Edited version of private advice

Authorisation Number: 1052408252013

Date of advice: 16 June 2025

Ruling

Subject: Beneficial ownership of interest income

Question 1

Are you liable for the tax on any interest incurred in relation to the proceeds, that was held in a joint account and was controlled by a third-party Lawyer?

Answer 1

The proceeds were placed in a joint account with yourself and your Ex-partner. The proceeds were held in trust by a third-party Lawyer, until all proceeds were distributed to your Ex-partner as part of a court order.

This ruling applies for the following Periods:

Year ended 30 June 20xx

Year ending 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

You and your Ex-partner had a marriage breakdown.

Due to the breakdown of your marriage, your assets were to be divided.

Part of the assets to be divided was your former residence.

You and your Ex-partners legal parties were not willing to negotiate a mutually acceptable divorce settlement, so former residence was listed for sale.

You insisted that your former residence's sale proceeds should be held in trust until the divorce could be finalised.

Your Ex-partners solicitor set up a Trust and the proceeds of the sale of your former residence were put into a newly made account.

After your former residence was sold and your Ex-partners solicitors arranged for the proceeds to be put into the trust account.

The proceeds of sale accumulate interest until the divorce could be financially settled through the courts.

All the proceeds of the sale of Your home and the accumulated interest were allocated to you Ex-partner, as per the courts

No point in time did you had no access or legal claim on the funds that was held in trust.

Legal proceeding of the marriage breakdown was finalised, and your assets were distributed in accordance with the court's orders.

Your Ex-partner was awarded all proceeds of the trust account.

Shortly after the court proceedings the proceeds of trust account were transferred to your Ex-partner.

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 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include interest income and the general principle is that interest is derived when it is received or credited.

Taxation Determination TD 92/106 provides guidance on who should be assessed to interest earned on a joint bank account. Interest income is assessed to the persons who are beneficially entitled to the income (MacFarlane v. Federal Commissioner of Taxation (1986) 13 FCR 356; 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the moneys 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 (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).

If there is no evidence as to the beneficial entitlement to the interest, it is appropriate to assess the interest derived on a joint bank account to the account holders in equal shares. However, if a taxpayer disputes that assessing treatment and has evidence to support his or her claims as to a different entitlement to the interest, those claims should be accepted unless there is evidence to refute the claims.

You had no access to the proceeds, nor to the interest that was accrued in the account that was held in trust by a third-party Lawyer. You lacked ownership of the proceeds, and this was further crystalised once the judgment was passed in the courts. The ruling determined your Ex-partner would receive all proceeds of the account, making your Ex-partner the only beneficiary of the trust. In line with the concepts outlined in TD92/106, only the beneficiary of the proceeds shall be held liable for the tax and therefore you're not liable for any tax, on the interest accrued in the trust account.

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