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Edited version of your written advice
Authorisation Number: 1012809120981
Ruling
Subject: Interest income
Question
Are you entitled to exclude certain gross interest income from your income for the 2013-14 financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You opened on-line banking accounts with funds owned and controlled by another person. Due to an oversight the accounts were opened in your name. The funds were separate from funds you had.
The funds were controlled and spent by the other person and the funds are now gone.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 specifies that residents of Australia are assessable on income derived from all sources in and out of Australia.
Interest income is regarded as ordinary income and therefore assessable.
Taxation Ruling IT2486 which deals with who should be assessed for interest earned on an account, states that interest income on a bank account is assessed to the persons who are beneficially entitled to the income (MacFarlane v. FC of T 86 ATC 4477; (1986) 17 ATR 808)
The entitlement depends on the beneficial ownership of the money in the accounts. The general presumption is that holders of accounts have beneficial ownership of the moneys in the accounts. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).
Evidence relevant in determining an individual's beneficial entitlement includes information as to who contributed to the account, in what proportions the contributions were made, who drew on the account, who used the money and who the interest is distributed to.
In your case, all the funds in the accounts were money owned by the other person and all drawings from the account are made for the other person's benefit and use.
It is the other person who was beneficially entitled to the funds in the accounts. Therefore, you are not assessable on the income derived from the account; rather this interest is considered to be the income of the other person.