ATO Interpretative Decision

ATO ID 2002/380

Income Tax

Deductibility of General Interest Charge (GIC) - when incurred or when paid
FOI status: may be released

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Issue

Can a taxpayer claim a deduction for an amount of GIC under paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year in which the notice of amended assessment (which includes the GIC) issues or in the year when the GIC was paid?

Decision

The taxpayer can claim a deduction for GIC under paragraph 25-5(1)(c) of the ITAA 1997 in the income year in which the notice of amended assessment (which includes the GIC) issues notwithstanding that the GIC was paid in a later year of income.

Facts

The taxpayer's notice of amended assessment issued in December 2000 for the year of income ended 30 June 2000.

The notice of amended assessment:

•
included an amount of GIC imposed for tax shortfall as the result of an the taxpayer's income tax liability; and
•
contained a statement that the amount of GIC is tax deductible in the year the amount of GIC was paid.

The taxpayer paid the notice of amended assessment (which includes the GIC) in July 2001.

Reasons for Decision

Paragraph 25-5(1)(c) of the ITAA 1997 states that a taxpayer can deduct expenditure incurred to the extent it is for the GIC under Division 1 of Part IIA of the Taxation Administration Act 1953.

To be deductible in a particular year, the expenditure must generally have been incurred in that year.

The courts have considered the meaning of the word 'incurred'. In New Zealand Flax Investments Limited and the Federal Commissioner of Taxation (1938) 61 CLR 179, the High Court said:

'Incurred does not only mean defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon ......... But it does not include a loss or expenditure which is no more than impending, threatened, or expected.'

For an amount of GIC to have been incurred it need not be paid but it must not include a debt or liability which is impending, threatened or expected. In other words, for the debt to be incurred, the issue of the notice of assessment is sufficient to establish the amount of GIC. As the taxpayer has been notified of the amount of GIC, the GIC is no longer impending, threatened, or expected.

Accordingly, the taxpayer is entitled to a deduction for the amount of the GIC in the 2001 income year even though the taxpayer did not pay the GIC until the 2002 income year.

Date of decision:  5 July 2001

Year of income:  Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1997
   paragraph 25-5(1)(c)

Taxation Administration Act 1953
   Division 1 of Part IIA

Case References:
New Zealand Flax Investments Ltd and the Federal Commissioner of Taxation
   (1938) 61 CLR 179

Related ATO Interpretative Decisions
ATO ID 2001/654

ATO Interpretative Decisions overturned by this decision
ATO ID 2001/655

Keywords
Deductions and expenses
General interest charge

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 5 July 2001 Original statement
  1 June 2012 Archived

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