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Questions and Answers
What type of income is interest received from banks or building societies considered?
What type of income is interest received from banks or building societies considered?
- Assessable income (correct)
- Exempt income
- Non-assessable income
- Capital income
Constructive receipt means income must be in the taxpayer's possession to be considered received.
Constructive receipt means income must be in the taxpayer's possession to be considered received.
False (B)
What should taxpayers be cautious about when interpreting statements from banks regarding their interest income?
What should taxpayers be cautious about when interpreting statements from banks regarding their interest income?
Interest may not be clearly shown and can appear as various terms.
Interest from a term deposit must be declared in the financial year it is __________.
Interest from a term deposit must be declared in the financial year it is __________.
Match the following examples with their corresponding details:
Match the following examples with their corresponding details:
Which of the following is an example of constructive receipt?
Which of the following is an example of constructive receipt?
Taxpayers must wait until the maturity date of a term deposit to declare the credited interest on their tax returns.
Taxpayers must wait until the maturity date of a term deposit to declare the credited interest on their tax returns.
When is Jack required to declare the interest from his twelve-month term deposit?
When is Jack required to declare the interest from his twelve-month term deposit?
When will Sandy have to declare the interest earned from her term deposit?
When will Sandy have to declare the interest earned from her term deposit?
The interest shown in a joint account is presumed to be in equal shares between the account holders.
The interest shown in a joint account is presumed to be in equal shares between the account holders.
What evidence might be required to confirm unequal ownership of interest from a joint account?
What evidence might be required to confirm unequal ownership of interest from a joint account?
If an account has excessive deposits, further __________ is needed to determine the source of the funds.
If an account has excessive deposits, further __________ is needed to determine the source of the funds.
Match the following scenarios to their corresponding outcomes regarding children's savings accounts:
Match the following scenarios to their corresponding outcomes regarding children's savings accounts:
What tax rate applies if a taxpayer does not supply a tax file number?
What tax rate applies if a taxpayer does not supply a tax file number?
Interest from children's accounts must always be declared by the child.
Interest from children's accounts must always be declared by the child.
What is the TFN withholding tax rate for interests earned above the threshold for individuals over 16 years old?
What is the TFN withholding tax rate for interests earned above the threshold for individuals over 16 years old?
When the income from interest is reported on the tax return, it must be considered as __________ income.
When the income from interest is reported on the tax return, it must be considered as __________ income.
What should be done if interest from term deposits is credited to another transaction account?
What should be done if interest from term deposits is credited to another transaction account?
Interest from overpaid tax would not need to be declared as income.
Interest from overpaid tax would not need to be declared as income.
Who should declare the interest earned if the funds in a child's account come primarily from their own savings, such as birthday presents?
Who should declare the interest earned if the funds in a child's account come primarily from their own savings, such as birthday presents?
Interest from debentures and term deposits must be declared based on the __________ statement from the investment body.
Interest from debentures and term deposits must be declared based on the __________ statement from the investment body.
How is interest from assets exceeding twelve months declared?
How is interest from assets exceeding twelve months declared?
Joint account holders can claim the total TFN withholding tax deducted from their account.
Joint account holders can claim the total TFN withholding tax deducted from their account.
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Study Notes
Interest Income
- Interest from Australian sources is taxable.
- Interest may be shown on statements, passbooks or the ATO’s prefill report.
- Interest may be shown as “transfer”, “direct credit”, NBD (non-book deposit), Dep, Int, or T/D.
- Constructive receipt occurs when interest is credited to an account even if it is not withdrawn, like compound interest on deposits.
- Interest from term deposits must be declared in the year it is credited to the account, even if it is not accessible until maturity.
- Joint accounts are presumed to have equal ownership, but this can be challenged with evidence.
- Children's savings accounts: interest belongs to the person who provided the funds and uses them.
Term Deposits
- Interest is usually credited to the account periodically (e.g., monthly, quarterly).
- When interest is paid into a different account, cross-check with statements to avoid duplication.
TFN Withholding Tax
- If a taxpayer does not provide a TFN, 47% of interest income is withheld.
- Withholding tax applies to accounts earning more than $120 interest per year (over 16 years old) or $420 (under 16 years old).
- TFN withholding tax is credited to the taxpayer on their assessment notice.
- Note: When interest from a term deposit is credited to another account, only the net amount may be shown. Ensure the gross interest is declared and TFN withholding tax is claimed.
Debenture Interest
- Interest from investments exceeding twelve months is declared as per the annual statement.
General Notes
- Be thorough when recording interest income.
- Document the bank name, account number, and number of account holders on the tax return.
- Record details of any closed accounts or term deposits.
- Review previous years’ returns to ensure all accounts are accounted for.
- Ensure the entire financial year is accounted for.
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