ATO Interpretative Decision
ATO ID 2001/85 (Withdrawn)
Income Tax
Deductions: interest on late payment of local government ratesFOI status: may be released
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This ATO ID is withdrawn as the ATO View on this issue is contained in the Rental Properties Guide.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Whether interest charges on late payment of local government rates and charges in respect of a rental property are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Decision
Yes. Interest charges for late payment of local government rates and charges in respect of a rental property are deductible under section 8-1 of the ITAA 1997 in the year incurred.
Facts
The taxpayer, the owner of a rental property, failed to pay local government rates and charges for the property by the dates due and payable and is liable to pay interest charges calculated in accordance with the relevant state Local Government Act.
The taxpayer claims the late interest charges as a tax deduction on the basis that the charges are not excluded by the penalty provisions of section 26-5 of the ITAA 1997.
Reasons for decision
Taxation Determination TD 94/84 gives the Commissioner's view of what constitutes a 'penalty' for the purposes of section 26-5 of the ITAA 1997 (formerly subsection 51(4) of the Income Tax Assessment Act 1936). In contrast to the example in TD 94/84, the imposition of interest in the present circumstances is not a pecuniary punishment for a breach of the Local Government Act but an administrative charge recognising the time value of money. The use of a time factor in the calculation is designed to compensate the local government for the full amount of rates and service charges not having been paid by the due date. The interest payment is accordingly deductible to the taxpayer in the year in which it is incurred.
Date of decision: 13 August 1999
Legislative References:
Income Tax Assessment Act 1997
section 8-1
section 26-5
subsection 51(4)
Related Public Rulings (including Determinations)
TD 94/84
Keywords
Land taxes
Rental expenses
Rental property
Late payments
Late payment penalty
Interest expenses
ISSN: 1445-2782
| Date: | Version: | |
| 13 August 1999 | Original statement | |
| You are here | 14 July 2015 | Archived |