Private ruling: Work related expenses
Date of advice: 20 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim a tax deduction for the costs associated with your application for an overseas employer sponsored work visa? | A1: No.

Relevant facts and circumstances: You obtained employment in a foreign country. You paid for a work visa application to that country. Your employer withdrew the employment due civil unrest in the country.

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) broadly allows a deduction for any losses or outgoings to the extent to which they are incurred in gaining or producing assessable income except to the extent outgoings are of a capital, private or domestic nature. The courts have considered the meaning of 'incurred in gaining or producing the assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that 'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.' The expenditure must therefore be related to the production of assessable income. In the case of Waters v FC of T 2010 ATC 10-157 ( Waters case) the court examined the deductibility of visa fees incurred by a taxpayer who was to commence work in Panama. In his application for review, Mr Waters asserted that arranging visas and incurring the associated expenditure was something which was required by the Panamanian Government. He submitted that that expenditure was not necessary for private or domestic reasons but, rather, was necessarily incurred to gain or produce assessable income. Mr Waters further contended that those costs related directly to obtaining permission to work in a foreign country and that any: " reasonable or sensible analysis of the situation must surely conclude that these costs should be tax deductible. Also, these costs are not 'generally private in nature' as stated in the original Private Ruling. If I did not work in Panama, I would have no need for these documents and these are not documents that I do not need if I wanted to travel to Panama on a private holiday." The Court held that although the costs incurred by Mr Waters on arranging visas, including obtaining medical certificates, passport photographs and certification and police clearances are costs which were clearly necessary to the commencement of his work in Panama there is an insufficient nexus for the purpose of s 8-1 of the Act. To be deductible, the expenditure must have been incurred by Mr Waters "in the course of" earning income from his work on the construction of the dam. The expenditure was incurred at a point in time which is too soon to be so regarded. The fact that Mr Waters would not have needed the visas if he did not work in Panama or if he were to travel to Panama on a holiday was not considered relevant for s 8-1 purposes. Your situation is similar to that in Waters case in that to work, you were required to obtain a visa and incurred expenses in doing so. The cost of applying for a visa is considered private in nature and not deductible under section 8-1 of the ITAA 1997 because the purpose of applying for the visa was to allow you enter and work in the foreign country. There is insufficient nexus between the costs to obtain the visa and the potential employment income from working overseas. No deduction is allowable for the cost of obtaining a work visa.