Tax on term deposit interest

The ATO’s instructions say to declare interest "paid or credited" to you from any Australian source, including term deposits, in the income year it is paid or credited. That timing matters for a term deposit: interest paid at maturity is income in the year of maturity, even if the deposit ran across two financial years. Interest paid monthly is income month by month.

For an Australian resident it is taxed as ordinary income at your marginal rate, with the Medicare levy where it applies. There is no separate rate for interest. Foreign residents are taxed under different withholding rules.

The ATO says to declare only your share of interest on a joint account. For a joint term deposit between two people that is normally half each, unless you hold it in different proportions and can show it.

When no TFN, ABN or exemption has been quoted for an account, the bank must withhold tax from the interest at the highest marginal rate plus the Medicare levy before paying it, once the interest for the year reaches $120. For a joint account, at least two of the holders need to quote, or withholding applies to the whole payment. The withheld amount is not lost: you show the gross interest and the amount withheld on your return and it is credited against the tax you owe. Quoting a TFN stops the withholding; it does not change the obligation to declare the interest.

Interest on an account held for a child can be treated as the child’s or the parent’s income depending on whose money it is and who controls it; the ATO has specific rules, and the $120 withholding threshold applies to a child’s account too. Term deposits held by a trust or a self-managed super fund are taxed under those entities’ rules, not as personal income. The rates on this site are the banks’ retail rates; some banks publish separate SMSF and business products.

Banks report interest to the ATO, and it usually appears in your pre-filled return. Check the amount against your statements, particularly for a deposit that matured near the end of the income year. This page describes the general rules and is not tax advice; the ATO pages linked below are the authority.