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Ruling
Subject: Interest income
Question 1
Does interest derived from a deposit account form part of your assessable income when the original deposit was obtained from the settlement of a legal action?
Answer
Yes
Question 2
Will you be required to lodge an income tax return?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You are the full time carer for your child and have been receiving a carer payment for a number of years. This payment is exempt from income tax.
You received a lump sum representing past and future child support from the paying parent as a result of a court decision
After deduction of legal fees and by adding other savings you have placed a sum in various bank accounts from which you expect to derive in excess of $6,000 per year in interest at the current rates.
Relevant legislative provisions
Income Tax Assessment Act 1936 - section 161
Income Tax Assessment Act 1997 - section 6-5.
Reasons for decision
Question 1
Section 6-5 of the Income Tax Assessment Act 1997 provides that the assessable income for an Australian resident includes income according to ordinary concepts. Interest income is income according to ordinary concepts.
There is no provision in income tax law that permits the Commissioner to vary or waive the assessment of interest income or to treat such interest as exempt income.
Therefore the interest derived will form part of your assessable income.
Question 2
The requirement to lodge tax returns is provided by section 161 of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 161(1) of ITAA 1936 states that every person must lodge a tax return for a given financial year, if required by the Commissioner by notice in the Gazette.
This notice contains the Commissioner's Legislative Instrument and Explanatory Statement for lodgment of tax returns. The instrument states that every person, not being a full self-assessment taxpayer (such as a company), who was an Australian resident for the whole of the financial year, must lodge an income tax return if their taxable income exceeded $6,000 for the financial year.
Your taxable income, based on the figures you have provided, will exceed $6,000 consisting entirely of interest. As such you will be required to lodge an income tax return because your taxable income will exceed the tax free threshold.