Show at J the interest from banks and credit unions, building societies, debentures, notes and deposits, income accrued on discounted or deferred interest securities, government securities, and interest paid by the ATO.
The total, which is the gross amount of interest received or credited, must be included in assessable income.
Even if the TOFA rules apply to the partnership, show at J all interest received or credited to it – this includes interest from financial arrangements subject to the TOFA rules.
If what you show at J includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).
For more information, see the Guide to the taxation of financial arrangements (TOFA) rules.
Show interest that is part of a cash management trust distribution or other similar trust investment product at item 8 Partnerships and trusts.
Copy details from all statements to worksheet 3 and keep the worksheet with your tax records.
Do not include non-share dividends received from holding a non-share equity interest. If the partnership holds such an interest, the issuer is obliged to forward a dividend statement with details of the dividends, which should be shown at item 12 Dividends. Further information on non-share dividends and non-share equity interests is in Debt and equity tests: guide to the debt and equity tests.
Discounted, deferred interest or capital-indexed securities
Show at J the appropriate amount of discount, interest or other gain which accrued this income year on a discounted, deferred interest or capital-indexed security.
Qualifying security rules
A discounted, deferred interest or capital-indexed security may be subject to the qualifying security rules in Division 16E of the ITAA 1936.
Those rules will only apply if the TOFA rules do not apply (see TOFA rules below). In addition, the security must be one that:
- was issued after 16 December 1984
- had a maturity date more than 12 months from the issue date, and
- the sum of all payments under the security (except periodic interest – for example, a coupon rate) exceeds its issue price by greater than 1.5%.
Example 9
On 1 July, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June after two years at a face value of $100. The investor holds the security until it matures. Where this security is not subject to the TOFA rules, the investor is required to calculate the effective rate of interest for each six-month period – in this case, it is 4.88%.
The accrued amount included in gross interest is equal to the increase in value of the security in each income year, as follows:
| Table 5: Accrual amount | ||||||
|---|---|---|---|---|---|---|
| Value of security at: | Beginning of year | Half-year | Increase | End of year | Increase | Increase for year |
(a) |
(b) |
(b)–(a)=(c) |
(d) |
(d)–(b)=(f) |
(c) + (f) |
|
| Year 1 ($) | 82.65 |
86.68 |
4.03 |
90.91 |
4.23 |
8.26 |
| Year 2 ($) | 90.91 |
95.35 |
4.44 |
100.00 |
4.65 |
9.09 |
In the example, the six-monthly period falls at exactly half-year.
TOFA rules
A discounted, deferred interest or capital-indexed security that is a qualifying security may instead be subject to the TOFA rules.
This will be the case if the partnership starts to have the security on or after the start of the partnership's first income year starting on or after 1 July 2010 (or 1 July 2009 if the partnership made an early start election under the TOFA rules), and:
- the partnership is affected by the TOFA rules (below), or
- the security is to end more than 12 months after the partnership starts to have it.
The TOFA rules may also apply to securities the partnership starts to have before that time where it made the transitional election for existing financial arrangements under the TOFA rules (see below).
If what you show at J includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).
Example 9A
On 1 July 2011, a zero-interest-discounted security is issued at $82.65, redeemable on 30 June 2013 after two years at a face value of $100. The investor holds the security until it matures. As this security is subject to the TOFA rules and the TOFA accruals method applies to the security (investor has not made any tax-timing method elections under the TOFA rules) the investor is required to calculate the rate of return for each accrual interval. Using a 12-month period interval, the rate of return is 10.00%.
The gain amount included in gross interest is equal to the increase in value of the security in each income year, as follows:
| Table 5A: Accrual amount | ||||
|---|---|---|---|---|
| Amortised cost (year start) | Gain (increase in value of security) | Cash Flows | Amortised cost (year end) |
|
(a) |
(b) |
(c) |
(a) + (b) – (c) |
|
| Year 0 ($) | –82.65 |
82.65 |
||
| Year 1 ($) | 82.65 |
8.26 |
0 |
90.91 |
| Year 2 ($) | 90.91 |
9.09 |
100.00 |
0 |
TFN amounts withheld from gross interest
Show at I any TFN amounts withheld from gross interest where a TFN has not been provided to the investment body.
Record keeping
Keep all documents issued by the investment body that detail payments of income and any TFN amounts withheld from those payments.
Do not attach these documents to the partnership tax return – keep them with the partnership’s tax records.
We may check the amount shown at J with our own records to determine accuracy – see Information matching.