Section 26-5 of the ITAA 1997 specifically makes penalties or fines imposed as a result of breaches of an Australian law non-deductible.
Examples of non-deductible penalties and fines include:
- Speeding fines incurred on work related travel.
- ATO penalties for failure to lodge tax returns on time.
- ATO penalties for false and misleading statements.
- Parking fines incurred on work related travel.
- Employer fines for breach of work safe laws.
- Businesses fined for engaging in misleading and deceptive conduct.
- Businesses fined for breaching health laws.
- ‘Businesses fined for breaching environmental laws.
In contrast, interest, even when in the nature of ‘penalty interest’ is generally deductible. This means taxpayers can claim a tax deduction for the ATO imposed general interest charge for late payment of tax and the shortfall interest charge levied on taxpayers for the underpayment of tax.
In taxation ruling TR 93/7 the ATO states ‘penalty interest’ is generally deductible if the loan moneys were borrowed for the purpose of gaining or producing assessable income or for use in a business carried on for that purpose, and the payment is made in order to rid the taxpayer of a recurring obligation to pay interest on the loan, where such interest would itself be deductible if incurred.