Avoid a smack on the back of the hand from the ATO by ensuring you are declaring all income, including bank interest earned on any financial accounts.
How do you know how much interest you earnt?
Your financial institution reports any interest earned directly to the ATO. If the amount received by the ATO from your financial institution does not match the amount declared in your tax return, the ATO may contact you by mail to confirm. There are several different types of account to declare interest from. The two main types being Individual accounts and Joint accounts. Other accounts include Accounts held for a child and Accounts held in a trust.
It is a necessity to declare interest earned from any account in your name. If you receive a letter from the ATO to confirm the figures in your lodged return, read through thoroughly and you may either alter the interest first declared OR you may dispute if:
- The funds, therefore interest, do not belong to you
- You can validate that the funds in the account will results in no benefit to you
- You are simply a signatory on the account
From the ATO’s point of view, they make the assumption that the funds held in any joint account is of equivalent ownership to the individuals on the account. This means if there are two names on the account, there is 50% of the interest earned to be declared by each individual. If there are four names on the account, there is 25% of the interest earned to be declared by each individual.
If the ownership of the funds is not actually split equally as assumed, you will need to be able to prove your share through bank statement or deposit records, the amount and frequency of contributions and/or which individual spent the funds.
The ATO may request further information outside of the list above, if necessary. You may send supporting documentation directly through to the ATO website.
Accounts held for a Child
If there is interest earned in a minor’s account, it must still be declared. The parent or guardian (if they deposited the money) is the rightful owner of the funds and therefore must be declared in the parent (or guardians) tax return.
Accounts held in trust
A trust account is a financial account whereby a trustee is eligible to hold funds on behalf of another individual or client. Trust accounts are most commonly held for accountants, solicitors, real estate agent’s etc. Not all trust accounts gain interest although if your trust account does, the person with the greatest amount of owner ship of funds will need to remember to declare it in their annual return. If you are not the primary owner of the account, documentation will need to be sent through to prove correct ownership.
Dividends are explained by Investopedia as: “A distribution of a portion of a company’s earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.”
Dividends are to be included in your annual tax as a component of declarable income. Earnings received on non-share equity interest, amounts your received from a private company as a shareholder, amounts you received from the trustee of a trust estate may all, also be included as dividends.