Private ruling: General interest charges
Published: April 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the general interest charge (GIC) amounts imposed on your account deductible in the financial year in which it was imposed? | A1: Yes. | Q2: Is the amount of GIC remitted assessable in the financial year in which it was remitted? | A2: Yes.

Relevant facts and circumstances: You lodged multiple tax returns. Notices of assessments for these returns issued in the 2011-12 financial year. General interest charge (GIC) was imposed during the 2011-12 financial year. Some GIC amounts had a processed date in the 2011-12 financial year but an effective date falling within an earlier financial year. GIC was remitted in part during the 2011-12 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 20-20 | Income Tax Assessment Act 1997 Section 20-25 | Income Tax Assessment Act 1997 Section 20-30 | Income Tax Assessment Act 1997 Section 25-5 | Taxation Administration Act 1953 Section 8AAB

Reasons for decision: Summary: The GIC imposed on late payment of debt is deductible in the financial year in which it was imposed on your account. That is, the financial year within which the processing date falls. Where GIC, which was imposed in an earlier financial year, is remitted, the amount of remission is assessable in the financial year in which it was remitted. | Detailed Reasoning - When GIC imposed is deductible: Paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenditure incurred to the extent it is for the general interest charge (GIC). Section 8AAB of the Taxation Administration Act 1953 (TAA) applies GIC where a taxpayer has not paid their tax liability by the due date. Taxation Determination TD 2012/2 discusses when shortfall interest charge (SIC) is incurred for the purposes of paragraph 25-5(1)(c) of the ITAA 1997. Whilst the determination refers specifically to SIC and GIC imposed on amended assessments, the principles used to determine when the SIC or GIC were incurred can by applied to the situation of GIC imposed for late payment of a tax liability. The term 'incurred' is not defined within the income tax legislation. Taxation Ruling TR 97/7 sets out the Commissioner's view on the meaning of 'incurred' for the purposes of section 8-1 of the ITAA 1997 in determining the timing of deductions for taxpayers returning income on a receipts basis. The key principles are: · incurred does not equate to having been paid · the taxpayer must be definitely committed in the year of income, that is, it must be a presently existing liability to pay a pecuniary sum · it is not a presently existing liability if it is contingent, and · incurred does not include amounts which are merely impending, threatened, or expected. TD 2012/2 states that SIC is incurred in the year of income the Commissioner gives a taxpayer a notice of amended assessment. This is the case even if the SIC liability is notified separately from the notice of amended assessment, or if the SIC is unpaid at the end of that year of income. Following the principles contained within TD 2012/2, the GIC imposed on your account for late payment of a tax liability is deductible in the year in which it appears on your account. | Detailed Reasoning - When GIC remitted in assessable: Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in that list is recoupment for certain losses and outgoings that are deductible under Subdivision 20-A of the ITAA 1997. A recoupment is defined in subsection 20-25(2A) of the ITAA 1997 to include where: · a taxpayer has incurred expenditure that consists of the GIC; and · the Commissioner remits any of that GIC charge, · the taxpayer is taken to have received that remitted amount as a recoupment of that expenditure. Subsection 20-20(3) of the ITAA 1997 provides that an amount received by a taxpayer is an assessable recoupment if it is deductible in a current or earlier income year under a provision listed in section 20-30 of the ITAA 1997. Item 1.3 of the table in subsection 20-30(1) of the ITAA 1997 includes tax related expenses deductible under section 25-5 of the ITAA 1997. Paragraph 25-5(1)(c) of the ITAA 1997 states that expenditure for the GIC under Division 1 of Part IIA of the TAA is a deductible tax related expense. Where the whole of the loss or outgoing is deductible either in the current or an earlier income year, section 20-35 of the ITAA 1997 provides that the taxpayer's assessable income includes the amount of the recoupment up to the amount of the loss or outgoing. Thus, the amount of any GIC that has been remitted forms part of your assessable income in the financial year in which it was remitted.