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ATO Interpretative Decision

ATO ID 2003/114 (Withdrawn)

Income Tax
Deductibility of judgment debt interest incurred in respect of a personal income tax debt

Attention This ATO ID is to be withdrawn. The views expressed in the ATO ID are current and offer a straight application of the law in relation to deductibility of judgement debt interest. This information is contained in If you don't pay (QC 50300).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 11 August 2017.

CautionCAUTION: 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Issue

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the judgment debt interest expenses that they have incurred in respect of their personal income tax debt?

Decision

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for the judgment debt interest expenses that they have incurred in respect of their personal income tax debt.

Facts

A judgment debt was obtained in a local Court against the taxpayer in respect of their outstanding personal income tax liability.

The taxpayer incurred judgment debt interest expenses in respect of the judgment debt.

The taxpayer is not carrying on a business.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

In Case V48; AAT Case 4178 [1988] AATA 70; 88 ATC 380; (1988) 19 ATR 3334 the Tribunal confirmed that the interest paid on a loan taken out to pay personal income tax is not deductible under section 51 of the Income Tax Assessment Act 1936 (ITAA 1936) (the equivalent of section 8-1 of the ITAA 1997), because payments made pursuant to the original assessments were not made in gaining or producing assessable income, nor were the payments necessarily incurred in carrying on a business for the purpose of gaining or producing such income.

Taxation Ruling IT 2582 provides that where a taxpayer carries on a business for the purpose of producing assessable income and in connection with the carrying on of that business borrows money to pay income tax, the interest on the borrowings is a deductible business expense under the second limb of subsection 51(1) of the ITAA 1936.

However, IT 2582 also provides that the Commissioner does not accept that interest is deductible under section 51 of the ITAA 1936 in relation to payments of income tax which are not business-related. The interest expense is not incurred by the taxpayer in earning their assessable income and is also private in nature.

The principles relating to the deductibility of interest incurred on borrowings to pay income tax are equally applicable to the payment of judgment debt interest in that the interest expense is not incurred by the taxpayer in gaining or producing their assessable income and is also private in nature.

Therefore, the taxpayer is not entitled to deduction under section 8-1 of the ITAA 1997 for the judgment debt interest expenses that they have incurred in respect of their personal income tax liability.

Amendment History

Date of amendment Part Comment
26 February 2016 Reason for Decision Updated references.

Date of decision: 26 November 2002

Year of income:Year ended 30 June 2002

Legislative references:
Income Tax Assessment Act 1997
   section 8-1

Income Tax Assessment Act 1936
   section 51

Case references:
Case V48 AAT Case 4178
   [1988] AATA 70
   88 ATC 380
   (1988) 19 ATR 3334

Related Public Rulings (including Determinations)
Taxation Ruling IT 2582

Siebel/TDMS reference number: CW3158250; 1-7K8U8V1;1-AWU2Y53

Business line: Small Business/Individual Taxpayers

Date of publication: 15 March 2003

ISSN: 1445-2782

ATO ID 2003/114 (Withdrawn) history   Top  
   Date   Version 
   26 November 2002   Original statement   
   26 February 2016   Updated statement   
 You are here ®  11 August 2017   Withdrawn   


 


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