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Edited version of your private ruling
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Ruling
Subject: interest income
Question 1
Is any part of the interest income paid to you in August 2009 assessable in the 2008-09 financial year?
Answer
No.
Question 2
Is the interest income paid to you in August 2009 assessable in the 2009-10 financial year?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts
You held a 12 month term deposit from August 2008.
Interest was paid to you within one year in August 2009.
You declared some of the interest on this term deposit in your 2008-09 tax return.
The remaining interest income was declared in your 2009-10 tax return.
Both these tax returns were lodged and assessed on time.
Your main source of income is interest. You also receive rental income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
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.
Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 47 of TR 98/1 states that the general principle is that interest is only derived, or arises, when it is received or credited. This general rule is subject to the overall principle that the appropriate method is that giving a substantially correct reflex of income. Exceptions to the general rule include interest from a business of money lending carried on and interest derived by those whose income is calculated on an accruals basis, who invest in fixed or variable interest securities cum interest.
Although there are other exceptions listed in TR 98/1, they do not apply in your circumstances. You don't have other income that is calculated on an accruals basis. It is considered that the receipts basis is the correct method in your case. That is interest is derived and assessable when it is received or credited.
We acknowledge your specific circumstances. However, as outlined above, the interest income was credited and paid in August 2009. Therefore the income is derived and assessable to you in the 2009-10 financial year.
Whilst we acknowledge your specific circumstances, the legislation does not give the Commissioner any discretion in relation to the above provisions. The fact that another entity may also be affected does not alter the outcome.
As you received the interest income from a twelve month term deposit in the 2009-10 financial year, this amount is assessable in that year under subsection 6-5(2) of the ITAA 1997.