Deductibility of Stamp Duty Penalty Interest Earlier today I wrote a legal tip about penalty interest on stamp duty for long settlements in NSW Legal Tip 142: Stamp duty on Long Settlements A quick summary of this is – if you don’t pay your stamp duty on time there could be penalty interest added and this interest could be as high as 10% p.a. If this happens and the property an investment property will this interest be deductible? I don’t think it would be. This ‘interest’ arises because of a tax default (in NSW – may be different in other states) and a ‘penalty’ applies to tax defaults. Under the Commonwealth Income Tax Assessment Act 1997 there is a section which specifically states that penaties are not tax deductible, s 26-5 ITAA97: (1) You cannot deduct under this Act: (a) an amount (however described) payable, by way of penalty, under an * Australian law or a * foreign law; Therefore you should try to pay your stamp duty on time, perhaps borrowing to do so and incurring lower interest rates with this interest possibly being deductible.