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Edited version of private advice
Authorisation Number: 1012657723861
Ruling
Subject: Credit card fee
Question
Are you entitled to a deduction for the credit card payment fee?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You pay your sole trader Pay As You Go Instalments (PAYGI) using a credit card.
You pay the amount of the PAYGI liability into the credit card prior to paying the liability to the ATO.
You incur a credit card fee for the transaction.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 25-5(1)
Income Tax Assessment Act 1997 Section 25-5
Taxation Administration Act 1953 Part 2-5 or Part 2-10
Reasons for decision
Subsection 25-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows deductions for expenditure incurred by a taxpayer to the extent that it is for managing their tax affairs. Section 995-1 of the ITAA 1997 defines 'tax' to mean income tax assessed under either the ITAA 1997 or the Income Tax Assessment Act 1936 and imposed by any other act.
The context and structure of section 25-5 of the ITAA 1997 makes it clear that 'tax affairs' is intended to have a wide operation. The section is wide enough to cover a card payment fee incurred as a direct consequence of paying an income tax liability.
However, paragraph 25-5(2)(c) of the ITAA 1997 expressly denies a deduction in regards to 'expenditure for borrowing money', including payments of interest, in respect of money borrowed and spent on managing certain aspects of your tax affairs, including payments of tax or amounts withheld or payable under Part 2-5 or Part 2-10 in Schedule 1 to the Taxation Administration Act 1953.
If a taxpayer uses a credit card and that use results in the card issuer providing credit, then the taxpayer has borrowed money from the credit card provider (Taxation Ruling TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities).
In your case, the liability is credited to the credit card prior to making the payment to the ATO. As such, you are not borrowing funds.
You have incurred an outgoing to manage your tax affairs which is not an 'expenditure for borrowing money' to pay for expenses.
Therefore, the card payment fees are deductible.