Private ruling: Expenses incurred prior to commencement of the income earning activity
Published: August 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 01 July 2011

Ruling: Q1: Is a deduction allowable for the expenses you incurred prior to the commencement of your income earning activity? | A1: No.

Relevant facts and circumstances: You graduated from an educational institution in Country X. After graduation you intended to move to Australia to undertake employment in that field of work. You undertook examinations to allow you to work in Australia. You have incurred various other expenses in order to enable you to commence work. These expenses were incurred prior to your current income earning activity.

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) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 it was held that taxpayer's cannot deduct an expense that they have incurred in seeking new employment as these expenses are incurred in getting, not in doing, work as an employee. Therefore the expenses are incurred at a point too soon to be properly regarded as being incurred in gaining assessable income. A similar decision was laid down in Lunney v. FCT (1958) 100 CLR 478, where it was held that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. For example, job-hunting expenses are not rendered deductible simply because if they were not incurred no job would have been obtained. In your situation, you have incurred a number of expenses prior to commencing your employment in Australia. These expenses were not incurred in the course of your current income earning activity; rather they were incurred in order to obtain your employment in Australia. Accordingly, as your expenses were incurred at a point too soon, you are not entitled to a deduction for them under section 8-1 of the ITAA 1997.

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