| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012449424246
Ruling
Subject: Payments made to the Commissioner of Taxation
Question
Are you entitled to a deduction for an amount paid to the Commissioner of Taxation under a deed of settlement?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You were a director of a company that entered into liquidation.
The company had made payments to the Commissioner under subdivision 16-B of Schedule 1 of the Taxation Administration Act 1953 (TAA) ('the payments').
The Commissioner was ordered to repay to the company's liquidators an amount equal to the payments by the operation of section 588FF of the Corporations Act 2001 (Cth).
The Commissioner sought to recover the payments amount plus costs and interest from the other directors of the company and yourself on the basis of section 588FGA(2) of the Corporations Act 2001.
You and the other directors entered into a deed of settlement in relation to the dispute with the Commissioner. Under the deed of settlement you and the other directors were to pay an amount to the Commissioner.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 25-5(2)
Reasons for decision
Summary
No deduction is allowable for your payment to the Commissioner under a deed of settlement as it is specifically prohibited by subsection 25-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997).
Detailed reasoning
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.
Subsection 25-5(2) of the ITAA 1997 denies a deduction for the payment of tax, or an amount withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the TAA.
In your case, the Commissioner was required to repay, under section 588FF of the Corporations Act 2001, to the company's liquidator amounts which were unfair preference payments in respect of subdivision 16-B in Schedule 1 to the TAA.
Subdivision 16-B in Schedule 1 to the TAA requires entities which withhold amounts from certain payments to pay those amounts to the Commissioner (withholding amount). Subdivision 16-B in Schedule 1 to the TAA is contained within Part 2-5 in Schedule 1 to the TAA.
Under the Deed of Settlement you and the other directors were required to indemnify the Commissioner in relation to the repayment made to the liquidator.
The payment you made to the Commissioner was compensation for having to repay to the liquidators the amount determined as an unpaid preference payment, associated interest and costs.
Compensation takes the nature of the payment it replaces. In this case, your payment to the Commissioner is a payment of the withholding amounts.
As subsection 25-5(2) of the ITAA 1997 does not allow a deduction for withholding amounts, no deduction is allowed for a payment to the Commissioner under a deed of settlement where the payment is compensation for withholding amounts.
No deduction is allowable under section 8-1 of the ITAA 1997 for the amount paid to the Commissioner as the deduction is expressly denied by another provision of the legislation.