ATO Interpretative Decision
ATO ID 2010/160
Income Tax
Deductibility of card payment fee incurred in paying income tax liability under section 25-5 of the ITAA 1997FOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 salary or wage earner claim a deduction under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) for a card payment fee they are charged by the Australian Taxation Office (ATO) for using a credit card to pay their personal income tax debt?
Decision
No. A salary or wage earner cannot claim a deduction under section 25-5 of the ITAA 1997 for a card payment fee they are charged by the ATO for using a credit card to pay their personal income tax debt.
Facts
The taxpayer is a salary or wage earner and uses a credit card to pay their personal income tax debt.
The taxpayer agrees to pay the card payment fee charged by the ATO in order to pay their personal income tax debt by using their credit card.
On accepting the charge, a contract is formed between the ATO and the taxpayer for the payment of the card payment fee.
The payment is then processed and the taxpayer's card is charged separately for the amount of the card payment fee and the amount of the liability they are paying.
In using the credit card to pay their personal income tax debt, the taxpayer borrows money from the credit card provider.
Reasons for Decision
Subsection 25-5(1) of the ITAA 1997 allows deductions for expenditure incurred by a taxpayer to the extent that it is for managing their 'tax affairs'. Section 995-1 of the ITAA 1997 defines 'tax' to mean income tax assessed under either the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936) and imposed by any other Act.
The context and structure of section 25-5 of the ITAA 1997 makes it clear that 'tax affairs' is intended to have a wide operation. The section is wide enough to cover a card payment fee incurred as a direct consequence of paying an income tax debt.
However, paragraph 25-5(2)(c) of the ITAA 1997 expressly denies a deduction for 'expenditure for borrowing money', including payments of interest, in respect of money borrowed and spent on managing certain aspects of your tax affairs, including payments of:
- (a)
- *tax; or
- (b)
- an amount withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the Taxation Administration Act 1953.
If a taxpayer uses a credit card and that use results in the card issuer providing credit, then the taxpayer has borrowed money from the credit card provider (Taxation Ruling TR 2000/2 at paragraph 43).
In Ure v. FC of T 81 ATC 4100; (1981) 11 ATR 484 (Ure's Case), Deane and Sheppard JJ, in discussing what constituted expenditure in borrowing money for the purpose of the former section 67 of the ITAA 1936, said:
The words "expenditure incurred... in borrowing money" in the context of sec. 67(1) of the Act, refer in our view to the "cost of the borrowing" as distinct from the "cost" of the money. The expenditure on account of legal expenses and valuation fees was plainly a "cost" of the borrowing: it was incurred in relation to the actual establishment of the relevant loan.
...
Ordinarily, we would have little hesitation in concluding that guarantee fees paid by a borrower in respect of a guarantee necessary for the establishment of a loan were expenditure incurred in borrowing money for the purposes of sec. 67(1) of the Act... (Emphasis added)
The phrase 'expenditure incurred ... in borrowing money' as used in the former subsection 67(1) of the ITAA 1936 is narrower than the phrase 'expenditure for borrowing money' in paragraph 25-5(2)(c) of the ITAA 1997. This is because in addition to the types of expenditure discussed in Ure's Case, paragraph 25-5(2)(c) of the ITAA 1997 explicitly includes interest as a type of expenditure in borrowing money. Beyond this, for present purposes there is no material difference between the concept of 'expenditure incurred in borrowing money' used in the former subsection 67(1) of the ITAA 1936 and 'expenditure for borrowing money' used in paragraph 25-5(2)(c) of the ITAA 1997. It follows 'expenditure for borrowing money' under paragraph 25-5(2)(c) of the ITAA 1997 must be broad enough to include 'costs of the borrowing' as contemplated by Deane and Sheppard JJ in Ure's Case.
The proper characterisation of a card payment fee is a question of fact to be decided on a case by case basis by reference to the precise circumstances of each case. Based on the facts here, the card payment fee is incurred by the taxpayer as a necessary step in the process of borrowing money from the credit card provider. It is a 'cost of the borrowing' in the sense contemplated by Deanne and Sheppard JJ in Ure's Case. Further, as a question of fact, the borrowed monies are used to pay income tax. Therefore, the card payment fee is properly characterised as a cost of borrowing monies used to pay for expenses incurred in managing the taxpayer's tax affairs.
Therefore, while the taxpayer has incurred an outgoing which is incurred in 'managing their tax affairs' within the meaning of paragraph 25-5(1)(a) of the ITAA 1997, it is also 'expenditure for borrowing money' to pay for expenses incurred in managing their tax affairs identified by paragraph 25-5(2)(c) of the ITAA 1997. It follows that the fee is not deductible under section 25-5 of the ITAA 1997.
Date of decision: 2 September 2010Year of income: Year ended 30 June 2009
Legislative References:
Income Tax Assessment Act 1997
section 25-5
subsection 25-5(1)
paragraph 25-5(1)(a)
paragraph 25-5(2)(c)
section 995-1
section 67
Case References:
Ure v FC of T
81 ATC 4100
(1981) 11 ATR 484
Related Public Rulings (including Determinations)
Taxation Ruling TR 2000/2
ATO ID 2010/159
ATO ID 2010/161
Keywords
Deductions & expenses
Tax related expenses
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 2 September 2010 | Original statement |
| 29 September 2017 | Updated statement |