Chapter 8

Interesting Stuff: Bank Deposits and Tax

In This Chapter

arrow Receiving an interest payment

arrow Claiming tax deductions — gaining from losses

W hen you invest in interest-bearing securities, you normally deposit your money with financial institutions such as banks, credit unions and building societies. In return for the use of your money, you receive interest on your deposit, which is ordinarily payable at regular intervals. When the loan matures, you get your initial capital back. Because this class of investment can’t increase in value, no capital gains tax issues arise. If you decide to stay with this investment, the purchasing power of your capital decreases if inflation increases, and the income you derive decreases if interest rates fall. Sure is interesting stuff, isn’t it?

In this chapter, I discuss the taxation issues associated with interest-bearing securities and your investment options. I also examine tax deductions associated with earning interest.

Banking the Return: Interest

When you invest in an interest-bearing security such as a term deposit, you earn interest in return for the use of your capital (the money that you invest). Generally, you’re liable to pay tax when the interest is credited to your account. You need to quote your tax file number (TFN) to the ...

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