.
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