ATO ID 2002/472: Deductibility of wages paid by an employee to another person
Date of decision: 7 February 2002
Year of income: Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer, who is an employee, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for wages paid to another person?

Decision
No. The taxpayer, who is an employee, is not entitled to a deduction under section 8-1 of the ITAA 1997 for wages paid to another person.

Facts
The taxpayer is employed as a salaried lecturer. Another person has contributed to the preparation of course material, student reports and correspondence for the taxpayer. The taxpayer considers that without this assistance they would not have been able to fulfil all the duties of their employment. The taxpayer paid a portion of their gross income to the other person for this assistance.

Reasons for decision
Summary: 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, or relate to the earning of exempt income. The Board of Review considered the deductibility of wages paid by an employee in Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30. In that case an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242: 'If an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded ...[from being deductible]' Where a taxpayer pays another to perform part of or assist with the duties of their employment it is not an expense which is incurred by the taxpayer in gaining or producing their employment income. In addition, the wages paid would be an outgoing of a private or domestic nature. Note: In some circumstances the payment of wages by an employee to an assistant may be deductible. In Frisch v Federal Commissioner of Taxation [2008] AATA 462; 2008 ATC 10-031; (2008) 72 ATR 551, the Tribunal found that wages paid by the taxpayer who was disabled to an assistant, who provided certain services to enable the taxpayer to work as a law clerk, were deductible. The reasons for this decision are discussed in the Decision Impact Statement.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Case M55 / Case 30 80 ATC 366 (1980) 24 CTBR (NS) 239
Other references: Decision Impact Statement - Frisch v Federal Commissioner of Taxation
Subject references: Deductions & expenses Salary and wages expenses Wages