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Paying tax on savings account interest

Just like any other source of income, you need declare any interest you've earned on an Australian savings account and you'll be taxed at your income tax rate.

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Yes, you need to include interest in your tax return.

When you file your income tax return at the end of each financial year, you need to declare all your sources of income. This includes your salary and income earned from investments, as well as interest you've earned on your savings. If you have money in a savings account that has earned interest in the previous financial year, you’ll need to declare this amount (the interest only, not your whole balance) and pay tax on it at your standard income tax rate.

If you're not required to pay any income tax (for example, if your annual earnings fall below the income tax threshold for the year) you don't need to pay tax on your interest. But you still need to declare it.

At what rate is the interest taxed?

The amount of tax that applies to the interest you earn on your savings account will be determined by your overall taxable income. The total income you earn each year determines the tax rate you must pay, and the ATO's tax rates for the 2021–22 financial year are shown below:

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $45,000 19 cents for each $1 over $18,200
$45,001 – $120,000 $5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000

The above rates don't include 2% Medicare levy.

You need to add the amount of interest you've earned to your total earnings for the financial year, to see which tax bracket you fall into.

Example: Paying tax on savings account interest

For example, let's assume your income for the financial year was $70,000. Plus, you've also earned $2500 in interest on your high interest savings account. This interest will be added to your total income, meaning you'd have a taxable income of $72,500 for the year. This would put you in the third tax bracket.

As another example, let's assume your income for the year was much lower at $7,500. You had some money in a savings account which earned you $1000 in interest for the year. Your total taxable income would be $8,500 so no tax would need to be paid.

You do not need to declare the money sitting in your savings account or bank account (this money has already had tax withheld on it). You only need to declare the interest you've earned. Even if you've spent all the money you've earned in interest payments you still need to declare it.

How do I report my interest earned?

If you lodge your tax return online yourself using myGov, there will be a section on income earned through bank accounts and investments. In most cases the interest you've earned will already be pre-filled for you. Banks and other investment platforms are required to report to the ATO details of the interest they pay to account holders and investors.

If it's not pre-filled, simply check how much interest you've earned for the financial year (this will be included in your annual bank statement) and enter the amount yourself.

Remember, just because it's not pre-filled doesn't mean you can leave your interest undeclared. As banks need to report your interest to the ATO, the ATO then matches this with the amount reported in your tax return, and if there are any discrepancies your tax return will be adjusted and fines may apply.

Why do I need to declare interest?

Under its rules regarding investment income, the Australian Taxation Office (ATO) requires all Australian residents to declare any interest they receive as income. This is because you've earned that money, in a similar way to you earning your salary or wages. You must pay tax on any money earned throughout the financial year. This includes money earned from other investments too, like money made from selling shares or receiving dividends.

What interest do I pay tax on?

You need to declare all money you've earned in your tax return, including the following:

  • Interest from savings accounts and term deposits held with banks, credit unions and building societies.
  • Interest received from a children's savings account opened or by you.
  • Interest paid or credited to you by the ATO.
  • Life insurance bonuses (although tax offsets may be available).
  • Interest earned from foreign sources (although tax offsets may be available).
  • Money you've earned from selling investments like shares.

Compare online tax agents

Hot tip: Give your Tax File Number (TFN) to your bank

When you open a savings account, your bank will give you the option of providing your TFN. While it’s not compulsory to do so, supplying your TFN is in your own best interests.

If you haven’t given your bank your TFN (or if you’re a non-resident of Australia), the bank must withhold an amount from the interest you earn and send it straight to the ATO. This withholding tax is calculated at the top marginal tax rate of 45% plus the Medicare levy of 1.5%. This is the case even if you should actually be in the bottom tax bracket.

To avoid withholding tax, you can either supply your TFN when you apply for an account, or get in touch with your bank at any time to provide your TFN via internet banking, over the phone or at your nearest branch. This makes the process so much easier come tax time!

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What about interest earned in a joint account?

The ATO assumes that joint account holders are equal owners of an account and requires them to pay tax accordingly. For example, if you have a joint savings account with your partner, the interest paid will be split equally between the two account holders at 50% each. When it comes to completing a tax return, each person will then have 50% of the interest earned added to their taxable income.

