ATO Interpretative Decision
ATO ID 2002/1030 (Withdrawn)
Income Tax
Tax-related expenses - penalty not deductibleFOI status: may be released
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This ATO ID is withdrawn from the database as it is a straight application of the law in section 26-5 of the Income Tax Assessment Act 1997 and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 25 July 2008
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the taxpayer entitled to a deduction under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) for payment of a penalty imposed on the taxpayer as a director of a company under subsection 222AQA(2) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The taxpayer is not entitled to a deduction under section 25-5 of the ITAA 1997 for payment of a penalty imposed on the taxpayer as a director of a company under subsection 222AQA(2) of the ITAA 1936.
Facts
A company of which the taxpayer was a director entered into an agreement with the Commissioner of Taxation under section 222ALA of the ITAA 1936 to pay specified amounts, on specified days, for the purpose of discharging a specified liability.
As the company did not pay the specified amounts as required under the agreement, a penalty equal to the balance payable under the agreement was imposed on the taxpayer as a director of the company under subsection 222AQA(2) of the ITAA 1936.
The penalty was subsequently paid by the taxpayer.
Reasons for Decision
Subsection 25-5(1) of the ITAA 1997 allows a deduction for certain types of tax-related expenses. These include costs related to managing tax affairs, the costs of complying with obligations imposed by a Commonwealth law, or the general interest charge.
However, subsection 26-5(1) of the ITAA 1997 states that 'an amount (however described) payable, by way of penalty, under an Australian law or a foreign law', is not deductible under either the ITAA 1997 or the ITAA 1936.
The amount payable by the taxpayer under subsection 222AQA(2) of the ITAA 1936 is imposed as a penalty. Therefore, as a result of the operation of subsection 26-5(1) of the ITAA 1997, this amount is not deductible under subsection 25-5(1) of the ITAA 1997 or any other provision.
Date of decision: 24 October 2002Year of income: 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
section 222ALA
subsection 222AQA(2)
section 25-5
subsection 25-5(1)
subsection 26-5(1)
Keywords
Tax related expenses
Directors penalty
Directors penalty payment agreements
ISSN: 1445-2782
| Date: | Version: | |
| 24 October 2002 | Original statement | |
| You are here → | 25 July 2008 | Archived |
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