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Edited version of private ruling
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Ruling
Subject: Interest Income
Question
Are you and your spouse each assessable on 50% of the interest income derived from accounts held in one name?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ending 30 June 2011
The scheme commenced on
1 July 2009
Relevant facts
You and your spouse jointly owned a private residence.
Due to illness the property was sold so that you and your spouse could move into a smaller property closer to medical care.
The settlement funds were deposited into three separate investment accounts held in one name only.
The funds held in the accounts earned interest.
The funds have been withdrawn and a new jointly owned residential property has been purchased.
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) specifies that residents of Australia are assessable on income derived from all sources whether in and out of Australia.
Bank interest is considered ordinary income and therefore is assessable under section 6-5 of the ITAA 1997.
Taxation Determination TD 92/106 which deals with who should be assessed to interest earned on a joint bank account, states at paragraph 1 that interest income on a joint bank account is assessed to the persons who are beneficially entitled to the income (MacFarlane v FC of T 86 ATC 4477; (1986) 17 ATR 808). 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 (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).
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.
In your case, all the funds in the accounts were contributed from the sale of a jointly held property. You and your spouse used the funds from this account jointly. Given these circumstances, both you and your spouse have beneficial entitlement to the money held in the accounts and the interest derived. Therefore, you and your spouse are each assessable on half of the interest income held in the account under section 6-5 of the ITAA 1997.