Tax Law: Analysis of Deductions for Travelling Expenses, Computer and Travel Costs, Home Office Expenses, and Forex Losses

TAX LAW
DEDUCTIONS
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TAX LAW
Question 1
a) The key issue to be analysed in the situation presented is if the lawyer can claim deduction
for the given travelling expenses or not. In accordance with s. 8(1) Income Tax
Assessment Act 1997 (ITAA 1997), an individual can deduct expenses if atleast one of the
below mentioned positive limbs is complied with (CCH, 2013).
 The expense is incurred in producing assessable income
 It is incurred in the normal process of business which produces assessable income
However, even if the underlying expense does satisfy the above two limbs, then also the
expense may not be deductible if it falls under any of the four “negative limbs” outlined in s.
8(1) (Barkoczy, 2015).
 The expense is of capital nature
 The expense is of domestic or private nature
 Expense is incurred in gaining income that is non-assessable for tax purposes
 There is a particular provision which prevents expense from deduction
Considering the amount of practice put in football, it is apparent that lawyer is travelling not
as a hobby but to actually gain income. Hence, it is possible that the first possible limb is
satisfied in the given case. However, under the given situation the commentary in FCT v
Payne (2001) 46 ATR 228 case becomes relevant whereby s.8(1) would not be applicable
considering that there are two work places which are associated with two different income
producing activities i.e. one as a lawyer and the other as a footballer. However, it would be
possible to still deduct these expenses under the ambit of s. 25-100, ITAA 1997 provided
there is direct travel between the given two workplaces and one of these is not the residence
of the taxpayer (Gilders et. al., 2016).
If the taxpayer is undergoing these trips for income generation and eventually no income
arises, then as per the verdict in the FTC v Maddalena (1971) 2 ATR 541 case, no deduction
would be available for the taxpayer as no link can be satisfied between the expense and
assessable income (Deutsch et al., 2015). Thus, it may be concluded that deduction of
expense would be permissible only if these trip to the club result in producing assessable
income.

TAX LAW
b) The key issue is to determine if the expenses related to computer and travel can be
deducted immediately or whether they would be termed as capital expenditure. Further, it
also needs to be discussed if the travel cost is deductible immediately or not in the event of
manager also being present at the seminar.
Some expenses owing to their capital nature cannot be deducted immediately under any of
the two sections i.e. s. 8(1) and s. 8(5) ITAA 1997. For such expenses, capital allowance is
available which stretched over time as outlined under DIVISION 40, ITAA 1997 provided
they are meant for assessable income production. In accordance with s. 40-25, ITAA 1997,
the deduction claimed by the company on an annual basis would be equal to the decline in
value of computer (Barkoczy, 2015). Further, the company would have the choice of
choosing between two methods i.e. prime cost method and diminishing value method as per
s. 40-65, ITAA 1997. An example of the computation of decline in value is captured in the
table highlighted below (CCH, 2013).
Under the diminishing value method, the remaining value can also be claimed till the
complete deduction is not done.
As per subdiv 40(1), ITAA 1997 certain ‘business related costs’ termed as capital works may
be considered deductible but s 40-880(5) specifies that this is permissible only when the