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Edited version of your written advice
Authorisation Number: 1012776091320
Ruling
Subject: Assessability of interest income
Question
Is the interest derived from the term deposit in your name only, assessable to you and your spouse in 50% shares?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You sold a rental property that was in your name only.
The proceeds from the sale were deposited to a joint bank account in the name of you and your spouse.
The proceeds from the sale were to be held in short-term cash deposits until used to pay for the construction of the new family home which is held in both you and your spouse's names.
Due to an error in the paperwork the term deposit was opened in your name only, rather than you and your spouse's names.
On maturity of the term deposits the principal and interest were rolled into new term deposits in your name only.
When you realised the error of the funds being in your name only, on maturity of the term deposit you used a portion of the funds to pay for the construction of your new family home (held in both names), and the remainder was deposited into another short-term cash deposit in the name of you and your spouse.
It was never your intention for the joint funds to be invested in your name only.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income includes income according to ordinary concepts. The interest earned on the term deposit is income according to ordinary concepts and therefore is assessable income under section 6-5 of the ITAA 1997.
Taxation Ruling IT 2486 addresses the question of who should be liable for the tax on interest earned on accounts held in trust or in another's name. Whilst the ruling specifically deals with children's bank accounts, the principles of the ruling can be applied to the current situation.
IT 2486 states at paragraph 4:
Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?'. If the money really belongs to the parent, in the sense that the parent provided the money and may spend it as he or she likes, then the parent should include the interest in his or her return.
In your case you withdrew funds from a joint account with the intention of investing it in short-term deposits in the name of you and your spouse. Due to an error with the paperwork, the bank opened the term deposit in your name only.
You never intended for the funds to be invested in your name only.
Once the error was identified, on maturity of the term deposit it was closed and a portion of the funds were used to pay for the construction of your new jointly held family home and the remainder was again deposited into a short-term deposit in the name of you and your spouse.
In your case, the Commissioner considers that the money transferred into the term deposit belongs to both you and your spouse, despite the account being in your name only. As such, both you and your spouse are considered to be assessable on the interest income earned on the term deposits, rather than you alone.
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