General deductions

Chapter 12

General deductions

 2018 Thomson Reuters (Professional) Australia Ltd. All Rights Reserved. Jonathan Teoh, Monash University

Introduction • The main provision that provides taxpayers a deduction for

an expense is the general deduction provision:

• Section 8-1 has the potential to apply to any taxpayer.

• A loss or outgoing (ie, an expense) may:

–Be deductible under s 8-1 and a specific provision. In these cases, use the “most appropriate” provision: s 8-10.

–Not qualify for a deduction under a specific provision. In these cases, consider deductibility under s 8-1.

Deductions General

Deductions (s 8-1)

Specific Deductions

(s 8-5)

PoTL 2018 paragraph [12.10]

General deduction rule: Positive limbs • A taxpayer can deduct from his or her assessable income a

loss or outgoing to the extent that it is (s 8-1(1)):

• Only one of the two positive limbs needs to be satisfied.

1 • Incurred in gaining or producing

assessable income; or

2

• Necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

PoTL 2018 paragraph [12.20]

General deduction rule: Negative limbs • However, a loss or outgoing is not deductible under the general

deduction rule if it satisfies any of the negative limbs (s 8-1(2)):

• Deductibility is determined from the perspective of the taxpayer which incurs the loss or outgoing.

1 • Capital or capital in nature;

2 • Private or domestic;

3 • Incurred in gaining exempt or non-assessable

non-exempt income; or

4 • Prevented from being deducted by a specific

provision of the income tax legislation.

PoTL 2018 paragraph [12.20]

General deduction rule: Loss or outgoing • Section 8-1 applies to both a loss and outgoings:

– Loss: depletion of a taxpayer’s financial position: Charles Moore & Co (WA) Pty Ltd v FCT (1956)

– Outgoing: eg, an expense.

• Determining whether there is a loss or outgoing is not generally an issue in claiming a deduction under s 8-1.

PoTL 2018 paragraph [12.30]

Nexus test – positive limbs of s 8-1 • First positive limb • Requires a nexus between:

• Second positive limb • Requires a nexus between:

Loss / outgoing eg, expense

Gaining or producing assessable income

Nexus / connection

Loss / outgoing eg, expense

Carrying on a business to produce assessable income

Nexus / connection PoTL 2018 paragraph [12.40]

Nexus test – positive limbs of s 8-1: “Gaining or producing assessable income” • “Gaining or producing assessable income” to be interpreted as:

– “in the course of gaining or producing assessable income”: Amalgamated Zinc (De Bavay’s) Ltd v FCT (1935)

Loss / outgoing eg, expense

Gaining or producing assessable income

Nexus / connection: Must be sufficient and necessary that the loss or outgoing is:

1.Productive of assessable income; or 2.Expected to produce assessable income

PoTL 2018 paragraph [12.40]

Nexus test – positive limbs of s 8-1: Judicial tests • The courts have adopted a number of approaches to determine

whether a loss or outgoing is incurred in the course of gaining or producing assessable income:

1 • The incidental and relevant test;

2 • The essential character test; and

3 • The occasion of the expenditure test.

PoTL 2018 paragraph [12.50]

Nexus test – positive limbs of s 8-1: Judicial tests 1. Incidental and relevant test • A loss or outgoing is sufficiently connected to the production of

assessable income where: – “the expenditure … is incidental and relevant to the

operations or activities regularly carried on for the production of income”: W Nevill & Co Ltd v FCT (1937).

2. Essential character test • Courts have looked at the “essential character” of an expense:

– Home to work travel expenses: essential character was to put the taxpayer in a position to gain or produce assessable income, not the production of assessable income • See, Lunney v FCT; Hayley v FCT (1958).

PoTL 2018 paragraphs [12.50] – [12.60]

Nexus test – positive limbs of s 8-1: Judicial tests 3. Occasion of the expenditure test • Courts have considered whether the occasion of the

expenditure arises out of income-producing activities: FCT v Payne (2001) and FCT v Day (2008)

– Requires an assessment as to what is productive of the taxpayer’s assessable income.

