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Ruling

Subject: Interest income

Question

Are you assessable on 100% of interest in term deposit accounts held in your name?

Answer

Yes. 

This ruling applies for the following period

Year ended 30 June 2011 

The scheme commenced on

1 July 2010

Relevant facts

You held term deposit accounts in your name. The funds were from the sale of a family home overseas.

You and your spouse separated in August 20XX.

One of the term deposits matured in November 2010. At this time, you placed the principal and interest into two term deposits in your name.

Half of the principal and interest held in the accounts was paid to your former spouse at the time of the marriage settlement agreement.

Since putting the funds into the term deposit, you have been declaring all of the interest.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

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.

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.

In your case, while the funds may have been from the sale of a joint asset, as you have deposited those funds in your name only and declared the interest derived from the term deposit in your assessment, it needs to be concluded that you accept the funds in the account as yours. You have no evidence to support a claim that the funds or the interest is not yours. Additionally, after you had separated and the term deposit matured, you still retained the total of the funds in your name, albeit in two separate accounts. This supports the notion that you still considered the funds to be yours.

The principle outlined in TD 92/106 applies in your case. Up until the term deposits mature and the funds redeemed, the beneficial ownership of the money was yours. Your assessable income therefore, will include 100% of the interest earned from the accounts up to when the accounts were closed and the funds divided between you and your former spouse.