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This Case Decision Summary has been withdrawn and replaced by ATO Interpretative Decision ATO ID 2001/90

ATO Case Decision

Case Decision Number:

CDS10301

Subject:

Are arrears of land 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 will interest and penalty payable on the land tax arrears be treated?

Decision:

Arrears of land tax are deductible in the years to which the land tax assessments relate. Any interest charges are deductible in the year in which the land tax assessments issue, while any penalty component is not deductible.

Facts:

A taxpayer fails to lodge land tax returns as required 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 interest charges and 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). This principle was confirmed, in the context of payroll tax, by the Federal Court in Layala Enterprises Pty Ltd (in liq) v FC of T 98 ATC 4858; (1998) 39 ATR 502.

By contrast, any interest charges are deductible in the year in which the notice of assessment setting out the interest payable is issued. As the relevant land tax legislation under which liability to pay interest arises contains remission provisions, interest can never be quantified until an assessment issues. Until the issue of an assessment, liability for interest is only speculative.

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

Legislative References:

Income Tax Assessment Act 1936 subsection 170(3)

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

Relevant Cases:

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

Case B5 70 ATC 24; 15 CTBR(NS) Case 67

Keywords:

Land taxes

Rental expenses

Rental property

Date of decision:

6 May 1999

Year of Income/Date of Transaction:

Year ended 30 June 1998

FOI Number:

I2000301

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