Australian taxation law

1. Introduction According to Australian taxation law, Australian taxpayers could only claim the deductions and rebates (also called offsets) to which they are entitled.

S8-1(1) ITAA97 illustrates that the taxpayer could deduct any loss or outgoings which incurred or necessarily incurred in gaining or producing assessable income. In this section, the meaning of "incurred" is fundamental and essential. In this essay, we will firstly discuss different opinions concerning the meaning of "incurred" with the related case law, and then analyze the case of "ANZ Banking Group v FCT" to determine whether this case breaks the particular term.2. Meaning of "incurred" Taxation Ruling TR 97/7 officially explains the meaning of "incurred". First of all, there is no statutory explanation for the term "incurred", because the Australian Taxation Office (ATO) cannot waste time to define millions of simple terms like this.

In addition, it is common to believe that there is no time issues for an expense is incurred and paid in the same year of income. However, it may arise time issues if the outgoing is unpaid at the year end, or the expenditure is derived from two or more income years.There are five conditions should be considered: presently existing liability, payment made without money, defeasible, accounting practice, properly referable. Presently existing liability means that for the purpose of Section 8(1), even though the money is not paid, the outgoing or expense is still may be incurred. In the case "W Nevill & Company Ltd v.

FC of T (1937)", it states that the reason why the word is used by "incurred" rather that "paid" is because an outgoing may be incurred even it is not actually been paid. Furthermore, defeasible requires a taxpayer must have completely nexus with the outgoing, for example, a taxpayer take good on approval cannot be treated as the taxpayer's purchase.In addition, if the payment is not real money, for instance, gift, insurance premiums, the deduction is still available. Refers to accounting practice, an outgoing is incurred if there has contracts or other agreements give arise to the existing liability to the taxpayer. For the purposes of section 8-1, it is sometimes not enough that a loss or outgoing has been incurred. The outgoing must also be properly referable to the year of income to which the deduction is sought.

According to the case "Citibank Ltd & Ors (ATC at 4699; ATR at 432)". Hill J states that accounting evidence play a key role in assuring what year of income can be properly referable.3. “The ANZ case” In Australia and New Zealand Banking Group Ltd v FC of T 94 ATC 4026 (the ANZ case), there are various deduction claims made by the taxpayer bank, one of them is a claim under Victorian Workcare scheme (started from 1 September 1985). Under this scheme, a taxpayer had to pay levies for the Accidence Compensation Commission, however, if the taxpayers were treated as “self-insurers”, they are entitled to claim a deduction under s 51 (1) of Income Tax Assessment Act 1936 (Cth) for provisions that claims which had been reported but not paid.The issue in this case is whether or not the taxpayer entitled to a deduction under s 51(1) for the provisions.

The commissioner argued that the amount is not deductible because this event is not actually incurred. There is no reasonable commitment in the income year to make a payment to the taxpayer, and therefore no deduction is available. However, the taxpayer argued that the relevant liabilities have been definitely incurred for the purpose of s 51(1), hence a self-insurer should be able to claim a deduction.In Taxation Determination TD 97/14, the Full Federal Court measured that the Accident Compensation Act 1985 (Vic) generates a presently existing liability to make payments in the future from the minute an employee hurts at work. Such a liability, though possibly eventually defeasible, is still a liability 'incurred' within the definition of section 8-1 of the Income Tax Assessment Act 1997.

Consequently, the Court held that a deduction is allowable in the year in which the liability arises nevertheless that the actual payments are not made until a later year. The Court also believed that the provisions for such deductions should be 'bona fide', capable of reliable estimation and suitable to the company's auditors to enable certification as a real and reasonable view of the firm's accounts.4. Conclusion The meaning of 'incurred', under s 8(1) (formally is s 51(1)), is timing of deductions, which is significant and fundamental for taxpayers to claim a deduction.

To explain the accurate meaning of incurred, we have to consider five aspects: presently existing liability, payment made without money, defeasible, accounting practice, properly referable. In our opinion, ANZ case is a good example to show that a liability, though perhaps ultimately defeasible, is still a liability 'incurred' within the meaning of section 8-1 of the Income Tax Assessment Act 1997.