The Federal Government will not bail out James Hardie by allowing it special tax treatment and says the company should be responsible for its asbestos victim payouts.

The Australian Taxation Office (ATO) says it will not treat the $4.5 billion special-purpose fund as a charity, meaning it will miss out on substantial tax exemptions.

In a statement from James Hardie, CEO Louis Gries says money paid to victims from the special-purpose fund will not be tax-free.

However, the ATO has not ruled on whether the compensation payments will be tax deductible, and a decision is expected by the end of this month.