A4.421 Meaning of 'yearly interest'
Two requirements need to be satisfied for payment to amount to interest, and by extension to amount to 'interest of money'. First there has to be a sum of money by reference to which the payment, said to be interest, has to be ascertained. Secondly those sums have to be sums which are due to the person entitled to the alleged interest1.
ITA 2007, s 874 imposes a general duty to deduct tax, with certain exceptions from the general rule (see A4.424–A4.426).
The expression 'yearly interest' is not defined in the Income Tax Acts, and the courts have frequently had to consider its meaning. It is often contrasted with 'short' interest, ie interest for a fixed period less than one year and not intended to exceed the period stipulated. Interest may be yearly interest, although in the result it is not paid for a year, if it is calculable by periods of not less than a year, and capable of continuing for at least a year2.
In Hay3, Lord Anderson, reviewing the earlier decided cases on the subject, considered4 that the authorities established the following propositions as regards yearly interest although, he remarked that, 'these propositions are perhaps one proposition expressed in different forms …':
• the loan, in respect of which interest is payable, must not be a short loan5
• the loan must have a measure of permanence6
• the loan must be in the nature of an investment7
• the loan must not