Private ruling: employee expenses
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the company entitled to a deduction for employee accommodation expenses? | A1: 

Relevant facts and circumstances: The company, a personal services company, has one employee. The company negotiated a contract to provide personal services to the client in a separate location to where the company and employee were based. The company paid the accommodation expense of the employee whilst he worked for the client. An agreement was reached with the client where they would reimburse via a per diem payment. The client required the company to submit invoices for the accommodation cost and these were paid once receipts were submitted.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1

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 or necessarily incurred in carrying on a business, except where the outgoings are of a capital, private or domestic nature. Although a company is included in the definition of a person as per section 995-1 of the ITAA 1997, a company cannot have private or domestic purpose in regards to expenditure incurred. In Case S74, 85 ATC 534 it was held that the concept of a company or a trust having a private or domestic purpose was not tenable. In that case involving the deduction of interest and outgoings relating to a house leased by the corporate trustee of a family trust to the beneficiaries of the trust, the full amount of the interest and outgoings was held to be deductible. Companies are normally engaged in business operations designed to produce assessable income and expenditure related to those activities is an allowable deduction. In the present case, the company paid the accommodation expenses of their employee in order for them to be in location to perform their employment duties. In this case, the expenses incurred by the company are necessarily incurred in carrying on a business because the expenses form part of the employees' remuneration. Therefore the company is entitled to a deduction for the accommodation expenses incurred.

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