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Paying tax on interest from a savings account

Just like any other source of income, interest earned from a savings account is subject to tax at your marginal tax rate in Australia.

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When you file your income tax return at the end of each financial year, you need to declare all your sources of income, including your salary and income earned from investments. If you have money in a savings account that has earned interest in the previous financial year, you’ll also need to declare this amount and pay tax on it. But even after paying tax on the interest, if you're earning a good interest rate on your savings, you'll still come out on top.

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 2019–20 financial year are shown below:

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000
$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000
$180,001 and over $54,097 plus 45c for each $1 over $180,000

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

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. Any you must pay tax on any money earned throughout the financial year.

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 operated 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.

Are you earning a competitive interest rate on your current savings account?

Data indicated here is updated regularly
$
$
months
Name Product Maximum Variable Rate p.a. Standard Variable Rate p.a. Bonus Interest p.a. Fees Min Bal / Min Deposit Interest Earned
Rabobank Online Savings High Interest Savings Account
2.25%
0.8%
1.45%
$0
$0 / $0
Maximum variable rate of 2.25% p.a. for 4 months, reverting to a rate of 0.8% p.a. No deposit or withdrawal conditions. Available on balances below $250,000
Rabobank Online Savings High Interest Savings Account
0.55%
0.55%
0%
$0
$0 / $0
Maximum variable rate of 0.55% p.a. for 4 months, reverting to a rate of 0.55% p.a. No deposit or withdrawal conditions. Available on balances below $1,000,000
Rabobank Online Savings High Interest Savings Account
0.55%
0.55%
0%
$0
$0 / $0
Maximum variable rate of 0.55% p.a. for 4 months, reverting to a rate of 0.55% p.a. No deposit or withdrawal conditions. Available on balances below $100,000,000
HSBC Serious Saver
2.1%
0.15%
1.95%
$0
$0 / $0
Receive a maximum variable rate of 2.1% p.a. for 4 months, reverting to an ongoing rate of 0.15% p.a. for each month you don't make any withdrawals from the account. Available on balances below $1,000,000.
MyState Bank Bonus Saver Account
1.75%
0.15%
1.6%
$0
$0 / $0
Ongoing, variable 1.75% p.a. when you deposit at least $20 into the account each month and make five or more Visa Debit card transactions from a linked MyState transaction account.
Citibank Online Saver
2.05%
0.35%
1.7%
$0
$0 / $0
Introductory rate of 2.05% p.a. for 4 months, reverting to a rate of 0.35% p.a. Available on balances below $500,000.
Citibank Online Saver
2.05%
0.35%
1.7%
$0
$0 / $0
Introductory rate of 2.05% p.a. for 4 months, reverting to a rate of 0.35% p.a. Available on balances below $500,000.
Bankwest Hero Saver
1.25%
0.01%
1.24%
$0
$0 / $0
Ongoing, variable 1.25% p.a. rate when you deposit at least $200 each month and make no withdrawals. Available on balances up to $250,000.
Bankwest Hero Saver
0.01%
0.01%
0%
$0
$0 / $0
Ongoing, variable 0.01% p.a. rate when you deposit at least $200 each month and make no withdrawals. Available on balances up to $250,000.
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How do I report my interest earned?

The interest you earn can be declared on your annual income tax return. Banks and other investment organisations are also required to report to the ATO details of the interest they pay to account holders and investors. This includes the amount of interest you received from various financial institutions, and the BSB and account numbers for the accounts in which the interest was paid. The ATO then matches the investment income you report with the amount reported by your bank, and if there are any discrepancies your tax return will be adjusted and fines may apply.

Remember, you don’t need to pay tax on the amount you deposit into your account as you will have already paid tax on this income. It is only the interest you earned on that money that is subject to tax. If you need help declaring your interest and claiming eligible tax deductions, an online tax agent can help maximise your tax refund.

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Why should I provide my Tax File Number (TFN) to my 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 financial best interests - if your bank doesn’t have your TFN, withholding tax may apply to the interest you earn on your account.

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%. For non-residents, the withholding tax rate is 10%. If your savings account earns more than $120 per year for adults (or $420 for children) during the financial year, withholding tax applies.

To avoid withholding tax, you can either supply your TFN when you apply for an account, or get in touch with your financial institution 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!

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 spouse, the interest paid will be split equally between the two account holders - 50% each. When it comes to completing a tax return, each partner or spouse need only claim their share of the interest earned on the joint savings account.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 funds, the proportion of contributions from each person, and who used the funds in the account and the interest received.

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

One common point of confusion for many Australian taxpayers is the income tax requirements surrounding a child’s savings account. 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 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 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 $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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