ATO Interpretative Decision

ATO ID 2001/90 (Withdrawn)

Income Tax

Land tax arrears
FOI status: may be released
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Whether arrears of land tax are tax deductible under section 8-1 (Income Tax Assessment Act 1997 (ITAA 1997)) in the year in which they are paid or in the years to which the land tax assessments relate? How the penalty payable on the land tax arrears will be treated.

Decision

Arrears of land tax are deductible in the income year in which the liability for land tax is incurred, which may be different to the income year in which the land tax assessment is issued. Any penalty component is not deductible.

Facts

A taxpayer fails to lodge land tax returns for a number of years. The state land tax office writes to the taxpayer requesting that the taxpayer lodge all outstanding land tax returns. A number of land tax assessments relating to past years are issued in the current year. In addition to assessing outstanding land tax, the assessments include a penalty component. The taxpayer pays the full amount of the assessments in the current year.

Reasons For Decision

The taxpayer becomes liable to pay land tax in prior years by virtue of the operation of the relevant land tax legislation in those earlier years. Under that legislation, the taxpayer's liability to pay land tax is ascertainable and capable of calculation when the taxpayer uses the property for income producing purposes notwithstanding that no assessment issues until a later year. As the liability to pay land tax is ascertainable in the year to which the assessment giving rise to the liability relates, land tax payable is incurred and hence is deductible in that year (Case B5 70 ATC 24; 15 CTBR(NS) Case 67). The Federal Court confirmed this principle, in the context of payroll tax, in Layala Enterprises Pty Ltd (in liq) v FC of T 98 ATC 4858; (1998) 39 ATR 502.

Any penalty component is not deductible by virtue of section 26-5 (ITAA 1997).

Note: 25. (1) Any person who fails to duly furnish any return or copy thereof or information as and when required by this Act or by the Commissioner shall, if a taxpayer, be liable, apart from any other penalty provided by this Act, to pay on demand by the Commissioner , by way of additional tax an amount of no exceeding 10- of the amount of tax assessable to him, in addition to any sum by way of a penalty which may become payable by him in accordance with section 39 , but the Commissioner may in any particular case, for reasonable cause shown by the taxpayer, remit all or part of the additional tax.

Date of decision:  6 May 1999

Legislative References:
Income Tax Assessment Act 1936
   subsection 170(3)

Income Tax Assessment Act 1997
   section 8-1
   section 26-5

Case References:
Layala Enterprises Pty Ltd (in liq) v FC of T
   98 ATC 4858
   39 ATR 502

Case B5
   70 ATC 24

Case 67
   15 CTBR(NS)

Keywords
Land taxes
Rental expenses
Rental property

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 July 2001

ISSN: 1445-2782

history
  Date: Version:
  6 May 1999 Original statement
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