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Ruling

Subject: General interest charge remission and release from liability

Question 1

Is remitted GIC assessable in the income year it is remitted?

Answer

Yes.

Question 2

Where the Commissioner grants you a release from paying your GIC liability, is the released GIC amount included in your assessable income?

Answer

No.

This ruling applies for the following period

1 July 2010 to 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

Your tax return for the 2008-09 income year was lodged late.

As a result of this lodgment, an income tax debt that the Tax Office had originally considered uneconomical to pursue was re-raised. The debt consisted of the amount payable on an earlier notice of assessment and the GIC.

As a result of the lodgment of further outstanding tax returns your debt with the Tax Office increased, and GIC was imposed on the outstanding amounts that had not been paid by their due date.

You applied to the Commissioner for release from payment of tax on hardship grounds

The Commissioner granted a full release of your debt that was eligible for release, including GIC, in the 2010-11 income year.

You still had a debt which was ineligible for release. This debt was made up of goods and services tax, GIC and failure to lodge penalties. The GIC and failure to lodge penalties were remitted in full. You have entered a payment arrangement to repay the remaining debt.

You have claimed deductions for GIC in each income year that GIC was imposed.

You will include deductions for GIC imposed in the 2010-11 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5,

Income Tax Assessment Act 1997 section 6-10,

Income Tax Assessment Act 1997 subdivision 20-A,

Income Tax Assessment Act 1997 subsection 20-20(2),

Income Tax Assessment Act 1997 subsection 20-20(3),

Income Tax Assessment Act 1997 subsection 20-25(1),

Income Tax Assessment Act 1997 paragraph 20-25(1)(b),

Income Tax Assessment Act 1997 subsection 20-25(2A),

Income Tax Assessment Act 1997 section 20-30,

Income Tax Assessment Act 1997 paragraph 25-5(1)(c) and

Taxation Administration Act 1953 Division 340.

Reasons for decision

Question 1

Summary

The remitted GIC is included in your assessable income in the 2010-11 income year; the income year that it was remitted.

Detailed reasoning

Your assessable income includes amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income (section 6-10 of the ITAA 1997).

Certain amounts received by way of insurance, indemnity or other recoupment are assessable income if the amounts are not income under ordinary concepts or otherwise assessable (subdivision 20-A of the ITAA 1997).

An amount you have received as recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if it is paid to cover the cost of a deductible expense and the deduction can be claimed in the current year or in an earlier income year (subsection 20-20(3) of the ITAA 1997). [Current year means the income year for which you are working out your assessable income and deductions].

If you have incurred expenditure that consists of general interest charge, and the Commissioner remits any of that charge, then you are taken to receive the remitted amount as recoupment of that expenditure (subsection 20-25(2A) of the ITAA 1997).

GIC is deductible under paragraph 25-5(1)(c) of the ITAA 1997 in the income year that it is imposed.

As you have claimed deductions for the GIC in earlier income years, and will claim deductions for the GIC imposed in the 2010-11 income year, and the Commissioner remitted that GIC, the remitted amount is an assessable recoupment in the 2010-11 income year under subsection
20-20(3) of the ITAA 1997.

Accordingly the remitted GIC is included in your assessable income in the 2010-11 income year.

Question 2

Summary

The GIC liability that you were released from paying is not included in your assessable income.

Detailed reasoning

Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the ITAA 1997). However, the relief from liability to pay the GIC does not have any of the characteristics of ordinary income and is therefore not assessable income under section 6-5 of the ITAA 1997.

Your assessable income also includes amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income (section 6-10 of the ITAA 1997).

Certain amounts received by way of insurance, indemnity or other recoupment are assessable income if the amounts are not income under ordinary concepts or otherwise assessable (subdivision 20-A of the ITAA 1997). There is no other provision of the ITAA that specifically includes the release from liability to pay the GIC in your assessable income.

An amount you receive as recoupment of a loss or outgoing is an assessable recoupment under subsection 20-20(2) if you:

§ received the amount by way of insurance or indemnity; and

§ can deduct an amount for the loss or outgoing for the current year, or had deducted or can deduct an amount for the loss or outgoing for an earlier income year under any provision of the ITAA 1997 or ITAA 1936.

As no amount was received by way of insurance or indemnity subsection 20-20(2) of the ITAA 1997 does not apply.

An amount you receive as recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if it is paid to cover the cost of a deductible expense and the deduction can be claimed in the current year or in an earlier income year, under a provision listed in section 20-30 of the ITAA 1997 (subsection 20-20(3) of the ITAA 1997). [Current year means the income year for which you are working out your assessable income and deductions].

GIC is deductible under paragraph 25-5(1)(c) of the ITAA 1997 in the income year that it is imposed, and section 25-5 is listed in section 20-30 of the ITAA 1997.

Subsection 20-25(1) of the ITAA 1997 defines recoupment to include:

§ any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described, and

§ a grant in respect of the loss or outgoing.

Taxation ruling TR 95/35 provides guidance on the meaning of the word 'recouped'. The ruling accepts that the term 'recouped' has its ordinary meaning. The Macquarie Dictionary defines 'recoup' as to obtain an equivalent for; compensate for; to regain or recover; to return an amount equal to; to reimburse or indemnify.

The definition in paragraph 20-25(1)(b) of the ITAA 1997 therefore has the connotation that recoupment of an outgoing involves a person receiving back an equivalent amount for what they had expended. By contrast, a release from liability involves the extinguishment of the debt and the underlying liability. It does not involve the taxpayer receiving back an equivalent amount for what they had expended, and therefore, there is no recoupment.

Subsection 20-25(2A) of the ITAA 1997, which deems remitted GIC to be a recoupment of GIC, has no application as the Commissioner's discretion to remit GIC is a separate and distinct discretion to that which allows release from liability to the GIC.

In your case, the Commissioner has released you from paying your GIC liability. The release from liability is not a recoupment, and as such, the amount of the GIC liability that you were released from paying is not an assessable recoupment.

As the amount of GIC liability you were released from paying is not ordinary or statutory income the amount is not included in your assessable income under any provision of the ITAA 1997.