Land tax arrears

Whether arrears of land tax are tax deductible under section 8-1 (Income Tax Assessment Act 1997 (ITAA 1997)) in the year in which they are paid or in the years to which the land tax assessments relate? How the penalty payable on the land tax arrears will be treated.

Arrears of land tax are deductible in the income year in which the liability for land tax is incurred, which may be different to the income year in which the land tax assessment is issued. Any penalty component is not deductible.

A taxpayer fails to lodge land tax returns for a number of years. The state land tax office writes to the taxpayer requesting that the taxpayer lodge all outstanding land tax returns. A number of land tax assessments relating to past years are issued in the current year. In addition to assessing outstanding land tax, the assessments include a penalty component. The taxpayer pays the full amount of the assessments in the current year.

The taxpayer becomes liable to pay land tax in prior years by virtue of the operation of the relevant land tax legislation in those earlier years. Under that legislation, the taxpayer's liability to pay land tax is ascertainable and capable of calculation when the taxpayer uses the property for income producing purposes notwithstanding that no assessment issues until a later year. As the liability to pay land tax is ascertainable in the year to which the assessment giving rise to the liability relates, land tax payable is incurred and hence is deductible in that year ( Case B5 70 ATC 24; 15 CTBR(NS) Case 67 ). The Federal Court confirmed this principle, in the context of payroll tax, in Layala Enterprises Pty Ltd (in liq) v FC of T 98 ATC 4858; (1998) 39 ATR 502.

Any penalty component is not deductible by virtue of section 26-5 (ITAA 1997). Note: 25. (1) Any person who fails to duly furnish any return or copy thereof or information as and when required by this Act or by the Commissioner shall, if a taxpayer, be liable, apart from any other penalty provided by this Act, to pay on demand by the Commissioner , by way of additional tax an amount of no exceeding 10- of the amount of tax assessable to him, in addition to any sum by way of a penalty which may become payable by him in accordance with section 39 , but the Commissioner may in any particular case, for reasonable cause shown by the taxpayer, remit all or part of the additional tax.