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Edited version of your private ruling
Authorisation Number: 1012508948785
Ruling
Subject: Interest income
Question
Is the interest income credited to your account assessable in the 2012-13 income year even though you are unable to access the funds?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You held a 12 month term deposit.
You received an interest paid statement advising you have earned interest.
The interest was credited quarterly to your account. The term deposit matures in the 2013-14 income year.
You declared part of the interest income in your 2012-13 tax return.
The financial institution is in financial difficulty and all funds are frozen until further notice.
You are unable to access the principal or interest held in your account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Detailed reasoning
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.
Subsection 6-5(4) of the ITAA 1997 states that in working out whether you have derived an amount of ordinary income, and if so when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
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.
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.
You advised that although the interest has been credited to your account you are unable to access the funds as they have been frozen.
We acknowledge your specific circumstances. However, as the interest income was credited in the 2012-13 income year, this income is derived and assessable to you in the 2012-13 income year. The legislation does not give the Commissioner any discretion in relation to the above provisions.