ATO Interpretative Decision
ATO ID 2002/426 (Withdrawn)
Deductibility of work-related expenses prior to income being derived
FOI status: may be released
||This ATO ID is withdrawn. Guidance on this issue contained in this ATO ID can be found at Deductions you can claim (QC 31967).
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 29 September 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is a taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in a year prior to the derivation of income?
Yes. A taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for expenses incurred prior to deriving income where the taxpayer has incurred the expenses with the intention of producing assessable income.
The taxpayer commenced casual employment in June of the relevant income year.
The taxpayer did not receive any income in the relevant income year. However, income was received in the following income year.
The taxpayer incurred work-related expenses during the relevant income year.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.
The classic statement of the principle of expenditure relating to income yet to be derived comes from the case of Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at p57 where Latham CJ, Rich, Dixon, McTiernan and Webb JJ said:
'In brief substance, to come within the initial part of the sub-section it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.'
The taxpayer incurred work-related expenses in the relevant income year. The taxpayer expected to produce assessable income as a result of these expenses, and did so, albeit in the following income year. Thus the taxpayer incurred these expenses in order to gain or produce assessable income.
Accordingly, the taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for the work-related expenses incurred in the relevant income year.
Date of decision: 4 March 2002
Income Tax Assessment Act 1997
Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation
78 CLR 47
(1949) 56 ALR 47
(1949) 4 AITR 236
8 ATD 431
Deductions & expenses
Siebel/TDMS reference number: DW289804; 1-6B1B3ZM, 1-AX95BUA
Business line: Small Business/Individual Taxpayers
Date of publication: 12 April 2002
Date reviewed: 18 May 2015