However, if the beneficial ownership of the account is not split up into equal shares, you’ll need to provide documentation that proves this fact to the ATO. The documentation must show the source of the money, the proportion of contributions from each person, and who used the money in the account and the interest received.

What about interest earned on a children’s savings account?

If you've opened an account for your child but you spend the money in the account for your own day-to-day purchases, then you need to declare any interest earned in your own tax return.

However, in some cases the funds in the account will be made up of the child’s own money - for example, the child may deposit money given as a Christmas or birthday present, their pocket money, and funds they earn from a part-time job such as a paper round. If the money in the account is only used by the child, the interest earned is classified as the child’s income. If the child’s only source of income is interest totalling less than $420 for the financial year, they will not have to file an income tax return. However, if the child is less than 16 years old and the interest earned it exceeds $420, they will need to lodge a tax return.

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8 Responses

  1. Default Gravatar
    KylieJune 22, 2017

    Am I taxed the same on savings regardless of the type of account?

    • Default Gravatar
      JonathanJune 22, 2017

      Hi Kylie!

      Taxes can be a bit of a headache, can’t they? Interest earned from financial institution accounts and term deposits is considered as an investment income. Others falling in this category are:

      • interest earned from any other source including penalty interest received on an investment
      • interest earned from children’s savings accounts if you opened or operated an account for a child and the funds in the account belonged to you, or you spent or used the funds in the account
      • interest we paid or credited to you
      • life insurance bonuses (you may be entitled to a tax offset equal to 30% of any bonus amounts included in your income)
      • interest from foreign sources (you may be entitled to a tax offset for any tax paid on this income).

      Check with the Australian Taxation Office (ATO) to see how these accounts are taxed or talk to a tax accountant for this matter. :)

      Hope this helps.

      Cheers,
      Jonathan

  2. Default Gravatar
    TomApril 19, 2017

    I have question regarding transfers from family member accounts.
    If I transfer money to account belonging to a family member, will it have an impact on the income tax? even if sometimes I ask this family member to make payments from his account for my expenses? (more related to daily activity, bills,tickets, ..)
    I’mt talking about transfer to parents/childrens/siblings which are not employed in Australia during the last year

    • Avatarfinder Customer Care
      DeeMay 7, 2017Staff

      Hi Tom,

      Thanks for your question.

      If you are transferring to a child, the tax impact will depend on who has the control of the funds. As a rule, if a parent provides the funds for the child’s account and spends or uses the funds in the account as they wish, the parent must declare interest earned from the account on their own tax return. However, in case where the funds in the account will be made up of the child’s own money and if the funds in the account are not used by any person other than the child, the interest earned is classified as the child’s income. If the child’s only source of income is interest totalling less than $416 for the financial year, they will not have to file an income tax return.

      This is just a general rule which may not apply to your specific situation. You may have to get in touch with a tax specialist to confirm.

      Cheers,
      Anndy

    • Default Gravatar
      TomMay 9, 2017

      Thank you Anndy
      perhaps my question wasn’t clear.
      if my family member wants to transfer for example 30.000, to my account – and I will be using this money for example to pay bills online, charity on this family member behalf, will the bank ask me to report my the 30.000 as my income, which requires some tax?

      We want make it simple it’s a matter of making daily activity easy, not transferring millions from account to another account.

    • Avatarfinder Customer Care
      DeeMay 11, 2017Staff

      Hi Tom,

      Thanks for your question and I’m sorry for the confusion.

      Kindly note that in regards to savings account, you will only pay tax on the interest earned. As for the impact of the $30,000 to your overall tax, that is something I am not sure of. It would be best if you seek advice from an accountant or financial adviser who is more knowledgeable about tax matters.

      Cheers,
      Anndy

  3. Default Gravatar
    MoonNovember 21, 2016

    Do I have to pay tax on my saving account?. I’m 68 years old, and retired 10 months ago. I did not provide my TFN with the bank.

    • Avatarfinder Customer Care
      DeeNovember 21, 2016Staff

      Hi Moon,

      Thanks for your question.

      Generally, interest earned on a savings account is subject to taxes. You don’t have to provide your TFN, but if you don’t the bank is legally required to deduct tax from any interest earned on the account above a certain threshold.

      Cheers,
      Anndy

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