| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012315534562
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Interest income
Question:
Is interest income derived and assessable annually?
Answer:
Yes.
This ruling applies for the following period
Year ending 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
Under a private agreement, you deposited $X into a relative's home loan offset account which reduces the interest payable on their home loan.
In return, the $X will be held on trust for you and you receive interest on the money.
The annual interest rate is calculated at between the average term deposit rate and the current home loan rate.
The interest is compounded daily and retained in the offset account until you request payment.
During the 2010-11 financial year you did not request any payment.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 6-5
Reasons for decision
Section 6-5 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 section 6-5 of the ITAA 1997.
Income is assessable for income tax purposes, under section 6-5 of the ITAA 1997, when the person is taken to have derived it. The term derived is explained in the subsection to mean when it is received or applied or dealt with in any way at the person's direction.
Taxation Ruling TR 98/1 sets out the Commissioner's guidelines on the cash or accruals methods for the treatment of income. In the case of interest or investment income, the general principle is that it is only derived, or arises, when it is received or credited, either actually or constructively. Therefore, income is taken to have been derived by a person although it is not actually paid over, but is dealt with on his/her behalf or as he/she directs.
In your case, the agreement you have with your relative is that interest will accrue on the $X and that interest will be retained in the offset account until you request payment. As discussed above, the interest income has been derived by you even though it has not actually been paid to you as it has been dealt with on your behalf or as you direct. Therefore, as interest income is assessable in the year it is derived, the interest is included in your assessable income for the 2011-12 financial year.