Timing of tax deduction when withholding tax is paid in the next fiscal year

 Author: PollyATO(Community Support)Community Support

15 July 2026

Hi there @mensunited,

If the franchise fee is subject to royalty withholding tax, option (i) is generally the correct approach.

Where a deduction is denied because the required withholding tax hasn't been withheld and paid, the deduction can be claimed once the withholding tax has been paid. However, the deduction is available for the income year in which the expense would otherwise have been deductible, rather than the year the withholding tax is paid.

Based on this info you've provided:

• the franchise fee was incurred in FY2024
• the deduction was not claimed in FY2024 because the withholding tax requirements had not been met
• the withholding tax was paid in March 2026.

In these circumstances, the franchise fee deduction would be claimed in FY2024. It may require an amendment to the FY2024 tax return. The outcome would depend on the nature of the franchise fee and the withholding tax obligations that applied.

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