PoTL 2018 paragraph [12.60]

Nexus test – positive limbs of s 8-1: Nexus sufficiently direct or too remote? • If the nexus between the expense and the production of

assessable income is too remote, it is not deductible • Some cases exist where it is questionable as to whether a

nexus can be established, for example:

1 • Expenses involving alleged or actual

wrongdoing by the taxpayer

2 • Expenses to reduce future expenses

3 • Involuntary losses or outgoings

PoTL 2018 paragraph [12.70]

Nexus test – positive limbs of s 8-1: Nexus sufficiently direct or too remote? 1. Expenses involving alleged or actual wrongdoing • Nexus satisfied for expenses arising from alleged or actual

wrongdoing incurred by: – Employees defending improper conduct charges which are

“quasi-personal”: FCT v Day (2008). – Business taxpayers in respect of defending claims (eg, for

libel actions) arising out of the ordinary course of business: Herald and Weekly Times v FCT (1932) and FCT v Snowden v Willson Pty Ltd (1958).

– Company directors incurring costs to defend criminal charges: Magna Alloys & Research Pty Ltd v FCT (1980).

– Expenses related to illegal business: FCT v La Rosa (2003).

PoTL 2018 paragraph [12.80]

Nexus test – positive limbs of s 8-1: Nexus sufficiently direct or too remote? 2. Expenses to reduce future expenses • Nexus established between an expense that improves the

taxpayer’s business overall and reduces future expenses – Termination payment to end a contract of employment for

poor performing staff: W Nevill and Co Ltd v FCT (1937). 3. Involuntary losses or outgoings • Nexus established between an involuntary loss where it

arises out of the taxpayer’s income-producing activities – Day’s earnings stolen while on way to the bank: Charles

Moore & Co (WA) Pty Ltd v FCT (1956).

PoTL 2018 paragraphs [12.100] – [12.110]

Nexus test – positive limbs of s 8-1: Sufficient temporal nexus • An issue as to whether a nexus can be established where

expenses are incurred:

1. Before the production of

assessable income Is it too remote?

Producing assessable income,

eg, carrying on a business

2. After the production of

assessable income Is it too remote?

Loss / outgoing eg, expense

PoTL 2018 paragraph [12.120]

Nexus test – positive limbs of s 8-1: Sufficient temporal nexus 1. Expenses related to the production of assessable income

in future years • An expense incurred to gain or produce assessable income in

the future may satisfy the nexus requirement – Interest associated with the purchase of an asset which

was expected to produce income in the future was deductible: Steele v DCT (1999)

• However, nexus may not be established where: – The expense is too preliminary for a business that has yet

to commence: Softwood Pulp and Paper Ltd v FCT (1976) – The expense is to put an employee in a position to gain or

produce assessable income: Lunney v FCT; Hayley v FCT (1958).

PoTL 2018 paragraph [12.130]

Nexus test – positive limbs of s 8-1: Sufficient temporal nexus 2. Expenses related to the production of assessable income

in prior years • Likely to be deductible providing the expense relates to the

time when the business was operating. For example:

– Satisfaction of obligations arising from previous business: Placer Pacific Management Pty Ltd v FCT (1995)

– Interest expense on a business: FCT v Jones (2002):

Loan drawn down

Business ceases

Interest accruing & payable nexus still maintained

PoTL 2018 paragraph [12.140]

Non-deductible expenses – negative limbs of s 8-1 • An expense is not deductible to the extent that it satisfies any

one of the negative limbs – “To the extent”: the expense is partially deductible if it

partially satisfies a negative limb: – The negative limbs are:

1 • Capital or capital in nature;

2 • Private or domestic;

3 • Incurred in gaining exempt or non-assessable

non-exempt income; or

4 • Prevented from being deducted by a specific

provision of the income tax legislation.

PoTL 2018 paragraph [12.160]

Non-deductibles – negative limbs of s 8-1 Capital or capital in nature • There is no clear test in legislation as to when an expense will

be characterised as a capital expense

• Distinction between “revenue” (not capital) and “capital”:

Loss or outgoing

Revenue Broadly relates to the taxpayer’s income- producing process

Capital Broadly relates to the taxpayer’s income- producing structure

PoTL 2018 paragraph [12.170]

Non-deductibles – negative limbs of s 8-1 Capital or capital in nature • Earlier judicial tests include:

– Expenditure spent on an “once and for all” basis (capital) or recurring basis (revenue): Vallambrosa Rubber Co Ltd v Farmer (1910)

– Expenditure made to bring an asset into existence or to bring an advantage for an enduring benefit: British Insulated and Helsby Cables Ltd v Atherton (1926).

