Interest income earned in Australia, such as from savings accounts, term deposits, or other investments, is taxable. It must be declared in your annual tax return and is taxed at your marginal income tax rate. Here’s a detailed breakdown:
How Much Tax Do You Pay on Interest in Australia
Table of Contents
1. Taxation of Interest Income
Interest income is added to your total taxable income and taxed according to the progressive income tax rates.
| Taxable Income | Tax Rate on Interest Income |
|---|---|
| $0 – $18,200 | 0% (if interest income falls within the tax-free threshold). |
| $18,201 – $45,000 | 19% of interest income. |
| $45,001 – $120,000 | 32.5% of interest income. |
| $120,001 – $180,000 | 37% of interest income. |
| $180,001 and above | 45% of interest income. |
2. Example Calculations
a. Resident Taxpayer
If you earn $5,000 in interest and your total income is $60,000:
- Total taxable income = $60,000 + $5,000 = $65,000.
- The marginal tax rate for $65,000 is 32.5%.
- Tax on interest income = $5,000 × 32.5% = $1,625.
b. Non-Resident Taxpayer
If you are a foreign resident earning $5,000 in interest:
- Interest is taxed at a flat rate of 10%–15% under most withholding tax agreements.
- Tax on $5,000 at 15% = $750 (withholding tax applies before payment to the non-resident).
3. Exemptions and Tax Offsets
| Exemption/Offset | Details |
|---|---|
| Tax-Free Threshold | Available to residents if total income (including interest) is under $18,200. |
| Foreign Income Tax Offset | For foreign residents, withholding tax paid may exempt interest from further taxation. |
4. Declaring Interest on Your Tax Return
Interest income is pre-filled in your tax return using data provided by banks and financial institutions. Verify these details and ensure:
- The correct amount is reported.
- Joint accounts split interest income equally between account holders.
- Foreign interest income is declared in Australian dollars.
5. How Much Tax Do You Pay on Interest in Australia FAQs
- Is interest income taxed differently from other income?
No, it is taxed at your marginal income tax rate. - Do I need to report interest below $10?
Yes, all interest earned must be declared, even small amounts. - What happens if I forget to declare interest?
The ATO may amend your tax return, and penalties could apply for underreporting income. - Is tax withheld on interest income?
For residents, tax is not withheld. Non-residents may face withholding tax at a flat rate. - Can I reduce the tax on interest income?
You can offset taxable income through deductions or invest in tax-effective structures like superannuation.
Understanding how interest income is taxed helps ensure compliance and allows for effective financial planning.