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General Deductions (Wk 8 & 9), s 8-1 - Coggle Diagram
General Deductions (Wk 8 & 9)
Positive limbs
s 8-1(1)
1. Incurred in gaining or producing assessable income
2. Necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income
"to the extent" meaning that it may be partially deductible
only one of the two positive limbs needs to be satisfied
"in the course of gaining or producing assessable income" - Amalgamated Zinc v FCT
Judicial tests
Incidental and relevant test
W Nevill & Co Ltd v FCT
Essential character test
Lunney v FCT; Hayley v FCT
Occasion of the expenditure test
FCT v Payne; FCT v Day
Nexus sufficiently direct or too remote?
Expenses involving alleged or actual wrongdoing
FCT v Day; Herald and Weekly Times v FCT; FCT v Snowden v Wilson Pty Ltd; Magna Alloys & Research Pty Ltd v FCT; FCT v La Rosa
Expenses to reduce future expenses
W Nevill and Co Ltd v FCT
Involuntary losses or outgoings
Charles Moore & Co Pty Ltd v FCT
Nexus sufficient temporal nexus
Expenses related to the production of assessable income in future years
Nexus established: Steele v DCT
Not established: Softwood Pulp and Paper Ltd v FCT; Lunney v FCT; Hayley v FCT
Expenses related to the production of assessable income in prior years
Nexus established: Placer Pacific Management Pty Ltd v FCT; FCT v Jones
"Incurred" - guidance from
TR 97/7
Prepaid expenses
ss 82KZL - 82KZMG
Long service leave and annual leave
s 26-10
only be deducted when paid
Bad debt
s 25-35
provisions not allowed as not incurred
Insurance companies
deductions based on an estimate of future liability
Negative limbs
s 8-1(2)
1. Capital or capital in nature
Revenue - relates to the income producing process
Capital - relates to the income producing structure
Judicial tests
Capital - "Once and for all" basis
Revenue - recurring basis
Vallambrosa Rubber Co Ltd v Farmer
Capital - to bring an asset into exist or to bring an advantage for an enduring benefit
British Insulated and Helsby Cables Ltd v Atherton
Sun Newspapers Ltd and Associated Newspapers v FCT:
Character of the advantage sought: lasting (capital) or temporary (revenue)
Manner in which it is used relied upon or enjoyed: one-off (capital) or recurrently (revenue)
Means adopted to obtain the benefit: one-off payment (capital) or recurrent (revenue)
2. Private or domestic
Private/domestic: Puts the taxpayer in a position to gain or produce assessable income
Not Private/domestic: Incurred in gaining or producing assessable income
3. Incurred in gaining exempt or non-assessable non-exempt income
4. Prevented from being deducted by a specific provision
11 examples of denied deductions
Entertainment expenses - are not deductible unless exceptions apply
ss 32-20 to 32-45
Reimbursement - denied a deduction under
s 51AH
as they taxpayer is not actually out-of-pocket
Apportionment of deduction
Reasonable vs actual expense
Tax minimisation situations
Application to common expenses
Relocation and childcare expenses
Travel between home and work
Travel between two places of work
Car expenses: cents per kilometre or log book method
Self education expenses
Home office expenses
Clothing and dry cleaning expenses
Interest expenses
Legal expenses
s 8-1