Simplified Tax System (STS) accounting method - timing of deductions for fringe benefits tax (FBT) instalments

Does paragraph 328-105(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) delay an STS taxpayer's deduction for an FBT instalment they have incurred and can deduct under section 8-1 of the ITAA 1997 until the income year in which they pay the instalment to the Commissioner?

Yes. Where an STS taxpayer incurs an FBT instalment that is deductible under section 8-1 of the ITAA 1997 in one income year, but does not pay that instalment to the Commissioner until a later income year, paragraph 328-105(1)(b) of the ITAA 1997 delays their deduction for that instalment until the later income year in which they pay the instalment to the Commissioner.

An STS taxpayer incurred an FBT instalment which can be deducted under section 8-1 of the ITAA 1997 in the 2001-02 income year. The taxpayer pays that amount to the Commissioner in July 2002.

Under the STS accounting method in Subdivision 328-C of the ITAA 1997, an STS taxpayer can generally claim a deduction for a loss or outgoing that would otherwise be deductible under section 8-1 (general deductions), section 25-5 (tax-related expenses) or section 25-10 (repairs) of the ITAA 1997 in the income year in which the taxpayer pays that expense: paragraph 328-105(1)(b) of the ITAA 1997.

Where an FBT instalment represents an outgoing that meets the conditions in section 8-1 of the ITAA 1997 it will be deductible under that section when incurred (see paragraph 14 of Taxation Ruling TR 95/24). As an amount that would otherwise be deductible by an STS taxpayer under section 8-1 of the ITAA 1997, the instalment is therefore an amount to which paragraph 328-105(1)(b) of the ITAA 1997 applies. Under that paragraph an STS taxpayer will only be able to claim a deduction for an FBT instalment that has been incurred in the income year in which they pay that amount.

This means that under paragraph 328-105(1)(b) of the ITAA 1997, the STS taxpayer in the circumstances described above can claim a deduction for the FBT instalment in the 2002-03 income year, which is the income year in which the taxpayer pays that amount to the Commissioner.