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Do you pay tax on savings account interest in Australia? Computer says yes
Just like any other source of funds or profit, interest is 'income', according to the government. So the extra cash you earn in your savings account is taxed at your income tax rate.
Yes, you need to include interest in your tax return.
When you file your income tax return at the end of the financial year, you need to declare all your sources of income, including interest you've earned in your savings account. You'll declare the interest only, not your whole balance, and pay tax on it at your standard income tax rate.
If your annual earnings fall below the income tax threshold for the year, you may not need to pay tax on your interest. But you still need to declare it.
At what rate is the interest taxed?
The amount of tax that applies to the interest you earn on your savings account depends your overall taxable income. The total income you earn each year determines the tax rate you must pay, and the ATO's tax rates for the 2024–25 financial year are shown below:
Taxable income
Tax on this income
0 – $18,200
Nil
$18,201 – $45,000
16c for each $1 over $18,200
$45,001 – $135,000
$4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000
$31,288 plus 37c for each $1 over $135,000
$190,001 and over
$51,638 plus 45c for each $1 over $190,000
The above rates don't include 2% Medicare levy.
You need to add the amount of interest you've earned to your total earnings for the financial year, to see which tax bracket you fall into. You do not need to declare the money sitting in your savings account or bank account (this money has already had tax withheld on it). You only need to declare the interest you've earned. Even if you've spent all the money you've earned in interest payments you still need to declare it.
Example: Asad earns $95,000 and another $5,000 in interest
Asad works in an accounting firm and earns an income of $95,000 for the financial year. He also earned $5,000 in interest in his high interest savings account. This interest will be added to his total income, meaning he'll have a taxable income of $100,000 for the year. The additional $5,000 in interest will be taxed 30%, or $1,500 (not including Medicare Levy). When Asad does his tax return, he declares his interest earned along with a number of work-related tax deductions. The ATO processes both his claims and his declared interest, and calculates whether he is due to get a refund or whether he owes the ATO money.
Finder survey: How do Australians pay their taxes in different states?
Response
WA
VIC
SA
QLD
NSW
BPAY
44.66%
43.18%
32.88%
45.18%
42.24%
Bank transfer
27.18%
27.27%
24.66%
21.32%
22.36%
Debit card
13.59%
14.02%
19.18%
14.72%
17.7%
Credit card
11.65%
11.36%
16.44%
14.72%
13.98%
Other
2.91%
4.17%
6.85%
4.06%
3.73%
Source: Finder survey by Pure Profile of 1004 Australians, December 2023 Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
Why do I need to declare interest?
Under its rules regarding investment income, the Australian Taxation Office (ATO) requires all Australian residents to declare any interest they receive as income. This is because you've earned that money, in a similar way to you earning your salary or wages. You must pay tax on any money earned throughout the financial year. This includes money earned from other investments too, like money made from selling shares or receiving dividends.
Hot tip: Give your Tax File Number (TFN) to your bank
When you open a savings account, your bank will give you the option of providing your TFN. While it’s not compulsory to do so, supplying your TFN is in your own best interests.
If you haven’t given your bank your TFN (or if you’re a non-resident of Australia), the bank must withhold an amount from the interest you earn and send it straight to the ATO. This withholding tax is calculated at the top marginal tax rate of 45% plus the Medicare levy of 1.5%. This is the case even if you should actually be in the bottom tax bracket. You are eligible to receive any overpaid tax back when you lodge you tax return
To avoid withholding tax, you can either supply your TFN when you apply for an account, or get in touch with your bank at any time to provide your TFN via internet banking, over the phone or at your nearest branch. This makes the process so much easier come tax time!
Expert insight: Check your interest on your return
"When it comes to bank interest, the ATO simplifies the tax filing process by pre-filling your tax return with data from financial institutions. This means any interest earned on your savings accounts is automatically reported to the ATO by your bank, reducing the need for manual entry and minimising errors. This pre-fill feature ensures that all your interest income is accurately included in your tax return, helping you stay compliant and avoid any potential issues. However, it's still important to review the pre-filled information to ensure its accuracy and completeness before submitting your tax return."
The ATO assumes that joint account holders are equal owners of an account and requires them to pay tax accordingly. For example, if you have a joint savings account with your partner, the interest paid will be split equally between the two account holders at 50% each. At tax time, each person will then have 50% of the interest earned added to their taxable income.
What about interest earned on a children’s savings account?
