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ATO Interpretative Decision

ATO ID 2004/366 (Withdrawn)

Income Tax
Deductions: judgment debt interest imposed on a judgment debt for outstanding income tax liabilities

Attention This ATO ID is to be withdrawn.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Status of this decision: Decision withdrawn 11 August 2017.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 judgment debt interest?

Decision

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for judgment debt interest.

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 in connection with the judgment debt. This interest was levied under legislation governing the Local Court.

One of the taxpayer's income producing activities is carrying on a business as a sole trader.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of 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.

However, where another provision of the income tax legislation deals specifically with the deductibility of a particular expense, it is first necessary to consider whether that provision provides for the deductibility of such an expense.

Section 25-5 of the ITAA 1997 allows a deduction for various tax related expenses including, at paragraph 25-5(1)(c) of the ITAA 1997, the general interest charge (GIC) under Division 1 of Part IIA of the Taxation Administration Act 1953 (TAA 1953).

The judgment debt interest levied in respect of the taxpayer's outstanding income tax liability was imposed under legislation governing the Local Court.

Paragraph 25-5(1)(c) of the ITAA 1997 is strictly limited to a deduction for GIC raised under the TAA 1953.

Accordingly, the taxpayer is not entitled to a deduction under paragraph 25-5(1)(c) of the ITAA 1997 for the judgment debt interest that they have incurred in respect of their income tax debt.

The application of section 8-1 of the ITAA 1997 to the judgement debt interest incurred by the taxpayer must therefore be considered.

It is important to note that payment of GIC would not, but for paragraph 25-5(1)(c) of the ITAA 1997, be regarded as a deductible expenditure.

Judgment debt interest amounts are amounts in the nature of interest payable for underpayment or late payment of income tax and relate to a taxpayers' failure to fully satisfy their income tax obligations. Such amounts are awarded to compensate the revenue for the full amount of income tax not being paid by the due date. The judgment debt interest expense is not incurred by the taxpayer in gaining or producing their assessable income or necessarily incurred in carrying on a business for gaining or producing assessable income.

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

Date of decision: 1 March 2004

Year of income:Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   section 25-5
   subsection 25-5(1)
   paragraph 25-5(1)(c)
   subsection 25-5(2)

Taxation Administration Act 1953
   Part IIA Division 1

Keywords
General interest charge
Judgment debts

Siebel/TDMS Reference Number: 3928710; 1-BYGWNVI

Business Line: Small Business/Individual Taxpayers

Date of publication: 7 May 2004

ISSN: 1445-2782

ATO ID 2004/366 (Withdrawn) history   Top  
   Date   Version 
    1 March 2004   Original statement   
 You are here ®  11 August 2017   Withdrawn   


 


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