PoTL 2018 paragraph [12.180]

Non-deductibles – negative limbs of s 8-1 Capital or capital in nature • Key judicial decision to distinguish between business

processes (revenue) and business structure (capital):

– Sun Newspapers Ltd and Associated Newspapers v FCT (1938). Three factors to be considered:

1

• Character of the advantage sought • Whether the expense has a lasting (capital) or temporary

(revenue) benefit

2

• Manner in which it is used relied upon or enjoyed • Requires a consideration of whether the benefit is used

one-off (capital) or recurrently (revenue)

3

• Means adopted to obtain the benefit • Whether the benefit was obtained through a one-off

payment (capital) or recurrent payment (revenue).

PoTL 2018 paragraph [12.180]

Non-deductibles – negative limbs of s 8-1 Capital or capital in nature • Despite Sun Newspapers, it is difficult to characterise

expenses as revenue or capital, for example:

Revenue in nature BP Australia v FCT

(1965)

• “Tied house” agreements averaging five years in duration with petrol stations

• Benefit was to be used in the continuous and recurrent to sell petrol

• Lump sum payment.

Capital in nature Strick v Regent Oil Co Ltd

(1966)

• Exclusive sales tie agreements via a lease premium arrangement

• Between 10-20 years in duration (substantially longer than BP Australia).

PoTL 2018 paragraph [12.190]

Non-deductibles – negative limbs of s 8-1 Capital or capital in nature • The courts will examine the substance of a payment and not

just its form, for example:

Revenue in nature National Australia Bank Ltd

v FCT (1997)

• Lump sum payment to become the exclusive lender under a government loan scheme

• Taxpayer sought to increase customer base and income from loans.

Capital in nature Colonial Mutual Life Assurance

Society Ltd v FCT (1953)

• Taxpayer acquired a block of land

• Payments were in the form of a “rent charge”, with monthly payments over 50 years.

PoTL 2018 paragraph [12.200]

Non-deductibles – negative limbs of s 8-1 Private or domestic • There is no clear test as to whether an expense is private or

domestic in nature. The broad distinction:

• Eg, additional food consumed by a professional sportsperson was to put the taxpayer in a position to carry out income- producing activities (private / domestic): FCT v Cooper (1991).

Loss or outgoing

Private or domestic Puts the taxpayer in a

position to gain or produce assessable income

Not private or domestic Incurred in gaining or producing assessable

income

PoTL 2018 paragraph [12.220]

Non-deductibles – negative limbs of s 8-1 Incurred in gaining / producing certain income • Losses or outgoings that are incurred in gaining or producing

exempt or non-assessable non-exempt income are not deductible under s 8-1.

Business taxpayer deriving:

1. Assessable income (eg, sales)

2. Exempt income (eg, exempt foreign

source income)

Income: Assessable

Expenses: Deductible

Income: Not assessable

Expenses: Not deductible

PoTL 2018 paragraph [12.230]

Non-deductibles – negative limbs of s 8-1 Denied deductions • A loss or outgoing will not be deductible when it has been

specifically denied by the income tax legislation

Examples of denied deductions

• Certain penalties imposed under Australian or foreign laws: s 26-5 • Expenses related to rebatable benefits (eg, Austudy): s 26-19 • Repayments of certain student assistance loans owing to the

Government in respect of studies (eg, higher education): s 26-20 • Political gifts or donations made by business taxpayers: s 26-22 • Relative’s travel expenses: s 26-30 • Excessive amounts paid to related entities: s 26-35 • Recreational club expenses: s 26-45(2) • Bribes to foreign public officials & public officials: ss 26-52 and 26-53 • Expenditure relating to illegal activities: s 26-54 • Travel expenses related to earning assessable income from

residential premises: 26-31

PoTL 2018 paragraph [12.240]

Non-deductibles – negative limbs of s 8-1 Denied deductions: entertainment expenses • Entertainment expenses are not deductible under s 8-1, unless

an exception applies – Definition of “entertainment” is broad: includes, “food, drink

or recreation”: s 32-10(1).

