Deductions: General rules: Main types of expenses: Fines for breaking the law
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).