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Ruling

Subject: Interest income - ownership

Question 1:

Can interest income which has been earned on an account in one spouse's name be split between both spouses when beneficial entitlement can be proven?

Answer:

Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You have previously reported all of your interest income in accordance with the name in which the account is held.

You wish to split the interest income earned on a bank account held in only one of your names only.

You state that an account held in one of your names was opened from funds transferred from a jointly held account, and the funds in the account are used by both of you. The account in question was opened in only one of your names as a matter of convenience. Your other bank accounts contain monies singularly earned from salaries and welfare payments.

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 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Interest income is considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Taxation Determination TD 92/106 addresses the question of who should be assessed on the interest earned from a joint bank account. TD 92/106 states the following:

Interest income on a joint bank account should be assessed to income tax to the persons who are beneficially entitled to the income (see MacFarlane v. FC of T 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. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).

In a self assessment environment, interest income on a joint bank account should be returned by taxpayers according to who has the beneficial entitlement to the interest.

The sort of relevant evidence includes information as to who contributed to the account, in what proportions the contributions were made, the nature of the contributions, who drew on the account and who used the money and the accrued interest as their own property. Evidence also might be provided that joint account holders hold moneys in the account on trust for other persons, e.g. dependants.

The principles of TD 92/106 can also be applied to accounts held in only one name. The principal determinant is who has beneficial ownership of the funds in the account.

In your case, an account held in one of your names was opened from funds transferred from a jointly held account, and the funds in the account are used by both of you. It would therefore be considered that you both have beneficial ownership of the funds in the account, and the interest income should therefore be declared accordingly.