If you've opened a savings account for your child but you spend the money in the account for your own day-to-day purchases, then you need to declare any interest earned in your own tax return. In some cases the funds in the account will be made up of the child’s own money – for example, they might deposit money given as a Christmas or birthday present, their pocket money, or income they earn from a part-time job such as a paper round. If the money in the account is only used by the child, the interest earned is classified as the child’s income. If the child’s only source of income is interest totalling less than $420 for the financial year, they will not have to file an income tax return. If the child is less than 16 years old and the interest earned is more than $420, they will need to lodge a tax return.
Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds. See full bio
Alison's expertise
Alison has written 645 Finder guides across topics including:
Your tax return has a different deadline depending on which financial year you're filing for, and whether or not you're using a tax agent. See which tax return due date applies to you in this guide.
My wife and I have some money we want to use to open a high interest savings account. Should we do this in her name only as she is the lower income earner?
Finder
SarahApril 23, 2024Finder
Hi Mike,
We’re not licenced to provided personal financial advice, however based on the information you’ve shared, if she is the lower income earner, opening an account in her name would result in you paying less tax. So, that seems like a sensible approach. For professional advice, you should contact an accountant or the ATO.
Hope this helps!
ChrisOctober 19, 2023
I am retired and 64 years old i have a fortnightly income pension from my super plus I earn $18,200.00 a year.
I get about $3,000 in interest a year do i need to do a tax return please ?
Finder
SarahOctober 19, 2023Finder
Hi Chris, Yes as you have earned income, you are required to lodge a tax return.
CarltonOctober 4, 2023
my mum is a retiree and is being charged Withholding Tax on the Interest she earns from a savings account. Will it be refunded when tax return is submitted?
Finder
SarahOctober 12, 2023Finder
Hi Carlton,
Your mum is eligible to be refunded any overpaid tax when she lodges her tax return.
To avoid paying withholding tax, she can provide her tax file number to the bank.
EqOctober 9, 2022
I live overseas full time and I am not a resident of Australia. I have a savings account still in Australia from when I worked there and I get taxed 10% on my interests earned. Soon I will also be getting taxed on this interest from the country I reside in when I declare this account. My question is, will I continue to be taxed from Australia as well as the country I live in?
Finder
AlisonNovember 22, 2022Finder
Hi,
It’s worth speaking with the ATO or a tax adviser to get personal advice based on your situation.
Thanks,
Alison
KylieJune 22, 2017
Am I taxed the same on savings regardless of the type of account?
JonathanJune 22, 2017
Hi Kylie!
Taxes can be a bit of a headache, can’t they? Interest earned from financial institution accounts and term deposits is considered as an investment income. Others falling in this category are:
interest earned from any other source including penalty interest received on an investment
interest earned from children’s savings accounts if you opened or operated an account for a child and the funds in the account belonged to you, or you spent or used the funds in the account
interest we paid or credited to you
life insurance bonuses (you may be entitled to a tax offset equal to 30% of any bonus amounts included in your income)
interest from foreign sources (you may be entitled to a tax offset for any tax paid on this income).
Check with the Australian Taxation Office (ATO) to see how these accounts are taxed or talk to a tax accountant for this matter. :)
Hope this helps.
Cheers,
Jonathan
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My wife and I have some money we want to use to open a high interest savings account. Should we do this in her name only as she is the lower income earner?
Hi Mike,
We’re not licenced to provided personal financial advice, however based on the information you’ve shared, if she is the lower income earner, opening an account in her name would result in you paying less tax. So, that seems like a sensible approach. For professional advice, you should contact an accountant or the ATO.
Hope this helps!
I am retired and 64 years old i have a fortnightly income pension from my super plus I earn $18,200.00 a year.
I get about $3,000 in interest a year do i need to do a tax return please ?
Hi Chris, Yes as you have earned income, you are required to lodge a tax return.
my mum is a retiree and is being charged Withholding Tax on the Interest she earns from a savings account. Will it be refunded when tax return is submitted?
Hi Carlton,
Your mum is eligible to be refunded any overpaid tax when she lodges her tax return.
To avoid paying withholding tax, she can provide her tax file number to the bank.
I live overseas full time and I am not a resident of Australia. I have a savings account still in Australia from when I worked there and I get taxed 10% on my interests earned. Soon I will also be getting taxed on this interest from the country I reside in when I declare this account. My question is, will I continue to be taxed from Australia as well as the country I live in?
Hi,
It’s worth speaking with the ATO or a tax adviser to get personal advice based on your situation.
Thanks,
Alison
Am I taxed the same on savings regardless of the type of account?
Hi Kylie!
Taxes can be a bit of a headache, can’t they? Interest earned from financial institution accounts and term deposits is considered as an investment income. Others falling in this category are:
Check with the Australian Taxation Office (ATO) to see how these accounts are taxed or talk to a tax accountant for this matter. :)
Hope this helps.
Cheers,
Jonathan