Private ruling: Deductibility of general interest charge
Published: November 2013
Ruling period: Year ended 30 June 2001 | Year ended 30 June 2002 | Year ended 30 June 2003 | Year ended 30 June 2004 | Year ended 30 June 2005 | Year ended 30 June 2006 | Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2000

Ruling: Questions and Answers: | 1. Is the general interest charge (GIC) imposed on your income tax account deductible in the income year to which the GIC is referrable? | No. | 2. Is the GIC imposed on your income tax account deductible in the income years in which the GIC notices were issued, i.e., in the income years during which the GIC was applied to your account? | Yes

Relevant facts and circumstances: During the year ended 30 June 2013, you progressively lodged your tax returns for the years ended 30 June 2001 to 2012, inclusive, for which GIC was applied by the Tax Office for late payment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-5

Reasons for decision: Summary: Paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 states you can deduct expenditure you incur to the extent it is for the GIC under Division 1 of Part IIA of the Taxation Administration Act 1953. Practice Statement Law Administration PS LA 2011/12 outlines the Commissioner's administration of the GIC. At paragraph 13, it states the GIC is a tax deduction in the year that it is incurred. In determining whether and when a loss or outgoing has been incurred, a key principle is it must be a presently existing liability to pay a pecuniary sum ( Taxation Determination TD 2012/2 ). In the recent Federal Court of Australia case of Commissioner of Taxation v Nash ; [2013] FCA 336; 2013 ATC 20-384, it was confirmed that the earliest time the GIC liability crystallises into a presently existing liability is when all of the steps necessary for its imposition have occurred, namely, the making of an assessment by the Commissioner with the amount of tax payable. The Federal Court decision, here, concerned GIC imposed as a result of unpaid income tax as a result of a late lodgement of an income tax return (and it does not apply to GIC accruing after the issue date of the assessment, which is deductible on a daily basis). The above Federal Court decision overturned the decision made in the Administrative Appeals Tribunal case of Nash v. Federal Commissioner of Taxation [2012] AATA 719; (2012) 2012 ATC 10-277; [2013] ALMD 4178. The Federal Court ruled the AAT erred in law. In your case, the decision in Federal Court of Australia case cited above applies. It follows the relevant GIC is deductible from the year ended 30 June 2013, inclusive. The relevant GIC is not deductible in the income years to which the GIC is referrable.