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.
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 2022-23 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.
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.
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| BPAY | 44.66% | 43.18% | 32.88% | 45.18% | 42.24% |
| Bank transfer | 27.18% | 27.27% | 24.66% | 21.32% | 22.36% |
| Debit card | 13.59% | 14.02% | 19.18% | 14.72% | 17.7% |
| Credit card | 11.65% | 11.36% | 16.44% | 14.72% | 13.98% |
| Other | 2.91% | 4.17% | 6.85% | 4.06% | 3.73% |
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.
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.
You need to declare all money you've earned in your tax return, including the following:
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. You are eligible to receive any overpaid tax back when you lodge you tax return
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!
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.
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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My wife and I have some money we want to use to open a high interest savings account. Should we do this in her name only as she is the lower income earner?
Hi Mike,
We’re not licenced to provided personal financial advice, however based on the information you’ve shared, if she is the lower income earner, opening an account in her name would result in you paying less tax. So, that seems like a sensible approach. For professional advice, you should contact an accountant or the ATO.
Hope this helps!
I am retired and 64 years old i have a fortnightly income pension from my super plus I earn $18,200.00 a year.
I get about $3,000 in interest a year do i need to do a tax return please ?
Hi Chris, Yes as you have earned income, you are required to lodge a tax return.
my mum is a retiree and is being charged Withholding Tax on the Interest she earns from a savings account. Will it be refunded when tax return is submitted?
Hi Carlton,
Your mum is eligible to be refunded any overpaid tax when she lodges her tax return.
To avoid paying withholding tax, she can provide her tax file number to the bank.
I live overseas full time and I am not a resident of Australia. I have a savings account still in Australia from when I worked there and I get taxed 10% on my interests earned. Soon I will also be getting taxed on this interest from the country I reside in when I declare this account. My question is, will I continue to be taxed from Australia as well as the country I live in?
Hi,
It’s worth speaking with the ATO or a tax adviser to get personal advice based on your situation.
Thanks,
Alison
Am I taxed the same on savings regardless of the type of account?
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:
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