Private ruling: Income tax deductions
Date of advice: 31 July 2025
Published: 15 September 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a deduction for funeral expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: You were solely responsible for paying for your parent's funeral. You received a superannuation death benefit on DD MM YYYY, which included: Taxed element of $XX,XXXX Tax free component of $X,XXX Total tax withheld of $X,XXX. The superannuation fund reimbursed you for the funeral costs of $XX,XXX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 Issue | Income Tax - deductions | Question | Are you entitled to claim a deduction for funeral expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary | No. | Detailed reasoning | An expense can only be deducted under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that: • it is incurred in gaining or producing your assessable income (the positive test) and also meets the 'negative tests' that: | ­ the expense is not a loss or outgoing of capital or of a capital nature; or | ­ the expense is not private or domestic in nature; or | ­ the expense is not incurred in relation to gaining or producing exempt or non-assessable non-exempt income, or | ­ another provision of the tax law does not prevent deduction of the expense. | Incurred in gaining or producing assessable income | The pivotal element of section 8-1 is the requirement of the positive test that expenses be incurred 'in gaining or producing assessable income'. The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 ( Payne's case ) said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income. | The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that: | ...to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if non be produced, would be expected to produce assessable income. | While the High Court authority indicates the nature of the connection that needs to be found between outgoings and assessable income, the sufficiency of the connection in a given case cannot simply be determined by reference to a precise formula. | Section 8-1 is expressed in such terms that it is intended to cover any n umber of legal and factual situations. In many cases, only a proper consideration of all the relevant facts and circumstances will reveal whether the occasion of a particular outgoing is to be found in what produces assessable income. | More difficult cases are where an expense ordinarily bears the characteristics of an everyday personal expense. Although generally not deductible, a deduction may be allowed if the particular context creates a close connection between the expenditure and the production of assessable income, through for example work activities; that is to say, 'the occasion of the expenditure is to be found in the income-earning activity itself'. | The requirement that the expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or casual connection between the expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties for example. Accordingly, in some cases, expenditure would be regarded as too remote form the income-earning activities or incurred only as a prerequisite to earning income, and not incurred in the course of producing that income. | The negative tests | Even if an expense meets the positive test, a deduction cannot be claimed if it fails one of the negative tests in section 8-1. The negative tests are whether an expense is capital, a private or domestic expense, or incurred in gaining or producing exempt income. | Broadly, 'capital or capital in nature' refers to expense items that are not regular or recurrent, but, rather, are one-off expenditures that can be expected to have an enduring or lasting benefit. For example a laptop computer used for work purposes or a tradespersons box of tools. | The terms 'private' and 'domestic' are not defined in the Act but have the ordinary meanings of 'personal' and 'relating to the home, household or household affairs' respectively. Everyday clothing, personal grooming items, and food and drink are common examples of private expense items. Deductions cannot be claimed for expenses incurred in earning tax exempt income. An example is the entitlement to pay and allowances as a member of the Army Reserve, which are exempt from income tax. Any expenses incurred in earning these tax-exempt amounts are not deductible. | Application to your circumstances | In your case, even though the funeral costs could be considered to be 'in connection' with or a 'prerequisite' to receiving the taxed element income component of the superannuation death benefit, the private nature of a funeral means that the expense is not deductible under section 8-1 of the ITAA 1997. | You are also unable to claim a tax deduction for any expenses that have been reimbursed to you by a third party.