Frisch and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/4517-4521)
Judgment date: 4 June 2008
Date published: 29 July 2008

Summary of decision:
This case sought to test whether expenditure incurred by a taxpayer with disability in employing an assistant to assist and attend to the taxpayer in or in relation to their disability while the taxpayer carries out their employment duties is deductible under s 8-1 of the Income Tax Assessment Act 1997 | Decision/Outcome | Adverse

Overview of facts:
The taxpayer requested a private ruling in relation to the deductibility of outgoings incurred by her in employing someone to provide the assistance needed by her because of her disability to fulfil the obligations and functions of her employment. | The taxpayer suffers from cerebral palsy. She has limited motor skills, her speech is impeded and she is permanently confined to a wheelchair/bed. At the time she requested the private ruling, she was studying law and planning to become a solicitor. During a semester break, she obtained employment as a law clerk and hired an assistant to help her while she did her work. The duties of the assistant included typing notes, photocopying, arranging items on the desk (non-personal services) and providing some personal care assistance (personal services). The amount sought to be deducted included wages and superannuation, advertising, insurance and training of the assistant. | The ruling and objection decisions were that no deduction was available but that any amount paid as remuneration to an attendant for medical services could be taken into account in determining whether a concessional rebate for medical expenses was available. | Issues decided by the tribunal | Outgoing incurred in gaining or producing assessable income | The Tribunal found that the taxpayer does not delegate any of the employment tasks to the attendant. Rather, the attendant merely performs necessary physical tasks under the direction and control of the taxpayer and the taxpayer merely obtains the assistance needed by her to fulfil her obligations and functions as an employee. | Accordingly the Tribunal decided that, to the extent that the expenditure of the taxpayer is in relation to non-personal services, the outgoing is incurred to enable the taxpayer to undertake her employment duties and is thus incurred in gaining her employment income. A deduction is available under s 8-1 ITAA 1997. | Not an outgoing of a private nature | The Tribunal found that any deduction under subsection 8-1(1) in relation to outgoings incurred on non-personal services is not denied to any extent under subsection 8-1(2) because the outgoings are not outgoings of a private or domestic nature. | In reaching this decision, the Tribunal noted that an expense incurred to overcome physical disability will probably in most cases be non-deductible as private or domestic, although this is not a rule which applies invariably. Outgoings incurred to acquire items required to overcome a disability are generally not deductible - for example, the cost of items such as spectacles, hearing aids, wheelchairs and crutches - as such items are not required only at and for work. | Here, however, the outgoings are to acquire services required and provided only at and for work. The Tribunal found that these are services without which the taxpayer could not fulfil her work obligations and, accordingly, the outgoings on the non-personal services are not outgoings of a private or domestic nature. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997 | The Tribunal decided that the fact that a rebate under s 159P ITAA 1936 is available in relation to an amount paid as remuneration for medical services would not preclude a deduction under s 8-1 ITAA 1997 in relation to that outgoing.

Issues decided:
Outgoing incurred in gaining or producing assessable income: The Tribunal found that the taxpayer does not delegate any of the employment tasks to the attendant. Rather, the attendant merely performs necessary physical tasks under the direction and control of the taxpayer and the taxpayer merely obtains the assistance needed by her to fulfil her obligations and functions as an employee. Accordingly the Tribunal decided that, to the extent that the expenditure of the taxpayer is in relation to non-personal services, the outgoing is incurred to enable the taxpayer to undertake her employment duties and is thus incurred in gaining her employment income. A deduction is available under s 8-1 ITAA 1997. | Not an outgoing of a private nature: The Tribunal found that any deduction under subsection 8-1(1) in relation to outgoings incurred on non-personal services is not denied to any extent under subsection 8-1(2) because the outgoings are not outgoings of a private or domestic nature. In reaching this decision, the Tribunal noted that an expense incurred to overcome physical disability will probably in most cases be non-deductible as private or domestic, although this is not a rule which applies invariably. Outgoings incurred to acquire items required to overcome a disability are generally not deductible - for example, the cost of items such as spectacles, hearing aids, wheelchairs and crutches - as such items are not required only at and for work. Here, however, the outgoings are to acquire services required and provided only at and for work. The Tribunal found that these are services without which the taxpayer could not fulfil her work obligations and, accordingly, the outgoings on the non-personal services are not outgoings of a private or domestic nature. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997: The Tribunal decided that the fact that a rebate under s 159P ITAA 1936 is available in relation to an amount paid as remuneration for medical services would not preclude a deduction under s 8-1 ITAA 1997 in relation to that outgoing.

ATO view of decision:
Outgoing incurred in gaining or producing assessable income | The Tax Office argued that this is an outgoing incurred to address the physical disability of the taxpayer which, although incurred for the purpose of gaining or producing her employment income, does not meet the essential character test of being incurred in gaining or producing the employment income. | On the facts of this case, the Tax Office accepts the Tribunal's decision that the outgoing is incurred not merely to put the taxpayer in a place or a position in which she could undertake her employment duties, but to enable her to undertake the employment duties. | This was not a case involving delegation of duties by an employee. The taxpayer did not delegate her employment duties, nor any discrete part of them, to her assistant. Although the maxim delegatus non potest delegare was discussed by the Tribunal, it acknowledged that there had been no delegation and the taxpayer had merely incurred expenditure to acquire services to enable her to undertake her income earning employment duties. | Not an outgoing of a private nature | The Tax Office also accepts, on the facts of this case, that the outgoings incurred by the taxpayer on non-personal services are not outgoings of a private or domestic nature. However, the Tax Office agrees with the Tribunal that an expense incurred to overcome a physical disability will probably in most cases be private and domestic, and non-deductible. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997 | An amount paid by a taxpayer permanently confined to a wheelchair/bed as remuneration for services necessitated by the taxpayer's confinement which are rendered by the recipient as an attendant of a person so confined can be taken into account in determining whether a rebate for medical expenses is available to the taxpayer under s 159P ITAA1936. | Any deduction available in relation to such an amount under s 8-1 ITAA 1997 is not precluded because the outgoing is an amount paid within the ambit of this concessional rebate.

Administrative treatment:
None. The decision was open to the Tribunal based on the particular circumstances of the case. | Implications on current Public Rulings & Determinations | None.

Legislative references: Income Tax Assessment Act 1997 8-1 Income Tax Assessment Act 1936 159P
Case references: Australian Air Express Pty Limited v Langford [2005] NSWCA 96 (2005) 147 IR 240 [2006] ALMD 3683 Commissioner of Taxation v Edwards (1994) 49 FCR 318 (1994) 94 ATC 4255 (1994) 28 ATR 87 Commissioner of Taxation v Payne [2001] HCA 3 (2001) 202 CLR 93 2001 ATC 4027 (2001) 46 ATR 228 Lodge v Federal Commissioner of Taxation (1972) 128 CLR 171 (1972) 72 ATC 4174 (1972) 3 ATR 254 (1972) 46 ALJR 575 Lunney v Commissioner of Taxation 100 CLR 478, 498-499 1958) 11 ATD 404 (1958) 32 ALJR 139 [1958] ALR 225 Wells v Commissioner of Taxation [2000] AATA 920 2000 ATC 2077 (2000) 45 ATR 1145
Subject references: Deduction outgoing incurred outgoing incurred to enable employee to undertake employment duties outgoing of a private nature employee of employee delegation delegatus non potest delegare maxim Rebate concessional rebate rebate for medical expenses