Deductibility of cost of an annual emergency services levy on an income producing property

Can a taxpayer claim a deduction for the cost of an annual emergency service levy imposed on an income producing property under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for the cost of an annual emergency services levy imposed on an income producing property because the levy is connected with the gaining or producing of assessable income.

The taxpayer owns a property that is used to produce assessable income.

The local council of the area in which the property is located imposes an annual levy for the provision of emergency services provided by the Country Fire Authority, Metropolitan Fire Authority, the Police Force etc.

The annual emergency services levy is based on the dollar value of the land.

The levy is not land tax.

An emergency service levy is a charge imposed by a local council on property owners to meet some of the costs provided by emergency authorities. The levy is payable based on the dollar value of land subject to assessment.

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, except to the extent that they are outgoings of a capital private or domestic nature.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431 the High Court stated that: 'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

The annual emergency service levy is an ongoing expense incurred in the course of earning the taxpayer's assessable income. Accordingly, the annual emergency services levy is deductible under section 8-1 of the ITAA 1997.