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Edited version of your written advice
Authorisation Number: 1012851760980
Date of advice: 31 July 2015
Ruling
Subject: Whether the trustees are entitled to a deduction for the GIC paid on primary debt
Question
Are the trustees of the (as a partner in a partnership) entitled to claim a deduction under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) for the General Interest Charge (GIC) imposed on a primary debt owed by the partnership?
Answer
Yes
This ruling applies for the following periods
Year ended 30 June 2014
Year ended 30 June 2015
Year ending 30 June 2016
The scheme commenced on
1 July 2013
Relevant facts
A number of individuals are the trustees of the Family Trust (the trust).
A business was operated by a partnership consisting of the trust and the trustee for another trust.
The business ceased trading.
The corporate trustee for the other Trust was placed into liquidation.
At that time the partnership had outstanding debts owing to the Australian Taxation Office (ATO) including GST, PAYGW, administrative penalties and GIC.
The ATO unsuccessfully attempted to recoup the outstanding amount from the other trust (partner) before taking action against the trust (Individuals as trustees of the Family Trust).
Actions were filed in a Court whereby the Deputy Commissioner of Taxation sought recovery of a primary tax debt, further GIC and costs.
As a result of these proceedings the individuals, in their capacity as trustees of the trust, entered into a Settlement Agreement whereby they agreed to pay the outstanding debts of the partnership including the GIC imposed on the primary debt.
Assumptions
Nil
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 25-5(1)
Taxation Administration Act 1953 Section 444-30 of Schedule 1
Reasons for decision
Subsection 25-5(1) of the ITAA 1997 states:
You can deduct expenditure you incur to the extent that it is for:
(a) managing your tax affairs; or
(b) complying with an obligation imposed on you by a Commonwealth law, insofar as that obligation relates to the tax affairs of an entity; or
(c) the general interest charge or the short fall interest charge; or
(ca) a penalty under Subdivision 162-D of the GST Act; or
(d) obtaining a valuation in accordance with section 30-212 or 31-15.
Section 444-30 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that each partner in a partnership is jointly and severally liable for debts imposed under the Schedule or an indirect tax law.
In this case the partnership had outstanding tax debts. In order to recover the debts the ATO pursued the other trust but was unsuccessful. The ATO then pursued the trustees for the Family trust (the other partner) and entered into a settlement deed with the individuals as trustees for the Family Trust.
As each partner in the partnership is liable to pay the GIC imposed on the partnership, the individuals, in their capacity as trustees for the Family Trust, are liable to pay the tax debt, GIC and costs. Consequently, as the individuals are trustees for the Family Trust, they in their role as trustees of the Family Trust are entitled to claim a deduction when they pay the outstanding GIC which was included in the primary debt.