Derivation of interest income from term deposit with a bank

When is interest income on a short term investment derived under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Interest income on a short term investment is derived under section 6-5 of the ITAA 1997 on the date when the interest is received or credited to the taxpayer's account.

The taxpayer invested funds in term deposits with a bank at a fixed interest rate and for a specified period not exceeding 12 months.

At maturity, interest income was credited to the principal sum of the term deposit.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Subsection 6-5(4) of the ITAA 1997 states that a taxpayer derives an amount of ordinary income when the amount is: • received by the taxpayer; or • dealt with on the taxpayer's behalf or as the taxpayer directs.

The taxpayer is credited with interest on the maturity of the term deposit. Accordingly, the interest is derived in the year of income that it is credited to the principal sum of the investment.