Interest earned on a term deposit is taxable income in Australia. It is added to your assessable income and taxed at your marginal tax rate — there are no special concessions (unlike capital gains or dividends). Understanding when it’s assessable and how to manage the tax is important for effective planning.
How Term Deposit Interest Is Taxed
Term deposit interest is ordinary income — assessed at your marginal tax rate plus the 2% Medicare levy.
| Taxable income (2025–26) | Marginal rate | Tax on $1,000 interest |
|---|---|---|
| Up to $18,200 | 0% (tax-free threshold) | $0 |
| $18,201–$45,000 | 19% | $190 |
| $45,001–$135,000 | 32.5% | $325 |
| $135,001–$190,000 | 37% | $370 |
| Over $190,000 | 45% | $450 |
Medicare levy (2%) applies in addition to the above for most taxpayers.
Example: At a $120,000 income (34.5% effective marginal rate incl. Medicare), $5,000 in term deposit interest generates approximately $1,725 in tax.
When Is Term Deposit Interest Assessable?
The timing of assessability depends on how interest is paid:
| Payment frequency | When assessable to ATO |
|---|---|
| At maturity (single payment) | Financial year in which the deposit matures and interest is paid |
| Monthly | Each month the interest is paid (across multiple financial years for long terms) |
| Quarterly | Each quarter the interest is paid |
| Annually | In the financial year each annual payment is made |
Key planning point: A 12-month term deposit opened in January 2026 and maturing January 2027 with interest paid at maturity is assessable in the 2026–27 financial year (when it matures) — not in 2025–26 when it was opened.
For a two-year term deposit paying interest annually, you receive a tax liability each year.
Withholding Tax (TFN Withholding)
If you do not provide your Tax File Number (TFN) to your bank, they are required by the ATO to withhold 47% of interest payments (the highest marginal rate plus levies) before paying you.
Always provide your TFN when opening a term deposit. If you have withheld tax from previous years, this can be claimed back via your tax return.
For SMSF term deposits, provide the fund’s TFN (not individual members’ TFNs).
Reporting Term Deposit Interest in Your Tax Return
Interest income is reported at Item 10 (Interest) on your individual tax return. Banks report this directly to the ATO — it often pre-populates in myTax.
You receive an interest statement at maturity (or annually for ongoing payment terms). Keep these for your records.
Tax Strategies for Term Deposit Investors
1. Use super (most effective strategy)
Interest inside super is taxed at 15% (accumulation) or 0% (pension phase) — significantly below personal marginal rates. See Term Deposits in Super and SMSF Australia.
2. Time maturity to a low-income year
If you are retiring, moving to part-time work, or expect lower income next financial year, time the maturity of large term deposits to fall in that lower-income year — reducing the tax rate on interest paid at maturity.
3. Ladder maturity dates to spread income
Rather than one large term deposit maturing in one year, spread across multiple terms — limiting the amount of interest assessable in any single financial year.
4. Low-income earner strategy
If your spouse or partner has lower income, term deposits in their name (from funds they own) are taxed at their lower marginal rate. Joint ownership splits income. Note: funds must genuinely belong to the lower-income earner — artificial income splitting attracts ATO scrutiny.
5. Low Income Tax Offset (LITO) and Low and Middle Income Tax Offset (LMITO)
Retirees on lower incomes may benefit significantly from the low income tax offset — ensuring the effective tax rate on interest income is below the headline marginal rate. At $18,200 or below, income (including term deposit interest) is effectively tax-free.
Capital Gains Tax on Term Deposits?
Term deposits are not subject to capital gains tax — you are always paid back your exact principal. There is no capital gain or loss from a term deposit (unlike bonds, shares, or property).
Related Articles
- Term Deposits in Super and SMSF Australia
- Tax-Efficient Investing Australia
- Income Tax Australia
- Term Deposit Ladder Australia
- Term Deposits hub
Frequently Asked Questions
Do I need to declare term deposit interest on my tax return in Australia? Yes — all interest income from term deposits is assessable income and must be declared in your tax return. This is typically pre-filled by the ATO via your bank’s reporting, but you should verify the amount against your interest statement.
What tax rate applies to term deposit interest in Australia? Your marginal tax rate applies to term deposit interest. For FY2025–26, rates range from 0% (up to $18,200) to 45% (over $190,000), plus the 2% Medicare levy. Super funds pay 15% (accumulation) or 0% (pension phase).
Can I put term deposits in my spouse’s name to reduce tax? Only if the funds genuinely belong to your spouse. Interest is taxed in the hands of the person who owns the funds. Artificial splitting of jointly owned or personally earned funds may be challenged by the ATO.
This article provides general financial information only. For personalised tax advice, speak with a registered tax agent or accountant. For financial planning advice, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.