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Ruling
Subject: Interest income
Question
Are you assessable on an amount other than 50% of interest in joint bank accounts?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
1 July 2008
Relevant facts
You jointly hold a number of bank accounts.
The funds in the account are from the sale of a joint asset.
You have agreed to split the interest 10% for one and 90% for the other.
This agreement was made so that the person who had the children received the larger share.
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, you have made an arrangement for your former spouse to receive more than 50% of the interest in the accounts because she has the children. This is a private arrangement to contribute to the support of the children. You have not provided evidence that the beneficial entitlement to the funds in the account are other than equal shares. Therefore, you are each required to declare 50% of the interest in the accounts.