UK annuity income - joint interests - determining extent of assessability to taxpayer

Is the taxpayer assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) on all of the income received from a United Kingdom (UK) annuity when the taxpayer is the joint owner of the annuity?

No. The taxpayer is only assessable on the income received from the UK annuity under section 27H of the ITAA 1936 to the extent of the taxpayer's beneficial ownership of the annuity.

The taxpayer is a self-funded retiree in receipt of income from a United Kingdom annuity.

The annuity was first payable after 1 July 1983.

Both the taxpayer and their spouse respectively have 50 per cent ownership of the annuity (both names being on the policy document) with a monthly sum paid into a joint bank account.

The taxpayer contributed solely to the policy during the course of their working life.

Subsection 27H(1) of the ITAA 1936 provides that annuities first payable on or after 1 July 1983 are included in the assessable income of the taxpayer with the undeducted purchase price excluded if the annuity was purchased.

Taxation Determination TD 92/106 discusses the issue of who should be assessed to interest earned on a joint bank account and states that: 'Interest income on a joint bank account should be assessed to income tax to the persons who are beneficially entitled to the income (see MacFarlane v. FC of T 86 ATC 4477 at 4486-7; (1986) 17 ATR 808 at 819-20). That entitlement depends on the beneficial ownership of the moneys in the account. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the moneys in equal shares. This presumption is rebuttable by evidence to the contrary (see Case Z7 92 ATC 131; AAT Case 7675 (1991) 22 ATR 3591).'

Both the taxpayer and their spouse have 50 per cent ownership respectively of the annuity. The monthly amount derived from the policy is paid into a joint bank account. Accordingly, as the taxpayer is one of two policyholders listed on the policy document, it is considered that they are beneficially entitled to only one half of the income derived from it. The taxpayer's assessable income will therefore include 50 per cent of the income received from the annuity under subsection 27H(1) of the ITAA 1936. This view is held regardless of the fact that the taxpayer contributed solely to the policy during the course of their working life.