• Exceptions include: – Entertainment provided by way of a fringe benefit: s 32-20 – Allowance to an employee that is included in the employee’s

assessable income: s 32-30 – Provision of food or drink to an employee under industrial

arrangements relating to overtime: s 32-30 – Promotion and advertising expenses: s 32-45.

PoTL 2018 paragraph [12.250]

Non-deductibles – negative limbs of s 8-1 Denied deductions: reimbursements • Taxpayers are denied a deduction for expenditure that has

been reimbursed: s 51AH ITAA36 – Taxpayer is not actually out-of-pocket.

Employee ineligible to claim a deduction

Employee Acquires

goods/services from the supplier

Supplier Sells

goods/services to the employee

Employer Reimburses the

employee for cost of goods/services

PoTL 2018 paragraph [12.260]

Apportionment – deductibility of dual purpose expenses • A loss or outgoing is deductible “to the extent” that:

– It satisfies either positive limb of s 8-1; – It does not satisfy one of the negative limbs of s 8-1.

• Apportionment for expenses that have a dual purpose: – No precise formula for apportionment and it is necessary to

determine a fair and reasonable division on a case-by-case basis: Ronpibon Tin No Liability v FCT (1949)

Expense Eg, $1,000 phone bill

Work-related calls $700 deductible

Personal calls $300 not deductible

70%

30%

PoTL 2018 paragraphs [12.270] – [12.280]

Amount of deduction: Reasonable vs actual expense • Generally, taxpayers are entitled to deduct the full amount of a

loss or outgoing if the requirements of s 8-1 are satisfied: – “It is not for the Court or the commissioner to say how much

a taxpayer ought to spend in obtaining his income, but only how much he has spent”: Ronpibon Tin No Liability v FCT (1949).

• Objective purpose of the loss or outgoing is considered: Europa Oil (NZ) Ltd v CIR (NZ) (No 2) (1976).

• A statutory provision may limit the deduction, for example: – Payments to related parties may be limited to an amount

that is considered “reasonable”: s 26-35.

PoTL 2018 paragraphs [12.290] – [12.300]

Amount of deduction: Tax minimisation situations – purpose • A taxpayer’s subjective purpose or intention in incurring an

expense may be considered where: – The taxpayer is in a loss position; and – The taxpayer’s purpose in incurring an expense appears to

be one of tax minimisation: Ure v FCT (1981).

• For example, in Ure v FCT:

Taxpayer’s deduction of interest limited “to the extent” of the production of assessable income, ie 1%

Bank Provides a loan to

the taxpayer. Interest rates range from 7.5% to 12%

Taxpayer Moneys on-lent at an interest rate of

1%, producing assessable income

Related Parties Moneys used for

investments paying competitive market

rates

PoTL 2018 paragraph [12.310]

Substantiation of deductions • Taxpayers must be able to substantiate their deduction claims

by maintaining and keeping proper documentation.

• Documentation requirements outlined in Div 900.

• Records generally required to be kept for 5 years: s 900-165.

• Exceptions apply, for example, written evidence is not required: – For work expenses of up to $300. – For claims arising from expending a travel or overtime meal

allowance, provided the claim is within the Commissioner’s reasonable limits: see TD 2017/19 and TR 2004/6.

PoTL 2018 paragraph [12.320]

Application of s 8-1 to common expenses • Courts have had to examine whether expenses:

– Have a nexus with gaining or producing assessable income; – Private or domestic in nature; – Capital or revenue in nature in other situations (eg, legal

expenses)

PoTL 2018 paragraph [12.330]

Application of s 8-1 to common expenses: Expenses incurred in gaining employment • Expenses incurred in gaining employment are considered too

early for the production of assessable income: – See, FCT v Maddalena (1971).

• However, a distinction is made if the taxpayer is carrying on a business: – Professional sports people incurring costs for the negotiation

of employment contracts (management fees) deductible: Spriggs v FCT; Riddell v FCT (2009).

