Are term deposit accounts subject to capital gains tax?

The tax you pay on a profit generated by a term deposit is not classified as capital gains tax. Interest earned on a term deposit is considered income though and would need to be included in your annual income tax return.

What is capital gains tax?

Capital gains tax (CGT) applies to an asset (or investment), such as real estate or shares, where you either make a capital gain or a capital loss. Capital gains and capital losses must be reported by individuals in their income tax return.

The Australian Taxation Office (ATO) states that for any assets you sold during the financial year, such as property or shares, you will need to work out your capital gain or loss for each asset. According to the ATO: 

When you sell an asset for:

• more than it cost you – you have a capital gain; and
• less than it cost you – you have a capital loss

The amount you would pay tax on is your net capital gains, which is calculated by finding your total capital gains, and subtracting any capital losses and any discounts you are entitled to for your gains. For Australian individuals that have held an asset for 12 months or more, you may be eligible for a CGT discount of 50%.

For those with savings products, like term deposits or savings accounts, the tax you pay on any interest you earned is not classified as CGT.

How do you declare interest earned on a tax return?

If you do have a term deposit, all you need to know is that the interest you earn is taxable. The amount you may need to pay will depend on the length of the term, and when your interest is paid (monthly, at maturity etc.) 

Generally, the ATO will have a record of your financial products when you advise them of your banking details, including savings accounts and term deposits. When you go to fill in your annual tax return, the interest you earned on your savings products is typically already auto filled.  

Nowadays you won’t need to follow too many steps to declare interest earned in a tax return outside of ensuring the ATO and/or your tax accountant has this crucial information. 

If you receive monthly interest payments, this should be claimed in your tax return. If your fixed term deposit period and interest payments are longer, such as a 24-month deposit with interest paid at maturity, you’ll likely pay tax on the interest the year the investment matures, or for the year it was credited to your account.

This also applies if you roll over your investment into a new term; you are still required to declare the interest earned at the rollover date (whatever financial year that falls in).

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