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Ruling

Subject: Interest income

Question

Does the interest income from the Assurance of Support term deposit form part of your assessable income, where the term deposit is in your assurer's name but you supplied the funds and receive the interest?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You and your spouse want to obtain a permanent visa.

For a permanent visa to be granted, the Department of Immigration and Citizenship require you to obtain an Assurance of Support (AOS).

The AOS requires that your nominated assurer places a term deposit with a bank.

You provided your assurer with the funds to deposit.

The term deposit is in your assurer's name.

Your assurer gives you the interest earned on the term deposit.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Summary

The interest income earned on the term deposit is assessable to you as the funds belong to you and are merely being held in trust by your assurer.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian 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.

Interest income from bank accounts is assessable to the person who derives the income and is beneficially entitled to the income. The person/s in whose name the investment is taken out will generally be considered to be beneficially entitled to the income from the bank account unless there is evidence to the contrary.

In special circumstances, interest income that is earned by a person through monies held in an account in their name may not be assessable for the tax on that income. This is the case in situations where the money is held in trust. 

Taxation Ruling IT 2486 discusses the issue of money held in trust for another person. IT 2486 states that regardless of the name and type of the account, the essential question that must be asked is: 'whose money is it?'. The circumstances in each case must be considered when determining whose money it is. 

The types of evidence that may show that the ownership of the moneys in an account is someone other than the account holder/s are:

· information showing who contributed funds to the account,

· in what proportions the contributions were made,

· who drew on the account, and

· who used the money and accrued the interest as their own property.

In your case, you provided money to your assurer in order to meet the mandatory AOS requirements. Although the term deposit is in your assurer's name, you provided the funds to be deposited. Any interest earned is provided to you.

We consider that the funds belong to you and are merely held in trust by your assurer, in accordance with the AOS requirements. Therefore, you are beneficially entitled to the interest income.

For this reason, the interest income earned on the term deposit is assessable to you under section 6-5 of the ITAA 1997.