PoTL 2018 paragraphs [12.340] – [12.350]

Application of s 8-1 to common expenses: Relocation expenses • Expenses incurred by a taxpayer in relocating his or her home

have been held to be non-deductible: – Puts the taxpayer in a position to produce assessable

income, rather than incurred in gaining or producing assessable income: Fullerton v FCT (1991).

PoTL 2018 paragraph [12.360]

Application of s 8-1 to common expenses: Child care expenses • Child care expenses are non-deductible

– Puts the taxpayer in a position to produce assessable income, rather than incurred in gaining or producing assessable income: Lodge v FCT (1972)

– Also likely to be private or domestic in nature: s 8-1(2)(b).

PoTL 2018 paragraph [12.370]

Application of s 8-1 to common expenses: Travel expenses 1. Travel between home and work

• General rule: – Expenses for travel between a taxpayer’s ordinary home and

regular work location is not deductible: Lunney v FCT; Hayley v FCT (1958) and Draft Ruling TR 2017/D6

• However, may be considered deductible “work travel” if there are special demands:

– “Fly in-fly out” workers subject to employer’s direction and control during period of travel: John Holland Group Pty Ltd v FCT (2015)

– Outside normal work hours where work at home has started prior to undertaking travel: FCT v Collings (1976)

PoTL 2018 paragraph [12.390]

Application of s 8-1 to common expenses: Travel expenses 1. Travel between home and work (continued)

• Other exceptions to the general rule:

1

• By itinerant workers: FCT v Wiener (1978). Multiple unrelated jobs not requiring travel ≠ itinerant worker: Re Hill v FCT (2016)

2

• By taxpayers who are required to carry bulky items to perform employment duties: FCT v Vogt (1975) and Rafferty v FCT (2017)

3 • To alternative workplaces on a temporary basis: FCT v

Ballesty (1977).

PoTL 2018 paragraphs [12.400] – [12.430]

Application of s 8-1 to common expenses: Travel expenses 2. Travel between two places of work

• Under common law, travel between unrelated workplaces are not deductible under s 8-1: see FCT v Payne (2001)

• Statutory position (s 25-100):

• Deduction allowed for travel directly between two workplaces where the taxpayer is engaged in income-producing activities

– Not deductible if a workplace is the taxpayer’s residence.

Business A (also taxpayer’s

residence) First Job

Second (Unrelated) Job or Business B

Travel expense: Not deductible

Travel expense: Deductible

PoTL 2018 paragraph [12.440]

Application of s 8-1 to common expenses: Travel expenses 3. Car expenses • Where travel expenses relate to a car, rules in Div 28 govern

the amount of car expenses that are deductible under s 8-1: – Div 28 only applies to individuals and partnerships that

include at least one individual: s 28-10 – Taxpayer must owned or leased a car during the year.

• Choice of methods to calculate car expense deductions (but deduction still claimed under s 8-1):

PoTL 2018 paragraphs [12.450] – [12.570]

1 • “Cents per kilometre “method

2 • “Log book” method

Application of s 8-1 to common expenses: Travel expenses “Cents per kilometre” • Quantum of deduction claim under s 28-25 is equal to:

• Limit of 5,000 kilometres claim per year. Any claims for kilometres in excess of 5,000 is disregarded: s 28-25(2)

• Not required to substantiate car expenses: s 28-35.

PoTL 2018 paragraphs [12.460] – [12.480]

No. of business kms the travelled in the income year

Number of cents per kilometre

(66 cents per km for 2017-18)

Application of s 8-1 to common expenses: Travel expenses “Log book” method • Quantum of deduction claim under s 28-90 is equal to:

• Car expenses are broadly operating expenses and the decline in value (eg, petrol) and require substantiation.

