The Federal Court has allowed the Commissioner’s appeal and set aside the decision in AAT Case [2012] AATA 719, Re Nash and FCT, which had held that a taxpayer was entitled to deductions of GIC accrued in each of the years to which it was referable.
In 2008, the Commissioner issued assessments and GIC notices to the taxpayer for the 2003 to 2008 income years (inclusive). The GIC amount for the relevant years totalled id=”mce_marker”68,409.75. Subsequently, the Commissioner disallowed the GIC deductions claimed by the taxpayer for the 2003 to 2007 years as he argued that the GIC accrued on tax debts, which were subject of assessments issued in 2008 (ie liability for GIC does not crystallise before an assessment of the tax on which the GIC accrues).
At first instance, the Tribunal disagreed with the Commissioner and found that the taxpayer was entitled to deductions for GIC amounts accrued for each year to which the GIC was referable, even though no assessments had been issued at that time. It did so on the basis that the GIC remained a present legal obligation of the taxpayer for every day on which the underlying tax liability should have been paid and on the basis of cases such as the Full Federal Court decision in FCT v H [2010] FCAFC 128. The Commissioner appealed.
The Federal Court rejected the taxpayer’s arguments and found that FCT v H [2010] FCAFC 128 did not support the taxpayer’s position. The Court said in its view, there was a necessary nexus between the relevant statutory provisions governing when income tax was due and payable and other statutory provisions governing when GIC was due and payable. Accordingly, the Court held that the AAT erred in law in not considering the importance of giving a notice of assessment in creating a liability to pay income tax. In conclusion, it allowed the Commissioner’s appeal and set aside the AAT’s decision.
(FCT v Nash [2013] FCA 336, Federal Court, Griffith J, 16 April 2013.)
[LTN 72, 17/4/13]