A taxpayer can’t deduct the cost of a fine incurred as a
result of their breach of the law. The fine is not incurred wholly
and exclusively for the purpose of the rental business.
The cost of a fine on a rental business employee may be
deducted where it is the employee’s liability. Here the
employee is taxed on the payment made by the employer as a benefit
in kind.
A revenue payment made by a taxpayer in settlement of a
civil action arising out of their rental business can be deducted
where the allegations were neither admitted nor proved. Where
liability was admitted or proved, a deduction is due if the payment
was restitutionary (that is, made good the loss to the other
party), but not if it was punitive (that is, in the nature of a
fine or penalty).
