Private ruling: Work Related Deduction
Published: August 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for expenses relating to the recovery of unpaid salary and wages from your employer? | A1: Yes.

Relevant facts and circumstances: You have been employed by a company for a number of years. You were concerned that you had been underpaid for some time. You were advised by Fair Work Australia of the correct penalties and hours of work under your award. You approached your employer who maintained that you had been paid correctly. You employed the services of a tax agent to ascertain how much you had been underpaid. You again approached your employer, who agreed that you had been underpaid and wanted to settle. You agreed on an amount of back pay of salary and wages to be paid in two instalments. You incurred expenses (the expenses) relating to the recovery of the underpayment of salary and wages, including bookkeeper and tax agent fees, legal costs and cost associated with travelling to your tax agent and Fair Work Australia.

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) provides that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income, unless that loss or outgoing is capital or of a private or domestic nature. In determining whether a deduction for legal and other expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered ( Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634). The nature or character of the expenses follows the advantage which is sought to be gained by incurring the expenses. If the advantage to be gained is of a capital nature then the expenses incurred in gaining the advantage will also be of a capital nature. You have incurred the expenses in relation to the recovery of unpaid salary and wages. These amounts are revenue in nature as they are considered to fall within the meaning of ordinary income. There is a clear connection between the expenses you have incurred and the advantage sought in the form of the assessable income you have derived. Therefore you are entitled to a deduction for the expenses incurred to derive this income.