The interest you earn on your savings account is one of several investment income sources, like the dividend on stocks or the rent from a property. When it comes to your tax return, you need to include all income you receive. This should include interest from savings accounts or term deposits, as the Australian Taxation Office (ATO) will include it when assessing the tax you’re required to pay.
You’d need to pay tax on the total of all your earnings at a rate determined by the tax bracket that applies to you based on your total taxable income. Usually, the interest you earn more than compensates for the tax that it attracts.
How much tax is paid on savings account interest?
Your tax liability for the interest earned through a savings account can depend on whether you alone are operating the account for yourself. For instance, if you and your spouse have a joint savings account and you both put in and take out money from it, the interest earned would be equally split between the two of you. Each of you would then need to declare half the interest amount along with other taxable income. You’d then have to pay tax on the total income per the ATO’s tax rates.
Below is a summary of the current tax rates for Australian residents:
- If you earn up to $18,200, you are not liable to pay any tax.
- If you earn between $18,201 – $45,000, you have to pay a tax of 19 cents per every dollar you earn over $18,200.
- If you earn between $45,001 – $120,000, you have to pay a flat tax of $5,092 in addition to 32.5 cents per every dollar you earn over $45,000.
- If you earn between $120,001 – $180,000, you have to pay a flat tax of $29,467 in addition to 37 cents per every dollar you earn over $120,000.
- If you earn more than $180,000, you have to pay a flat tax of $51,667 in addition to 45 cents per every dollar you earn over $180,000.
These tax rates can also be revised from time to time - you should check the ATO website for the latest rates or talk to a tax accountant.
If you’re operating the savings account on behalf of a child, the tax rate can vary further. In this case, the account may be taxed at a higher rate if the child’s date of birth or tax file number (TFN) is not on file and the account is used to receive cash gifts but not for other transactions. Suppose an adult operates the account on behalf of a child, depositing money they’ve earned and withdrawing money for the child’s expenses. In that case, the interest earned is considered the adult’s income and taxed with the rest of their earnings.
How can I find out if I have to pay taxes on interest from my savings account?
Your bank or financial institution will provide you periodic statements listing the transactions on your savings account via internet banking, via email or in the post. These statements will mention the interest you’ve earned on any funds in your savings account. You can also ask your bank for an end of financial year statement showing the interest you’ve earned in that financial year before filing your tax return.
This will be different from a standard statement as it will be for the full financial year from July to June. The bank has to send a statement mentioning the interest earned on your savings account to the ATO. Your bank may withhold tax on the interest you earn if you’ve not provided them with your TFN. This will appear on your statement as either 'TFN withholding tax' or 'Commonwealth tax'.
Once you file your tax return, the ATO will check the amount you’ve mentioned against the amount reported by your bank. In case there is any difference between the two, they’ll ask you to explain the difference and revise your tax return if necessary. For this reason, you should keep a copy of the bank documents you referred to when calculating your interest income along with your payslips and other financial statements.