• Business use percentage calculated by reference to a log book using the formula:

PoTL 2018 paragraphs [12.550] – [12.570]

Amount of each car expense

Business use percentage

100% Number of business kms the car travelled in the

period when the taxpayer held the car Total number of kms travelled by the car in the period

Application of s 8-1 to common expenses: Self-education expenses 1. Relating to taxpayer’s current career • Sufficient connection to the production of the taxpayer’s

assessable income when:

Self-education expenses

Gaining or producing assessable income

Nexus established:

Improving prospects of promotion

FCT v Studdert (1991)

Earning higher income in existing

career FCT v Hatchett (1971)

Requirement to stay up to

date Ruling TR 98/9

PoTL 2018 paragraphs [12.580] – [12.630]

Application of s 8-1 to common expenses: Self-education expenses • Travel expenses relating to self-education may be deductible

when travel relates to income-producing activities.

• High Court in FCT v Finn (1961) suggested the following factors to determine deductibility:

• Not necessary for all factors to be satisfied. Depends on individual’s circumstances.

1 • Whether there is employer support for travel

2 • Clear evidence that the travel was devoted to the collation

of information related to income-producing activities; and

3 • Resulting from (2), whether there will be an improvement

of opportunities for promotion and/or more income.

PoTL 2018 paragraph [12.620]

Application of s 8-1 to common expenses: Self-education expenses 2. Not related to employment income • Self-education expenses potentially deductible where the

receipt of income is conditional on the recipient making satisfactory educational progress: See, FCT v Anstis (2010)

– Note, a deduction for expenses related to rebatable benefits specifically denied by s 26-19.

3. Non-deductible self education expenses • Payments made under the Higher Education Support Act

2003 (Cth) (eg, HECS-HELP fees): s 26-20. • First $250 of self-education expenses: s 82A ITAA36. • Apportionment required where self-education expenses are

both income-producing and private in nature.

PoTL 2018 paragraphs [12.640] – [12.690]

Application of s 8-1 to common expenses: Home office expenses • The deductibility of home office expenses depends on:

– Type of expense: running expenses or occupancy expenses; – Whether the taxpayer uses the home office as a ‘genuine

home office’ or ‘home office for convenience only.

• Deductibility of home office expenses under s 8-1 is as follows:

• Apportionment of expenses: occupancy expenses eg, by floor area; running expenses, eg, by time basis.

Running expenses

eg, electricity

Occupancy expenses eg, interest on

mortgage Genuine home office   Home office for convenience only

  FCT v Faichney (1972)

PoTL 2018 paragraphs [12.700] – [12.730]

Application of s 8-1 to common expenses: Clothing and dry-cleaning expenses • Conventional clothing is not deductible under s 8-1

– Considered day-to-day living: not incurred in gaining or producing assessable income and/or private or domestic;

– Applies even where the clothing is required by the taxpayer’s income producing activities: Westcott v FCT (1997).

• Exceptions:

1

• Abnormal expenditure on conventional clothing • Eg, “additional expenditure” deductible for a significant number

of additional outfits required for work : FCT v Edwards (1994)

2

• Expenditure caused by taxpayer’s work conditions • Eg, flight attendant allowed a deduction for moisturiser and

larger shoes due to work environment: Mansfield v FCT (1995).

PoTL 2018 paragraphs [12.740] – [12.780]

Application of s 8-1 to common expenses: Clothing and dry-cleaning expenses • Occupation-specific clothing, protective clothing and uniforms

are generally deductible: Morris v FCT (2002)

• Clothing items that are expected to last a number of years (eg, a barrister’s wig) may be capital and subject to depreciation.

Term Definition Occupation-specific clothing

Identifies the wearer as a person associated with a particular profession, occupation or calling: s 34-20(1). For example, a chef’s hat.

Protective clothing Clothing to protect the wearer from a real risk of exposure to illness or injury: s 34-20(2). For example, a dentist’s goggles. Also see, Ruling TR 2003/6.

Uniform Sufficiently distinctive to an observer as clearly identifying the employee as working for a particular employer: s 34-15.

PoTL 2018 paragraphs [12.790] – [12.800]

Application of s 8-1 to common expenses: Interest expenses • Deductibility of interest expenses will depend on the taxpayer’s

use of borrowed funds: FCT v Munro (1926). For example:

Deductible

• Interest accruing on borrowed funds used to purchase an income- producing asset (eg, business asset, investment / rental property)

Non-deductible

• Interest accruing on borrowed funds used to purchase the taxpayer’s residence that does not produce assessable income.

