Investing in bank accounts and income bonds

Are you?
– A taxpayer earning interest income?

At a glance:
– Interest earned from a bank or other financial institution forms part of a taxpayer’s assessable income.

You should:
– Ensure you disclose any interest income earned during the year in your tax return.
– Contact us if you require any clarification or advice.

Interest income earned during a financial year from an interest bearing financial product regardless of whether the interest has been received or reinvested, will be assessable income to the taxpayer.

Taxpayers may claim deductions for expenses incurred in earning the interest income.

There are two main types of withholding taxes that may be applied to interest income.

The first being where the bank does not have the taxpayer’s tax file number (TFN), a withholding tax equal to the highest marginal tax rate is withheld from the interest amount. Taxpayers can claim a credit for any amount withheld in their tax return.

Taxpayers have a choice not to disclose their TFN if all of the following criteria are met:

• Being under the age of 16 years;
• The account is in the taxpayer’s name; and
• The account earns less than $420 interest each year.

The second type of withholding tax applies to non-residents at a rate of 10%.

Banks and other investment institutions report interest income information to the Tax Office which is used to data match against the interest income included in a taxpayer’s tax return.

Discrepancies may attract penalties if the taxpayer cannot provide a valid reason for the difference.

For more information, click here.

Remember:
– Foreign residents will need to indicate their residency status to ensure the correct withholding tax rate is applied.