Private ruling: GIC written off and re-raised
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the general interest charge (GIC) re-raised to your superannuation surcharge account deductible against your income for the year ended 30 June 2013? | A1: No

Relevant facts and circumstances: At an earlier time, you were assessed to a superannuation surcharge amount, which remained unpaid and thus incurring GIC. At a later time, the Commissioner wrote off the whole amount of your superannuation surcharge and related GIC debt. However, at a later time, the Commissioner re-raised the total sum of your debt and also imposed an additional amount of GIC (which you have since been paid).

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 20-25 | Income Tax Assessment Act 1997 Section 25-5

Reasons for decision: Detailed Reasoning - Deductibility of GIC: Paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 provides a taxpayer can deduct expenditure incurred to the extent it is for the general interest charge (GIC) under Division 1 of Part IIA of the Taxation Administration Act 1953 Practice Statement Law Administration PS LA 2011/12, which explains the Commissioner's administration of the GIC, states, at paragraph 13, 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 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 does not apply to GIC accruing after the issue date of the assessment, which is deductible on a daily basis. | Detailed Reasoning - Recoupment of GIC: Subdivision 20-A of the ITAA 1997 is about assessable recoupments. Subsection 20-25(1) of the ITAA 1997 states a recoupment of a loss or outgoing includes: (a) any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and (b) a grant in respect of the loss or outgoing. Subsection 20-25(2A) of the ITAA 1997 states if: (a) you have incurred expenditure that consists of general interest charge or shortfall interest charge; and (b) the Commissioner remits any of that charge; then you are taken to receive the remitted amount as recoupment of that expenditure. | Detailed Reasoning - Application of law in your case: In your case, the writing off of your debt by Tax Office, on the grounds it was not economical to pursue, did not extinguish the deductibility of the GIC imposed prior to that date (in the prior income years it was imposed). This is because that amount of GIC remained a presently existing liability since recovery action could be taken at a later time. Similarly, the writing off of your debt by Tax Office did not give rise to an assessable recoupment because (under subsection 20-25(1) of the ITAA 1997) you did not receive an amount as a recoupment of an outgoing and because (under subsection 20-25(2A) of the ITAA 1997) the Commissioner did not remit any of that charge. In short, the decision to re-raise and pursue the unpaid debt was in respect of the original debt. It did not create a new debt and it did not trigger another right to claim a deduction in respect of the same GIC amount. This outcome is confirmed in your superannuation surcharge account, which does not show a new imposition of GIC on the date your debt was re-raised. Instead, on that date, your account shows the re-raising of a generic debt and the imposition of an additional amount of (post-write off) GIC.