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Paying tax on term deposits

The interest you earn from term deposits is subject to tax, just like your regular income. You have to declare investment income on your tax return, including interest in the year it was credited or received.

The amount of tax you need to pay depends on the amount of interest you earn on your term deposit as it is part of your overall taxable income and will, therefore, be taxed at the same marginal tax rate that applies to the rest of your income. The ATO’s marginal tax rates for the current financial year are:

If you decide to roll over your interest earnings into a new term deposit, you will still need to declare the interest on your tax return if you choose to reinvest the money instead of accessing it.

Term deposits run under a joint account will have the ATO assuming each person has equal ownership to the funds in the account. This means that the interest earned is equally split between you and your account partner(s), where you will have to pay tax on your portion. If the funds in your account are not split equally, you can provide the ATO with documentation proving the amount you each earn and be taxed different amounts accordingly.

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SMSF property investment regulations to keep in mind

June 2, 2020

Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.

To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:

Also keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.

In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.