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Edited version of your private ruling
Authorisation Number: 1012525488084
Ruling
Subject: Income - assessable - timing
Question
Is interest income assessable in the year it is derived?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You have an interest bearing account with a financial institution.
You received an annual tax summary from the financial institution showing that you had derived interest on 30 June 2013.
The interest was credited to your account on 1 July 2013
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 (paragraph 47). Interest may, however, be constructively received without actual receipt if it is made available to the lender's use, is capitalised or otherwise dealt with on behalf of or at the direction of the lender.
In your case, the interest income was derived on 30 June 2013 as per your annual tax summary issued by the financial institution. At this point the funds were dealt with at your direction, that is deposited into your bank account. Even though the interest was not credited to your account until 1 July 2013, you had constructively received the interest on 30 June 2013. As such the interest would be included in your assessable income for the 2012-13 income year.