Private ruling: Work related expenses
Published: August 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you, an employee who also receives performance bonuses, entitled to a deduction under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for payments to your spouse for assisting you in your work? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a salaried. You employ a support person who has their own Australian Business Number (ABN) and company as a Financial Planning Support Officer to assist you in your work. The employment of your spouse to complete part of your duties (paper work and follow ups) allows you to concentrate on generating more business through more contact time with clients. The services your spouse provides are integral to your business activities as the completion of applications and rollovers is time consuming and complex requiring accuracy with no errors. When an error occurs there is a significant time delay. Your spouse is employed on a part-time basis completing 19 hours of work per week and receives a wage to match this. You have a signed employment contract with your spouse outlining the terms and conditions of their employment. Your spouse's remuneration is based off of their education qualifications and previous work experience.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act 1997 Section 26-35.

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 deduction of payments to a spouse under section 8-1 of the ITAA 1997 is considered in ATO Interpretive Decision ATO ID 2006/239 Income Tax Deduction: payments to spouse by an employee who receives performance bonuses . ATO ID 2006/239 considers a similar situation to that given with reference to Wells v Federal Commissioner of Taxation 2000 ATC 2077; 45 ATR 1145 ( Wells Case ). In Wells Case the applicant was a bank employee who was paid on a retainer plus supply of a car plus a commission basis. In that case, the applicant was able to generate large volumes of work and thereby a high level of commission because of the services performed by his spouse. There was found to be a real connection between the services which the applicant's spouse performed and the derivation of the applicant's assessable income by means of the increased commission. Accordingly there was found to be nothing private about the arrangements and the deduction was allowed. You are employed with a remuneration plan which includes performance bonuses. The services performed by your spouse enable you to generate more business through more contact time with clients resulting in larger performance bonuses. As was the case in ATO ID 2006/239 it is established that there is a very real connection in this situation between the services performed by your spouse in completing duties that directly enables you to attract more clients and ultimately results in a larger performance bonus for yourself. As you have incurred a cost in employing your spouse to perform these services with the intention of increasing assessable income, the arrangement is not private in nature. When considering the deductibility payments to a relative, section 26-35 of the ITAA 1997 is applicable. Section 26-35 limits the amount that is otherwise deductible for these transactions to be so much as the Commission considers reasonable. This means that the transaction must be conducted on an arm's length basis. You have a signed employment contract with your spouse indicating that the remuneration and employment terms have been entered into on an arm's length basis based on their relevant skills and qualifications. Due to this the amount your spouse receives as a payment from you is considered to be a reasonable amount. Therefore, you are entitled to a deduction for the payments made to your spouse under section 8-1 of the ITAA 1997.