Check the income you need to declare and tax implications if you invest in bank accounts and income bonds.
Interest from a bank or other financial institution is part of your assessable income for the year. Even if the funds earning the interest were not subject to tax, the interest is. For example, if you won some prize money and banked it, you wouldn’t usually include the prize money on your tax return, but you would include the interest you earned on it.
You can also claim a tax deduction for expenses incurred in earning interest income or income from friendly society income bonds.
Banks and other investment bodies report to the ATO the interest they pay to account holders and investors. We match this information with the amounts people report in their tax returns to ensure that all income is being declared. If we find a discrepancy, we do adjust tax returns and penalties can apply.
Bank accounts held by foreign residents
Financial institutions automatically withhold tax from interest earned on accounts held by foreign residents.
If you’ve given the financial institution your overseas address, the tax will be withheld at the rate of 10%. Without your overseas address, tax is withheld at 47%.
You don’t include this interest as income on your Australian tax return.
For more information about tax withheld from unfranked dividends and royalties you earn in Australia, see Interest, unfranked dividends and royalties.
Offshore bank accounts
Some tax authorities in other countries don’t require you to report interest earned overseas, but we do. If you hold bank accounts in other countries, you must report any interest or other income earned from these accounts in your Australian income tax return. You may have to pay additional charges if you don’t do this.
Example: Offshore bank account
Javed came to Australia as an overseas student. Having completed his degree, he became a permanent resident of Australia under the skilled migration program. He visits his relatives in India every year and has left his Indian bank account open for easy access to funds in India.
When preparing his first tax return as a permanent resident of Australia, Javed reads on our website that bank interest from offshore accounts is taxable in Australia. He discloses the interest that has accrued in his account in India over the year.
We receive information from the Indian Department of Revenue about interest payments as part of the Automatic Exchange of Information program. Javed’s name appears in the data. The interest amount reported is consistent across the two sources. Javed is complying with his tax obligations, so we take no follow-up action.
End of example
Bonuses from income bonds are part of your assessable income for the year.
Income bonds are a type of life insurance policy that only friendly societies issue. They are sometimes marketed as ‘bonus bonds’ or ‘savings bonds’. Unlike other life insurance policies, which pay bonuses on maturity or surrender, an income bond is like a savings account and distributes regular bonuses. For tax purposes, these bonuses are treated in the same way as interests.
Tax file number (TFN) withholding tax
If your bank doesn’t have your tax file number (TFN), it will withhold tax from your interest at the highest marginal tax rate. You can claim a credit for the amount of tax withheld when you lodge your tax return.
You don’t need to provide your TFN if:
- you are under 16 years of age
- the account is in your name
- the account earns less than $420 interest each year.
If you are under 18 years old on 30 June of a financial year, your interest may be taxed under the special high tax rates for minors.
For more information about income on savings accounts for children under 18 years old, see Children’s savings accounts.