Edited version of your written advice

Authorisation Number: 1012777108908

Ruling

Subject: interest income

Question 1

Are you required to declare 50% of the interest income earned from the joint bank account for the period before the consent order forms were signed?

Answer

Yes

Question 2

Are you required to declare 50% of the interest income earned from the joint bank account for the period from when the consent order forms were signed to the account being closed?

Answer

Decline to rule

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

After separation from your spouse, the home was sold, with the proceeds deposited into a joint bank account in joint names in 20XX.

You declared interest income from that joint account, being your 50% share, on your 20XX income tax return.

You agreed to and signed consent order forms with the Family Court in 20XX in consideration of a property settlement including disbursement of the funds in that account.

The account balance at that time comprised of the original principal from the house sale and all interest accrued on the account from 20XX up to the time the consent order forms were signed.

The consent orders were presented before a Registrar in Chambers and sealed in 20XX, declaring a division of the account balance at the time the consent order forms were signed as per the agreement in those forms.

The joint bank account was closed in 20XX, with a final balance of more than the amount disbursed in the consent orders as a result of further interest accruing on the funds.

When that account was closed, you received monies as per the consent orders and the other party received all remaining funds, including all interest accrued in the joint account after the consent order forms were signed.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision

Question 1

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.  Ordinary income has generally been held to include interest income and the general principle is that interest is derived when it is received or credited.

Taxation Determination TD 92/106 states that interest income on a joint bank account should be returned by taxpayers in accordance with their beneficial interests; otherwise, the interest will be assessed to the account holders in equal shares.

The general presumption is that holders of accounts in joint names have joint beneficial ownership of the monies in equal shares, unless evidence is produced to the contrary.

The sort of relevant documentary evidence includes:

• Information showing who contributed to the funds in the account

• In what proportions the contributions were made,

• Who drew on the account, and

• Who used the money and accrued interest as their own property.

In your case, the original funds in the account were contributed by way of the sale proceeds of a house after separation with your spouse.

There have been no other deposits except for monthly interest accrued and no withdrawals from the account until the account was closed in 20XX.

You agreed to and signed consent order forms in 20XX to distribute property including the funds held in that account, which consisted of both capital and interest accrued.

You had the advantage of ownership of 50% of the interest accrued as leverage in the property settlement in the consent orders, that is, you were able to 'use' that money as your own property.

It follows that 50% of all interest accrued in the joint bank account from the time the account was opened in 20XX, until the time the account balance was at the amount that was disbursed in the consent orders, should be assessed as your income in each year of accrual.

Question 2

Further to Question 1, all subsequent interest accrued on the joint account from the consent order division until closure, is prima facie jointly owned by you and the other party. Therefore, 50% of this subsequent interest forms part of your assessable income unless you are not beneficially entitled to that income.

Who is beneficially entitled to the subsequent interest is an issue of fact and is a matter of dispute between you and the other party.

In order to rule on the question of whether you are assessable on 50% of the subsequent interest, it is necessary to know whether you are beneficially entitled to that income. As this is not known, the Commissioner is unable to rule on this question.