Issue
Can a salary or wage earner claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for a card payment fee they are charged by the Australian Taxation Office (ATO) for using a credit card to pay their personal income tax debt?
Decision
No. A salary or wage earner cannot claim a deduction under section 8-1 of the ITAA 1997 for a card payment fee they are charged by the ATO for using a credit card to pay their personal income tax debt.
Facts
The taxpayer is a salary or wage earner and uses a credit card to pay their personal income tax debt.
The taxpayer agrees to pay the card payment fee charged by the ATO in order to pay their income tax debt by using their credit card.
On accepting the charge, a contract is formed between the ATO and the taxpayer for the payment of the card payment fee.
The payment is then processed and the taxpayer's card is charged separately for the amount of the card payment fee and the amount of the liability they are paying.
Reasons for Decision
Broadly, section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except to the extent they are of a capital, private or domestic nature, or relate to the earning of exempt income.
The application of section 8-1 of the ITAA 1997 in the context of a card payment fee does not raise any novel or difficult issues. It is essentially a question of applying the well known judicial 'tests' or 'interpretive approaches' to the particular facts. See for example the High Court's decisions in Federal Commissioner of Taxation v. Payne (2001) 202 CLR 93; 2001 ATC 4027; (2001) 46 ATR 228 per Gleeson CJ, Kirby and Hayne JJ; Federal Commissioner of Taxation v. Day (2008) 236 CLR 163; 2008 ATC 20-064; (2008) 70 ATR 14 per Gummow, Hayne, Heydon and Kiefel JJ; Spriggs v. Federal Commissioner of Taxation ; Riddell v. Federal Commissioner of Taxation (2009) 239 CLR 1; 2009 ATC 20-109; (2009) 72 ATR 148.
It is necessary to determine if there is a sufficient connection between the card payment fee and the process by which the taxpayer gains or produces their assessable income. Given the nature of the fee, this question will generally be answered by a careful analysis of the objective circumstances that gave rise to the liability being discharged by the use of the card.
In the present case, the taxpayer incurs the card payment fee by using their credit card to pay their personal income tax debt arising from the taxpayer's salary or wage earning activities.
A careful analysis of the character of the fee indicates that it is not an expense incurred in earning the taxpayer's assessable income - salary or wages. It is a payment out of income after it has been earned. It is clear from the authorities that this type of outgoing does not satisfy the tests for deductibility of a salary or wage earner under section 8-1 of the ITAA 1997 ( Ure v. FC of T 81 ATC 4100; (1981) 11 ATR 484; Cliffs International Inc. v. FC of T 85 ATC 4374; (1985) 16 ATR 601; Case V48 88 ATC 380; AAT Case 4 , 178 (1988)19 ATR 3334; Case 14 / 98 98 ATC 201; AAT Case 13 , 135 (1998) 39 ATR 1105).
Therefore, the card payment fee is not deductible under section 8-1 of the ITAA 1997.