Private ruling: General interest charge
Published: June 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

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

Relevant facts and circumstances: You incurred a Higher Education Loan Program (HELP) debt. Your tax returns from previous years were overdue and lodged in 2011. The lodgement of the overdue tax returns generated an amount payable due to the HELP debt. The notice of assessments for your overdue returns issued in the 2010-11 financial year. GIC was imposed on your account. You submitted an objection against the general interest charges, which were remitted in the 2010-11 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 25-5(1).

Reasons for decision: Summary: Paragraph 25-5(1)(c) of the Income Tax Assessment Act 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. 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 incurs the liability to the GIC. Until those steps are completed, any liability to pay the GIC is no more than impending. In your case, you lodged your overdue tax returns in 2011. Shortly afterwards, the assessments which 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 the 2010-11 financial year, you are entitled to a deduction for this GIC in the year ended 30 June 2011.

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