Repayment of refund interest as negative investment income

Interest on arrears can be taken into account as negative income from capital assets insofar as it is attributable to previously determined and paid refund interest.

If a taxpayer pays the refund interest on income tax previously paid out by the tax office back to the tax office because interest on arrears is incurred in a later interest assessment, the repayment can lead to negative income from capital assets. This would therefore be one of the rare cases in which interest on arrears, which, unlike interest on refunds, may not otherwise be taken into account to reduce tax, does have a tax effect. The Federal Fiscal Court has approved this exception, but has also clarified that for negative income to arise, the interest to be paid must relate to the same difference and the same interest period as the refund interest received. As a result, the full amount of interest on back payments is generally not deductible as negative income.