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| General Deductions |
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General deductions under s.8-1(1) Under s.8-1(2) no deduction is allowed for losses or outgoings that are:
Specific non-deductions Examples include:
Under s.8-1(1) examples of deductible expenses include:
Guidelines
Motor Vehicle expenses Only the first leg of travel is deductible where a taxpayer travels from work to place of self education and then to home (or vice versa) Limit on self education expenses s.82A ITAA36 allows only the excess of expenses of self education over $250 as a deduction However, the disallowed first $250 may itself be reduced by expenses that are not allowed as a deduction e.g. non-allowable travel costs, child care costs to attend classes, capital costs of equipment acquired for self education purposes Travel expenses Self employed persons Basically, the same principles apply to the deductibility of travel expenses incurred by self employed taxpayers as they do to employees Where a taxpayer conducts a business at their residence, then the cost of travel to visit clients to conduct business is deductible Self education expenses Self education expenses are deductible under s.8-1(1) but may be limited by s.82A ITAA36 Self education expenses may include course fees, stationery, textbooks, materials, decline in value on assets used, and travel costs Exemptions or exclusions The requirement to obtain documentary evidence does not apply where:
Retention of Evidence Documents and records which evidence work and business deductions must be retained by the taxpayer for 5 years |
| Definition |
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s.995(1) - deductions mean "an amount that you can deduct"
The ITAA divides deductions into:
General deductions under s.8-1(1) s.8-1(1) provides the general formula to determine whether deductions are allowable Under this section any loss or outgoing can be deducted from assessable income if:
s.8-1(1) First limb "Losses and outgoings incurred in gaining assessable income" Deductions under the first limb of s.8-1(1) relate to all taxpayers Losses and outgoings must be incurred < br> Therefore, expenses arising from provisions are not deductible e.g. doubtful debts expense s.8-1(1) Second limb "Necessarily incurred in carrying on a business" Deductions under the second limb of s.8-1(1) relate only to taxpayers engaged in business A loss or outgoing must be part of the cost of trading operations to produce assessable income for it to be deductible Expenditure associated with the purchase, closure or establishment of a business is generally not deductible s.8-1(2) Negative limb Capital in nature "Capital" is not defined by the ITAA Case law has determined that a capital expenditure exists where it is: "Spent once and for all" "Made with a view to bringing an asset into existence" Capital in nature Examples of non-deductible capital expenditure are:
Private or domestic in nature Such expenditure is simply not deductible Related to producing exempt income If income is exempt income, then any associated expenditure is not deductible e.g. expenses incurred in carrying on a hobby Specifically not deductible The ITAA specifically disallows certain losses and outgoings Most are set out in Division 26 Business deductions Ordinary recurring operating expenses of a business are deductible under s.8-1(1) Capital expenditure is, of course, not deductible – s.8-1(2) However, certain capital expenditure related to commencing and ceasing a business is deductible under s.40-880 s.40-880 deduction Under s.40-880 20% of the following expenditure is deductible in the income year incurred, and the balance is allocated equally over the next 4 income years
Travel expenses Employees Travel to and from home and work - is private in nature and not deductible Travel from work to:
Home Office expenses Home office as a place of business Where a taxpayer carries on a business from their home, then home office expenses are deductible Home office as a work-place of "convenience" Home office expenses are deductible where an employee maintains an office to perform work more conveniently done away from their normal work-place Substantiation Work expenses - are expenses incurred by a taxpayer in producing wages or salary - must be substantiated by written evidence e.g. receipt, invoice, credit card or bank statement, electronic receipt or similar document Motor Vehicle expenses |
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