Issue
Can an STS taxpayer claim a deduction for an amount of General Interest Charge (GIC) imposed on an outstanding liability before the GIC is actually paid?
Decision
No. Where GIC that is deductible under paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) is imposed in an income year, but the STS taxpayer does not pay that GIC until a later income year, the STS taxpayer can only claim a deduction for the GIC in that later year when it is actually paid.
Facts
On 28 June 2002 the Commissioner issued a Running Balance Account (RBA) statement for an STS taxpayer's integrated client account. The statement included an amount of GIC imposed on the STS taxpayer's RBA deficit debt.
The STS taxpayer did not pay the amount on the statement until 19 July 2002.
Reasons for Decision
Paragraph 25-5(1)(c) of the ITAA 1997 provides that a taxpayer can deduct expenditure incurred for the GIC under Division 1 of Part IIA of the Taxation Administration Act 1953 (TAA 1953).
GIC accrues on a day to day basis. It is due and payable (and as such incurred) at the end of each day, regardless of when it is posted to a taxpayer's account (section 8AAE of the TAA 1953).
However, under the STS accounting method in Subdivision 328-C of the ITAA 1997, an STS taxpayer is taken to have incurred an expense that is deductible under section 25-5 of the ITAA 1997 only at the time the expense is actually paid , unless another provision of the Act would allow the deduction at a different time (paragraphs 328-105(1)(b) and 328-105(2)(a) of the ITAA 1997).
No other provision of the Act would allow a deduction for GIC at a different time.
This means that an STS taxpayer can only claim a deduction for GIC in the income year in which the amount is paid to the Commissioner.