PoTL 2018 paragraph [12.810]

Application of s 8-1 to common expenses: Interest expenses and gearing • Gearing refers to borrowing money in order to invest (eg

purchase of an investment property) – Positive gearing: income > costs of investment – Negative gearing: income < costs of investment.

• Deductibility of costs (commonly interest), based on whether s 8-1 satisfied, regardless if the investment is negative geared.

PoTL 2018 paragraph [12.820]

Application of s 8-1 to common expenses: Legal expenses • Distinguishing between capital and revenue legal expenses

can be a difficult. For example:

Capital in nature Broken Hill Theatres Pty Ltd v

FCT (1952) and John Fairfax & Sons Pty Ltd v FCT (1959)

• Legal expenses incurred to protect the taxpayer’s title in an asset or its existing business structure

Revenue in nature FCT v Consolidated Fertilizers Ltd (1991)

• Legal expenses incurred to protect the taxpayer’s business (hence, income- producing processes) where it is a regular incident.

PoTL 2018 paragraphs [12.840] – [12.850]

  • Chapter 12
  • Introduction
  • General deduction rule:�Positive limbs
  • General deduction rule:�Negative limbs
  • General deduction rule:�Loss or outgoing
  • �Nexus test – positive limbs of s 8-1
  • Nexus test – positive limbs of s 8-1:�“Gaining or producing assessable income”
  • Nexus test – positive limbs of s 8-1:�Judicial tests
  • Nexus test – positive limbs of s 8-1:�Judicial tests
  • Nexus test – positive limbs of s 8-1:�Judicial tests
  • Nexus test – positive limbs of s 8-1:�Nexus sufficiently direct or too remote?
  • Nexus test – positive limbs of s 8-1:�Nexus sufficiently direct or too remote?
  • Nexus test – positive limbs of s 8-1:�Nexus sufficiently direct or too remote?
  • Nexus test – positive limbs of s 8-1:�Sufficient temporal nexus
  • Nexus test – positive limbs of s 8-1:�Sufficient temporal nexus
  • Nexus test – positive limbs of s 8-1:�Sufficient temporal nexus
  • �Non-deductible expenses – negative limbs �of s 8-1
  • �Non-deductibles – negative limbs of s 8-1�Capital or capital in nature
  • Non-deductibles – negative limbs of s 8-1�Capital or capital in nature
  • Non-deductibles – negative limbs of s 8-1�Capital or capital in nature
  • Non-deductibles – negative limbs of s 8-1�Capital or capital in nature
  • Non-deductibles – negative limbs of s 8-1�Capital or capital in nature
  • Non-deductibles – negative limbs of s 8-1�Private or domestic
  • Non-deductibles – negative limbs of s 8-1�Incurred in gaining / producing certain income
  • Non-deductibles – negative limbs of s 8-1�Denied deductions
  • Non-deductibles – negative limbs of s 8-1�Denied deductions: entertainment expenses
  • Non-deductibles – negative limbs of s 8-1�Denied deductions: reimbursements
  • Apportionment – deductibility of dual purpose expenses
  • Amount of deduction:�Reasonable vs actual expense
  • Amount of deduction:�Tax minimisation situations – purpose
  • Substantiation of deductions
  • Application of s 8-1 to common expenses
  • Application of s 8-1 to common expenses:�Expenses incurred in gaining employment
  • Application of s 8-1 to common expenses:�Relocation expenses
  • Application of s 8-1 to common expenses:�Child care expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Travel expenses
  • Application of s 8-1 to common expenses:�Self-education expenses
  • Application of s 8-1 to common expenses:�Self-education expenses
  • Application of s 8-1 to common expenses:�Self-education expenses
  • Application of s 8-1 to common expenses:�Home office expenses
  • Application of s 8-1 to common expenses:�Clothing and dry-cleaning expenses
  • Application of s 8-1 to common expenses:�Clothing and dry-cleaning expenses
  • Application of s 8-1 to common expenses:�Interest expenses
  • Application of s 8-1 to common expenses:�Interest expenses and gearing
  • Application of s 8-1 to common expenses:�Legal expenses