ATO Interpretative Decision
ATO ID 2001/221 (Withdrawn)
Deductions - tax shortfall penalty
FOI status: may be released
||This ATO ID is withdrawn. The views expressed in the ATO ID are current and are included in Penalties (QC 33407).
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 27 October 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can a taxpayer claim a deduction for a tax shortfall penalty paid during the income year, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. Tax shortfall penalties are not incurred in gaining or producing assessable income. In addition, section 26-5 of the ITAA 1997 specifically disallows deductions for penalties of any kind.
The taxpayer's amended assessment for a previous year includes amounts in respect of a tax shortfall penalty.
The amended assessment is paid during the current income tax year.
Reasons for Decision
An amount may be deductible under section 8-1 of the ITAA 1997 where a taxpayer incurs the expense or loss:
- in gaining or producing assessable income, or
- where it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
A tax shortfall penalty is incurred when a taxpayer omits income or overclaims deductions, rebates or tax offsets in a particular year. It is directly attributed to the taxpayer's actions when completing their income tax return. A tax shortfall penalty can be characterised as a penalty in relation to the taxpayer's actions rather than to their income producing activities.
A deduction in respect of a tax shortfall penalty is therefore not available under section 8-1 of the ITAA 1997.
In addition to this, section 26-5 of the ITAA 1997 states:
'You cannot deduct under this Act:
- An amount (however described) payable, by way of penalty, under an *Australian law or a *foreign law; or
- An amount ordered by a court to be paid on the conviction of an entity for an offence against an *Australian law or a *foreign law.'
Penalties of any kind are not deductible. It does not matter whether those penalties were specifically incurred in order to gain or produce assessable income.
Date of decision: 5 July 2001
Income Tax Assessment Act 1997
Income tax shortfall
Siebel/TDMS reference number: CRS63801; 1-C9QC4C8
Business line: Small Business/Individual Taxpayers
Date of publication: 21 August 2001
|ATO ID 2001/221 (Withdrawn) history