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Edited version of your private ruling
Authorisation Number: 1012519636425
Ruling
Subject: Assessability of interest income
Question and answer:
Is the interest you received assessable income in the year ended 30 June 2013?
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You have an investment in a company which collapsed and is now under the control of receivers and managers.
The company is in liquidation and you only expect to receive a partial return on the amount you invested.
You expect to incur a loss on your investment.
You received correspondence stating that interest on your investment had been credited to a bank account in your name.
The payment represented the interest component of your investment at the date of appointment of the receivers and managers.
The Department of Human Services (Centrelink) has advised the receivers and managers that investments in the company would be no longer treated as financial assets for the purposes of the deeming income provisions.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 6-5(4)
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, 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 provides that in working out whether you have derived an amount of ordinary income and 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.
Paragraph 47 of Taxation Ruling TR 98/1 Income tax: determination of income; receipts versus earnings states that the general principle is that interest is only derived, or arises, when it is received or credited.
In your case, you received an interest payment from your investment in the income tax year ended 30 June 20XX. Although a portion of the interest may have accrued in the previous income tax year, it was actually paid to you in the income tax year ended 30 June 20XX.
Therefore, you derived the interest in the income tax year ended 30 June 20XX and it must be included in your assessable income for that year.
We acknowledge that you expect to incur a loss on your investment; however, there are no provisions in the income tax legislation whereby the interest you received can be offset or applied against the loss you will make on the investment. Further, the Commissioner has no powers of discretion under the law to grant an exemption from taxation to individual taxpayers where the law states that tax applies.