Paying tax on term deposit interest
You need to pay tax on the interest you earn on a term deposit.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
If you’ve invested money in a term deposit, you will need to pay tax on the interest income you earn. The amount of tax you'll need to pay on your term deposit interest will depend on your overall taxable income, and it will also depend on when you receive your interest payments.
This guide will outline when term deposit interest is taxable, how much tax you'll pay on your interest and how you can make sure you meet all your obligations when declaring your tax. You can also compare current term deposit rates.
Is term deposit interest taxable?
As an Australian resident, you must pay tax on all the income you receive each year, including interest income earned from savings accounts and term deposits. So if you’ve been paid interest on a term deposit in the past financial year, you’ll need to declare that amount on your next tax return.
Here's how much tax you'll pay on term deposit interest
The interest you earn on your term deposit will be added to your total taxable incomes, and taxed at the same marginal tax rate that applies to the rest of your income. The table below shows the ATO’s marginal tax rates for the current financial year.
Resident tax rates 2019–20
|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|
Foreign resident tax rates 2020–21
|Taxable income||Tax on this income|
|0 – $90,000||32.5c for each $1|
|$90,001 – $180,000||$29,250 plus 37c for each $1 over $90,000|
|$180,001 and over||$62,550 plus 45c for each $1 over $180,000|
You need to declare term deposit interest in the financial year you receive the interest payments.
If your term deposit has a term of less than one year, you will need to declare any interest payment you receive in your tax return for that year. However, if you have invested your money for a period of longer than 12 months, when you declare your interest income depends on when the interest is paid on your account.
If interest is paid at maturity, you will need to declare that interest on your tax return for the year in which your investment matures. However, if interest is credited to you throughout the term, for example if you receive monthly or half-yearly interest payments, you will need to declare any interest earned for the financial year in which it was credited to your account.
What if I decide to roll over my interest earnings into a new term deposit?
When a term deposit matures, many people choose to automatically roll over their initial deposit and any interest earned into a new term deposit account. However, if you choose this option and re-invest your interest rather than accessing it, you will still need to declare the interest on your tax return.
If it's a joint term deposit the interest payments are split equally.
If your term deposit is a joint account, for example if you share ownership with your partner, the ATO assumes that each person has equal ownership of the funds in the account. The interest paid each financial year is therefore equally split between each account holder – 50% each if there are two account holders and 25% each if there are four account holders.
However, if the beneficial ownership of the account is not split into equal shares, you’ll need to provide documentation to the ATO to prove the amount of your share.
Providing your Tax File Number (TFN) to your bank will help at tax time.
When you’re filling out the paperwork to apply for a term deposit, one of the questions you’ll be asked is whether you would like to provide your TFN. While it’s not compulsory for you to supply your TFN to your bank, doing so is worth your while and will help you out at tax time.
If you don’t give your TFN to your bank, the bank is required to deduct withholding tax from the interest you earn and send it straight to the ATO. The bank will make the deduction at the highest marginal tax rate of 45%, plus the Medicare Levy of 1.5%, which may be a lot higher than your correct tax rate.
Withholding tax applies to accounts that earn $120 of interest or more per year. This figure rises to $420 for children’s accounts, so keep this in mind when deciding whether or not to provide your TFN to your bank.
Tax tips for term deposits
Want to minimise the tax you have to pay on term deposit interest? Keep the following tips in mind:
- Plan your interest payments. Consider your likely tax liability for the financial year ahead. If you’re planning on having a term deposit mature in that year, will the interest payments you receive move you into a higher tax bracket? By structuring your term deposit interest payments carefully, you can reduce the risk of being stuck with a hefty tax bill in any given year.
- Structure your term deposits. If you earn more income than your partner and you’re likely to face a sizable tax bill, you might want to consider structuring new term deposits so that they’re held in your partner’s name or perhaps owned jointly.
With careful planning and an eye to the future, you can make sure you always meet your obligations to the ATO, and hopefully ensure that you’re never stuck with a tax bill you can’t afford.
Find a tax agent
Use the help of an expert to manage your taxes and make the most of your tax return this year. Compare tax agents in Australia below.
The products compared on this page are chosen from a range of offers available to us and are not representative of all the products available in the market. There is no perfect order or perfect ranking system for the products we list on our Site, so we provide you with the functionality to self-select, re-order and compare products. The initial display order is influenced by a range of factors including conversion rates, product costs and commercial arrangements, so please don't interpret the listing order as an endorsement or recommendation from us. We're happy to provide you with the tools you need to make better decisions, but we'd like you to make your own decisions and compare and assess products based on your own preferences, circumstances and needs.
You may also be interested in
Earn a fixed interest rate on a wide choice of terms with a Gateway Bank personal term deposit.Read more…
While the stock market continues to fall and recession fears ramp up, we're seeing term deposit rates increase for the first time in years.Read more…
Earn a competitive fixed interest rate on a 3 or 6 month Citibank term deposit when you invest $10,000 or more.Read more…
SPONSORED: It's great to set yourself some fitness, health, travel or career goals, but don't forget about your finances.Read more…
SPONSORED: There are plenty of ways to maximise your term deposit rate and get yourself a better return, even in this low-rate environment.Read more…
Business bank Tyro has launched the pilot business term deposit today to existing customers with 30-, 60- or 90-day terms available initially.Read more…
More guides on Finder
Find out more about AdvancePay, the Commonwealth Bank's new "pay on demand" platform accessible to creditworthy CommBank customers.
Christian Cafe overview
Find out everything there is to know about the online dating site, Christian Cafe.
How to buy shares for children
Here is the essential info you need to know about investing in the stock market for your children.
When does your owner occupier loan become an investment loan?
Do you have to tell your lender if you rent out a room and turn your mortgage into an investment loan?
Handypay Personal Loan
Find out more about Handypay's personal loans for home improvements. Personalised rates start from 6.75% p.a. on terms from 1 to 7 years.
Principal and interest home loans
Read Finder's guide to understanding principal and interest home loans.
How to save for a house deposit while still paying rent
SPONSORED: Saving enough for a house deposit while you're paying rent is challenging, but it can be done.
Pepper Money No Fee Personal Loan Review
Find out more about Pepper Money's no fee personal loan and benefit from a competitive rate from 6.95% p.a., zero fees and loan terms of up to 7 years.
Budget 2020 income tax cuts: How much will you save?
The government will bring forward personal tax cuts that will see Australian workers save up to $2,565 in tax this financial year.
Gay Match Maker overview
Find out everything there is to know about this Australian-exclusive dating site.