Principal Issues: 1 - Is GST deductible under the ITA? 2 - Is interest assessed on GST deductible for ITA purposes? 3 - Is a penalty assessed under the ETA for late-filed GST deductible for income tax purposes?
Position: 1 - GST is deductible for income tax purposes if it was paid on an expense that is otherwise deductible under the ITA. 2 - An amount paid or payable as interest under Part IX of the ETA, which relates to a GST liability that arose in the course of earning income from a business or property will be deductible provided that the interest accrued during a taxation year that commenced before April 1, 2007. 3 - In this case yes.
Reasons: 1 - IC 77-11 provides for the deductibility of a sales tax reassessment (which would include GST) in computing income under the ITA. It is considered a cost of doing business. 2 -Subparagraph 18(1)(t)(ii) only provides a deduction for interest accrued in a taxation year that commenced before April 1, 2007. 3 - In accordance with section 67.6 of the ITA, fines or penalties that have been imposed after March 22, 2004 are not deductible by a taxpayer. However, one exception is for prescribed penalties. Penalties assessed under paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA are prescribed penalties for purposes of section 67.6 of the ITA.