Private ruling: Child care expenses
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the cost of child care for your child? | A1: No.

Relevant facts and circumstances: You are in Australia on a 457 visa (sponsorship) with your spouse and child. Neither you nor your spouse receive government benefits in relation to child care expenses. You and your spouse both work. You have incurred child care fees for your child. You and your spouse would be unable to work if you did not place your child in child care.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (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 or a provision of the taxation legislation excludes it. The deductibility of child care expenses was examined in the court case Lodge v FC of T (1972) 128 CLR 171; 72 ATC 4174; 46 ALJR 575; 3 ATR 254. In that case, the taxpayer worked under contract from home. To enable her to carry out her duties effectively, she sent her child to a child nursery. The court held that although the expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income, nevertheless, because it was not incurred in the course of carrying out the taxpayer's duties, it was not relevant or incidental to the production of her assessable income. In addition, the expense was considered to be both private and domestic in nature. You are not entitled to a deduction for the cost of placing your child in child care. Even though incurring the expense enables you to earn assessable income, in the sense that you can undertake paid employment, the expense is not incurred or directly related to how you carry out your employment duties. The fact that you and your spouse do not receive any government assistance does not change the nature of the child care expenses. The expenses remain domestic and private in nature and therefore not deductible. No deduction is allowable for child care expenses for your child.

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