Taxation Determination

TD 94/84

Income tax: is:

(a)

a late lodgment fee under the Corporations (Fees) Regulations 2001; or

(b)

a pecuniary penalty for an offence under the Corporations Act 2001 ,

'an amount (however described) payable, by way of penalty' within the meaning of that phrase in paragraph 26-5(1)(a) of the Income Tax Assessment Act 1997?

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FOI status:

may be releasedFOI number: I 1217893

1. Yes.

2. Paragraph 26-5(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) denies a deduction under section 8-1 for an amount, however described, payable by way of penalty under an Australian or foreign law. The critical issue is whether the late lodgment fee and the penalty answer the description of 'an amount ... payable, by way of penalty.

3. The word 'penalty' is not defined in the ITAA 1997 and, in its context in section 26 5, bears its ordinary meaning. According to dictionary meanings, a 'penalty' is a punishment (which may be pecuniary) for a breach of the law. What is necessary for paragraph 26 5(1)(a) to apply is that the amount be one payable 'by way of' penalty. It is not essential that an amount actually be a penalty for it to come within paragraph 26 5(1)(a), but an actual penalty would satisfy the description 'an amount ... payable ... by way of penalty'.

4. If an amount 'payable by way of penalty' in terms of paragraph 26-5(1)(a) is paid by a company, subsection 26-5(1) precludes a deduction under section 8-1 for the amount paid. If the amount is paid by a tax agent or professional representative of a company, rather than by the company itself, subsection 26-5(1) again precludes a deduction under section 8-1 for the amount paid.

Late lodgment fee under Corporations (Fees) Regulations 2001

5. Section 5 of the Corporations (Fees) Act 2001 imposes the fees prescribed by regulation 3 and Schedule 1 to the Corporations (Fees) Regulations 2001 for 'chargeable matters'. Chargeable matters include late lodgement of documents. Item 28 in Schedule 1 specifies the fee payable on the late lodgment of a document (in addition to any fee provided by any other item for the lodgment of that document). The amount of the fee payable is dependant on how long after the prescribed time the document is lodged.

6. A fee for late lodgment in item 28 in Schedule 1 to the Corporations (Fees) Regulations 2001 is imposed in addition to any fee for the lodgment of the particular document. In our view, the late lodgment fee is imposed as a pecuniary punishment for a breach of the Corporations Act 2001. It is not, in our view, simply an administrative charge to recognise any additional cost of promptly processing late documents. The late lodgment fee is therefore ' an amount (however described) payable, by way of penalty' within the meaning of that phrase in paragraph 26-5(1)(a) of the ITAA 1997. It is not deductible under section 8-1 of the ITAA 1997.

7. Quite apart from paragraph 26-5(1)(a), we consider that the reasons for the decision of the Supreme Court of Victoria (Ormiston J) in Mayne Nickless Ltd v. FC of T 84 ATC 4458; (1984) 15 ATR 752 support the view that the late lodgment fee is not deductible under section 8 1.

Penalty for an offence under the Corporations Act 2001

8. Under section 1313 of the Corporations Act 2001, the Australian Securities Investments Commission may give a person a penalty notice in relation to an alleged commission by that person of a particular offence. The penalty notice sets out a prescribed penalty for the particular offence.

9. The prescribed penalty is, in our view, 'an amount (however described) payable, by way of penalty' within the meaning of the phrase in paragraph 26-5(1)(a). It is not deductible under section 8-1.

Example:

Slack Pty Ltd holds its annual general meeting each year on 30 September and is required to lodge its annual return by 31 October. In 1993 the annual return was not lodged. The company creates a charge on 15 March 1994 but lodged a notice under subsection 263(1) of the Corporations Law 15 days late. An amount of $150 was paid on lodgment of the subsection 263(1) notice comprising a basic lodgment fee of $100 and a late lodgment fee of $50. A penalty notice was issued by the Australian Securities Commission on 1 May 1994 for an amount of $125 for the failure to lodge the 1993 return. The $50 late lodgment fee and the $125 penalty are not deductible under subsection 51(1) by the operation of paragraph 51(4)(a) of the ITAA.

Commissioner of Taxation
20/10/94

Previously issued as Draft TD 94/D69

References

ATO references:
NO TOW 40; NAT 94/7266-5

Subject References:
allowable deductions
Corporations (Fees) Regulations 2001
Corporations Act 2001
fee
late lodgement fee
penalty

Legislative References:
ITAA 1997 8-1
ITAA 1997 26-5
ITAA 1997 26-5(1)
ITAA 1997 26-5(1)(a)
CA 2001 1313
C(F)A 2001 5
C(F)R 2001 3
C(F)R 2001 Sch 1
C(F)R 2001 Sch 1 item 28

Case References:
Mayne Nickless Ltd v FC of T
84 ATC 4458
(1984) 15 ATR 752