Taxation Determination

TD 96/22

Income tax: does the interest payable on late levies represent assessable income of a body corporate?

This version is no longer current. Please follow this link to view the current version.

  • Please note that the PDF version is the authorised version of this ruling.
    This document has changed over time. View its history.

FOI status:

may be releasedFOI number: I 1015017

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

1. No. The interest paid by a proprietor to a body corporate because of the late payment of levies is not assessable income of that body corporate. This results from the application of the principle of mutuality.

2. The principle of mutuality requires that contributors to a common fund are entitled to a share in any surplus and any recipients of a surplus must have been contributors to the common fund, i.e., there must be 'complete identity between the contributors and the participators': Municipal Mutual Insurance Ltd v. Hills (1930) 16 TC 430 at 448.

3. A distribution of any surplus need not be based on respective contributions, as long as the contributors, as a class, are entitled to the surplus: Jones v. South-West Lancashire Coal Owners' Association Ltd (1927) 1 KB 33, affirmed (1927) 11 TC 790; The Social Credit Savings & Loans Society Ltd v. FC of T 71 ATC 4232; Sydney Water Board Employees' Credit Union Ltd v. FC of T 73 ATC 4129.

4. Mutuality will apply provided that there is 'a reasonable relationship' between what a member contributes and what he may be expected or entitled to receive from the fund: Sydney Water Board Employees' Credit Union Ltd v. FC of T 73 ATC 4129 at 4136.

5. In Taxation Ruling IT 2505, paragraphs 9 and 23, the Commissioner considers that contributions not normally made by the proprietors do not become assessable income of the body corporate. Further examples of amounts contributed to the body corporate by the respective proprietors not being considered assessable income, i.e., mutual income, are provided in the same Ruling at paragraph 14.

6. Mutuality extends to a proprietor who pays interest to the body corporate for the late payment of levies. Such a receipt would always remain a contribution by that member for the common benefit of members, e.g., in the payment of lawn mowing expenses. Even if the body corporate was immediately dissolved after the payment, part of it may still be returned to the members as a whole. The interest payment for late levies is considered not to be from business with non-members.

Commissioner of Taxation
22 May 1996

Previously issued as Draft TD 96/D2

References

ATO references:
NO NAT 95/9633-0

ISSN 1038 - 8982

Related Rulings/Determinations:

TD 93/7
TD 93/73
IT 2505

Subject References:
interest on late payment of strata title levies

Legislative References:
ITAA 25(1)

Case References:
Municipal Mutual Insurance Ltd v. Hills
(1930) 16 TC 430


Jones v. South-West Lancashire Coal Owners' Association Ltd
(1927) 1 KB 33

The Social Credit Savings & Loans Society Ltd v. FC of T
71 ATC 4232

Sydney Water Board Employees' Credit Union Ltd v. FC of T
73 ATC 4129

TD 96/22 history
  Date: Version: Change:
You are here 22 May 1996 Original ruling  
  25 March 2015 Withdrawn