Private ruling: Deductions - exempt income
Date of advice: 31 August 2022
Published: November 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim deductions for foreign expenses against your exempt foreign income? | A1: No.

Relevant facts and circumstances: You are employed by the Employer A. You are currently posted to a program located in Country A. Your posting is for at least X years. While oversees, you maintain your main residence in Australia where your spouse resides. You are required to be contactable 24/7 both within Country A and Australasia. You are required to reside in a secure defence apartment which you pay rent for using your exempt foreign income. You purchased IT and home office items prior to your departure as these items are not supplied by Employer A. These items will not return to Australia at the end of your posting in Country A. You are required to provide your own living expenses of AUD $XX per month paid directly into a Country A bank account.

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

Reasons for decision: Summary: Section 8-1 sets out the general rules for deductibility under the ITAA 1997. Section 8-1 of the ITAA 1997 provides that: (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred carrying on a business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. Paragraph 8-1(2)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) prevents a tax deduction under section 8-1 of the ITAA 1997 where the loss or outgoing is incurred in relation to gaining or producing exempt or non-assessable non-exempt income. As the foreign expenses have been incurred in relation to gaining or producing exempt income, no deduction is available.