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Subject: interest on an assurance of support bond

Question

Does 50% of the interest income from an assurance of support bond form part of your assessable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You and your spouse have migrated to Australia.

The Department of Immigration and Multicultural and Indigenous Affairs decides when an Assurance of Support (AOS) is required.

The AOS requires that your nominated assurer place a bond with a bank.

You and your spouse provided your assurer with this amount from a joint bank account.

The bond money is in your assurer's name.

Your assurer gives you and your spouse the interest earned on the bond.
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 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 and your spouse provided money to your assurer in order to meet the AOS requirements. Although the bond money is in your assurer's name, you and your spouse provided the funds to be deposited. Any interest earned is transferred to you and your spouse.

We consider that the funds belong jointly to you and your spouse and are merely held in trust by your assurer, in accordance with the AOS requirements. Therefore, you are beneficially entitled to 50% of the interest income.

For this reason, 50% of the interest income earned on the AOS bond money is derived by you and assessable to you under subsection 6-5(2) of the ITAA 1997.