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Edited version of your written advice
Authorisation Number: 1012687981544
Ruling
Subject: interest income
Question
Is the Company assessable on interest income earned on a term deposit?
Answer
Yes
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
Relevant facts and circumstances
You are the sole director of the Company. The Company has bank accounts in its own name.
At your request, the Company's funds were transferred into a term deposit. It was your direction that the funds were to be invested in the Company's name.
Due to an error in the bank's paperwork, the term deposit was opened in your personal name rather than the Company's name and interest earned on the deposit was attributed to your tax file number.
On maturity, the term deposit was closed and the funds (principal and interest) were transferred back into the Company's bank account.
At no time were Company's funds placed in your personal bank accounts or used for your personal benefit.
Your accountant erroneously treated the interest earned by the Company's term deposit as if it had been earned by you.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Section 6-5 of the ITAA 1997 states that assessable income includes income according to ordinary concepts. The interest earned on the term deposit is income according to ordinary concepts and therefore is assessable income under section 6-5 of the ITAA 1997.
Taxation Ruling IT 2486 addresses the question of who should be liable for the tax on interest earned on accounts held in trust or in another's name. Whilst the ruling specifically deals with children's bank accounts the concepts can be applied to the current situation.
IT 2486 states at paragraph 4:
Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?'. If the money really belongs to the parent, in the sense that the parent provided the money and may spend it as he or she likes, then the parent should include the interest in his or her return.
In your case, you directed the bank to open a three month term deposit for the Company and to transfer all funds in the Company savings account to the term deposit. The bank erroneously opened the term deposit in your name, rather than the Company's.
You never intended for the funds to be transferred to yourself and at no time were the funds placed in your personal bank accounts or used for your personal benefit.
On maturity, the term deposit was closed and the funds (principal and interest) transferred back into the Company's bank account.
On the facts presented, the Commissioner considers that the money transferred into the term deposit remained that of the Company, despite the account being in your name. As such, the Company is considered to be assessable on the interest income earned on the term deposit, rather than you personally. To reiterate, the Commissioner is satisfied that there was no loan between you and the Company and that beneficial ownership of the funds was retained by the Company.