ATO Interpretative Decision
ATO ID 2002/380
Income Tax
Deductibility of General Interest Charge (GIC) - when incurred or when paidFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a taxpayer claim a deduction for an amount of GIC under paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year in which the notice of amended assessment (which includes the GIC) issues or in the year when the GIC was paid?
Decision
The taxpayer can claim a deduction for GIC under paragraph 25-5(1)(c) of the ITAA 1997 in the income year in which the notice of amended assessment (which includes the GIC) issues notwithstanding that the GIC was paid in a later year of income.
Facts
The taxpayer's notice of amended assessment issued in December 2000 for the year of income ended 30 June 2000.
The notice of amended assessment:
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- included an amount of GIC imposed for tax shortfall as the result of an the taxpayer's income tax liability; and
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- contained a statement that the amount of GIC is tax deductible in the year the amount of GIC was paid.
The taxpayer paid the notice of amended assessment (which includes the GIC) in July 2001.
Reasons for Decision
Paragraph 25-5(1)(c) of the ITAA 1997 states that a taxpayer can deduct expenditure incurred to the extent it is for the GIC under Division 1 of Part IIA of the Taxation Administration Act 1953.
To be deductible in a particular year, the expenditure must generally have been incurred in that year.
The courts have considered the meaning of the word 'incurred'. In New Zealand Flax Investments Limited and the Federal Commissioner of Taxation (1938) 61 CLR 179, the High Court said:
'Incurred does not only mean defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon ......... But it does not include a loss or expenditure which is no more than impending, threatened, or expected.'
For an amount of GIC to have been incurred it need not be paid but it must not include a debt or liability which is impending, threatened or expected. In other words, for the debt to be incurred, the issue of the notice of assessment is sufficient to establish the amount of GIC. As the taxpayer has been notified of the amount of GIC, the GIC is no longer impending, threatened, or expected.
Accordingly, the taxpayer is entitled to a deduction for the amount of the GIC in the 2001 income year even though the taxpayer did not pay the GIC until the 2002 income year.
Date of decision: 5 July 2001Year of income: Year ended 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
paragraph 25-5(1)(c)
Division 1 of Part IIA
Case References:
New Zealand Flax Investments Ltd and the Federal Commissioner of Taxation
(1938) 61 CLR 179
ATO ID 2001/654 ATO Interpretative Decisions overturned by this decision
ATO ID 2001/655
Keywords
Deductions and expenses
General interest charge
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 5 July 2001 | Original statement |
| 1 June 2012 | Archived |