Deductions: excise duty payable under Part VI of the Excise Act

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for payments of excise duty made under Part VI of the Excise Act 1901 (Excise Act), where the payment of the duty is made in the course of their business?

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for a payment of excise duty made under Part VI of the Excise Act, where the payment of the duty is made in the course of their business.

The taxpayer is a licensed manufacturer of excisable goods. The taxpayer makes payments of excise duty under Part VI of the Excise Act when the excisable goods are entered for home consumption under section 58 of the Excise Act or delivered for home consumption in accordance with the Collector's permission under section 61C of the Excise Act.

The payments of the excise duty under Part VI of the Excise Act are necessary to allow the taxpayer to sell excisable goods and deliver them to customers and thereby derive assessable income in the course of their business.

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that 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.

However, no deduction is allowed where the losses or outgoings are of a capital, private or domestic nature, or are incurred in gaining or producing exempt income, or another provision prevents the taxpayer from deducting them.

The payment of excise duty under Part VI of the Excise Act enables the taxpayer to sell excisable goods and deliver them to customers in the course of the taxpayer's business. Therefore, the payment is necessarily incurred in carrying on the taxpayer's business for the purpose of gaining or producing assessable income.

The payment is not of a capital, private or domestic nature and is not incurred in gaining or producing exempt income. Nor is the payment prevented from being deductible by any provision of the ITAA 1997. Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for a payment of excise duty under Part VI of the Excise Act.

The deductibility of excise duty, when incurred by a taxpayer in the course of their business, is consistent with the Courts' treatment of taxes, other than income tax, such as: • payroll tax - Layala Enterprises Pty Ltd v. FCT (1998) 86 FCR 348; 98 ATC 4858; (1998) 39 ATR 502 • stamp duty associated with revenue transactions - 10 CTBR Case 34 • land tax - Moffatt v. Webb (1913 ) 16 CLR 120