Private ruling: general interest charge deduction
Published: July 2011
Ruling period: Year ended 30 June 2005 | Year ended 30 June 2006 | Year ended 30 June 2007
Date scheme commenced: 1 July 2004

Ruling: Q1: Is the general interest charge (GIC) that relates to the late lodgement of your 2005, 2006 and 2007 tax returns deductible in the income year in which the assessments were issued? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-5(1)(c)

Reasons for decision: Summary: Paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you can deduct expenditure you incur to the extent it is for the GIC. To be deductible in a particular year, the expenditure must have been incurred in that year. The courts have considered the meaning of the word 'incurred'. In New Zealand Flax Investments Limited and the Federal Commissioner of Taxation (1938) 61 CLR 179, the High Court said: Incurred does not only mean defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon. But it does not include a loss or expenditure which is no more than impending, threatened, or expected. Taxpayers other than full self-assessment taxpayers who do not lodge their tax return on time become liable to pay GIC on any unpaid tax for each day that the tax remains unpaid commencing 21 days after the due date for lodgement. Liability to GIC that relates to the late lodgement of a tax return is contingent on an assessment and that the taxpayer must be liable to pay an amount of tax. That is, GIC that relates to late lodgement is only imposed once the Commissioner issues an assessment and it results in an amount of tax payable. Although the GIC is calculated (retrospectively) for each day commencing from 21 days after the due date for lodgement, the earliest time at which the GIC liability crystallises is when all of the steps necessary for its imposition have occurred - namely the making of the assessment by the Commissioner with an amount of tax payable. At this time a taxpayer becomes 'definitely committed' and therefore incurs the liability to the GIC. Until those steps are completed, any liability to pay the GIC is no more than 'impending or threatened'. In your case, you lodged your 2005, 2006 and 2007 tax returns in December 2009. Shortly afterwards, the assessments which each resulted in an amount of tax payable and the GIC notices showing the GIC imposed in relation to the late lodgement of the tax returns, were issued. For the reasons discussed previously, the liability for this GIC did not crystallise, and therefore was not incurred, until the relevant tax assessments were made with an amount of tax payable. As these tax assessments were issued in December 2009, you are entitled to a deduction for this GIC in the year ended 30 June 2010. In your private ruling application, you referred to the Accounting issues register which has a topic discussing the apportionment of GIC deductions to an income year with respect to GIC imposed on a Running Balance Account (RBA) deficit debt. It discusses GIC updates that occur in the June and July periods, where a GIC posting in July may partly relate to GIC imposed in the previous financial year and which would be deductible in that year. However, this information is not applicable to your situation as GIC imposed on a RBA deficit debt is GIC on a debt that has already been raised. In that situation, GIC is incurred on a daily basis. However, with respect to GIC in relation to the late lodgement of a tax return, although this GIC is calculated from 21 days after the due date for lodgement until the issue of the assessment, it is not incurred on a daily basis during this period. The GIC is only incurred once the debt is raised, that is, once the tax assessment is issued with an amount of tax payable. Once the tax assessment is issued, any further GIC is then incurred on a daily basis as the debt on which it is imposed has been raised. In summary, you are not entitled to a deduction for the GIC in relation to the late lodgement of your 2005, 2006 and 2007 tax returns until the income year in which the assessments issued, that is, until the year ended 30 June 2010. It follows, that no amendments are required for the 2005, 2006 and 2007 assessments in relation to a GIC deduction.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Year ended 30 June 2010 The scheme commenced on | Relevant facts: You lodged your 2005, 2006 and 2007 tax returns in December 2009. These tax returns resulted in debit assessments. | After your tax returns were processed, along with your tax assessments you were issued with GIC notices that notified you of the GIC that was payable due to the late lodgement of your tax returns. These tax assessments and GIC notices issued in December 2009.