Edited version of private advice

Authorisation Number: 1052179264429

Date of advice: 20 October 2023

Ruling

Subject: Bank interest

Question

Is the interest you receive from your bank assessable as ordinary income under section 6-5 of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No, the Commissioner considers that the interest you receive from a savings account is not assessable under section 6-5 of the ITAA 1997.

This ruling applies for the following periods:

Year ended in 30 June 202X

Year ended in 30 June 202X

Year ending in 30 June 202X

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You arrived in Australia from XX as a refugee on XX 20XX and you are permitted stay in Australia under a Refugee subclass 200 Visa.

You still retain the ownership a savings account and the investment certificate, however you do not have control over them because the bank account has become inactive.

You cannot return to your home country to activate your bank account.

There are no branches of the bank in Australia.

You cannot for security reasons, you cannot travel overseas out of Australia to activate your bank account in any country which has the bank branches.

You can also not access online services or use a power of attorney in these countries to activate it for you.

Every 6 months you were expected to receive interest back into your bank account. This amount was added to your total unless you give notice you wanted to withdraw.

You have no current control over where the interest was held.

You have not withdrawn any amounts from those accounts in the income years you've applied for.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Subsection 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts, which is called ordinary income.

Subsection 6-5(2) of the ITAA 1997 states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year.

Subsection 6-5(4) of the ITAA 1997 states in working out whether you have derived an amount of ordinary income, and (if so) 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.

Chapter 4 of the Explanatory Memorandum to the ITAA 1997 provides that amounts received still need to have all the attributes of ordinary or statutory income before it is treated as such. You still need to have 'derived' the income.

Ordinary income has generally been held to include three categories: namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

(a) are earned

(b) are expected

(c) are relied upon, and

(d) have an element of periodicity, recurrence or regularity.

If the income has characteristics of the four listed above then it can be considered as ordinary income under section 6-5 of the ITAA 1997.

In your case, the money made on interest to your savings account are earned, expected, relied upon and has an element of regularity (half yearly), therefore receipt is ordinary income under section 6-5 of the ITAA 1997.

However, where the funds are locked to an account, or inaccessible to you until a condition of release is met, the funds will not be derived until the condition of release is met and the funds are accessible or can be dealt with in any way, on your behalf, or as you direct.

The case Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108, 154-5 noted in the assessment of income, the object is to discover what gains have occurred during the period of account 'come home' to the taxpayer. This establishes that for a receipt of ordinary income to be assessable under section 6-5 of the ITAA 1997 it must 'come home' to the taxpayer.

Although interest was credited to your account, you were not able to access them, or have them applied or dealt with in any way on your behalf or as you directed. You were notified that your account was deactivated and that no withdrawals would be possible. The funds are not accessible to you and you cannot otherwise deal with them in any way.

The Commissioner considers that the interest amounts have not 'come home' to you and therefore you have not yet derived the interest amounts. Accordingly, the interest amounts will not be assessable as ordinary income under subsection 6-5(4) of the ITAA 1997, until such time the amounts can be applied or can be dealt with in any way, on your behalf or as you direct.