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Edited version of private ruling
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Ruling
Subject: assessability of interest income
Question
Does the interest income derived from the investment of your insurance payout form part of your assessable income in the year it is credited to your account?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You have not had to pay tax for some years.
The insurance payout was invested in the bank and earned interest.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 6-5(4)
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, 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.
Subsection 6-5(4) of the ITAA 1997 provides that in working out whether you have derived an amount of ordinary income and if so, when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
Taxation Ruling TR 98/1 states that the general principle is that interest is only derived, or arises, when it is received or credited.
Interest reinvested, accumulated, capitalised or otherwise dealt with on your behalf or as you direct is said to be constructively received and therefore assessable.
The interest income derived from the investment of your insurance payout has been credited to your bank account, therefore will form part of your assessable income. Under the legislation there is no flexibility that allows the Commissioner to consider that the income does not form part of your taxable income.