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17 Sep 2008
Appeal Status
Not appealed

No deduction for fines

2008 case note - TRA accepted that there was no nexus to income earning and good policy reasons to disallow fines incurred by a trucking firm – fines, deductibility.

TRA 105/05 Dec 9/2008

Income Tax Act 1994


The TRA accepted that there was no nexus to income earning and good policy reasons to disallow fines incurred by a trucking firm.


The taxpayer is a trucking firm which transported timber from forests for processing. In the course of this activity the firm had received fines for overloading its trucks. The firm sought to deduct these fines in the 2000 to 2002 income years inclusive.

A good deal of expert evidence regarding the loading and weighing of trucks was adduced by both sides. The taxpayer argued that while they did not accept the fines could not be successfully challenged in court (on the basis of various statutory defences including a "no fault" defence) it was simply better business to pay the fine than to challenge it [par 6]. The Commissioner took the view that the taxpayer had failed to take reasonable steps to avoid the fines [par 42]. Noting that the relevant legislation "built in" a five percent tolerance before a truck driver would be fined the Commissioner submitted that the taxpayer was "cavalier" in its attitude [paragraphs 49 and 57-58]


Barber DCJ concluded that the fines were not deductible.

His Honour reviewed the case law in the area identifying that in major Commonwealth countries (Australia, England and New Zealand) fines were not usually deductible (paragraphs [71] to [104]). He noted the Canadian case law to the opposite effect was overridden by statute to prohibit the deductibility of fines and penalties (par [107].

Despite observing that New Zealand cases were "not clear" upon the issue of whether or not fines and penalties had sufficient nexus to be deductible, his Honour continued:

[109] However, it seems to me that a business should operate within the law. The disputant's business of carting logs on large trucks and trailers is able to comply with the law, but there is expense involved in weight-of-load compliance and such non-compliance can involve a relatively modest amount of annual fines. It seems to me to be illogical to seek to deduct fines relating to a breach of the law as if they were a business expense, because they relate to activities which do not conform to the law and so are not within the permitted scope of the business. I consider that a penalty/fine arising from a taxpayer's illegal activities (ie, transporting too heavy a load) cannot have a sufficient nexus with the taxpayer's income earning process so as to create deductibility for that cost of the fine.

He also noted that he was bound by the earlier High Court decision of Nicholas Nathan Ltd v CIR (1989) 11 NZTC 6,213 in which Justice Sinclair held fines were not allowable deductions for reasons of public policy (par [111]) :

[111] In any case, under the doctrine of precedent I am bound, by the 1989 High Court decision of Nicholas Nathan Ltd and Anor v CIR where Sinclair J held that deductibility of fines should not be allowed on the grounds of public policy. It would be contrary to public policy to allow such fines paid by logging transport companies to be deducted from their revenue earnings. It makes no difference to my reasoning whether the objector company incurred the fines or whether its drivers incurred them but the objector paid them. The public policy approach readily leads to denial of deductibility for fines but the nexus approach is not so easy to apply.

While sympathetic to the taxpayer, the Taxation Review Authority confirmed the assessments.