Private ruling: Repaid relocation costs
Date of advice: 18 September 2017
Published: January 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to reduce your assessable income by the amount you were required to pay your previous employer when you resigned from their employment? | A1: No. | Q2: Are you entitled to a deduction for the amount you were required to pay your previous employer when you resigned from their employment? | A2: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You travelled interstate to take up a new job. Your employer paid your relocation costs as part of your salary packaging, and your employer paid fringe benefits tax on these costs. You later left the job and returned to your previous state. You had to refund the relocation costs back to the employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 8-1. | Income Tax Assessment Act 1997 - Section 6-5. | Income Tax Assessment Act 1997 - Section 59-30

Reasons for decision: Summary: The relocation costs you were required to pay is considered to be a payment for a breach of contract. It does not represent a repayment of your assessable income. Therefore you are not entitled to reduce your assessable income. In addition, the payment is not considered to be a work related expense that was incurred in the course of earning your assessable income with the employer and is, therefore, not deductible. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages and allowances are regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997. In the income year that you relocated interstate and received income from your employer, your salary and wage income was assessed as ordinary income. You employer paid your relocation costs and paid fringe benefits tax on these costs. Your relocation costs were not included in your assessable income a fringe benefits do not form part of your assessable income. Section 59-30 of the ITAA 1997 states that an amount you receive is not assessable and is not exempt income for an income year if: (a) you must repay it; and (b) you repay it in a later income year; and (c) you cannot deduct the repayment for any income year. Where an amount of income has been repaid, you may be able to request an amended assessment be issued for the year in which that income was originally returned. In your case, you were required to repay the relocation costs to the employer. The amount you were required to pay is designed to reimburse your employer for some of the relocation costs incurred. It does not represent a repayment of your assessable income. Therefore, you are not entitled to amend your assessment for the 2015-16 income year to reduce your assessable income by the amount of relocation expenses repaid to the employer. Allowable deductions According to section 8-1 of the ITAA 1997, you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature. Taxation Ruling IT 2614 states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request. Relocation expenses are not deductible because the expenses come at a point in time too soon to be regarded as being incurred in gaining or producing assessable income. These expenses are a prerequisite to the earning of income. They are incurred in getting, not in doing, work. In Case D19 72 ATC 113 having been awarded a teacher training studentship, the taxpayer entered into an agreement with the Education Minister. One condition of the agreement was that upon the completion of the course, he was to perform teaching services in any school/s to which he might be appointed, for a certain number of days. In the event of breach or non-observance of the conditions, the taxpayer would become liable to pay to the Minister a sum equal to the total of all the allowances paid to him. The taxpayer failed to observe the agreement and was liable to repay the total amount of the allowances he had been paid. His claim for a deduction for the amount so repaid was disallowed. It was held that the liability to make the payment arose from the breach of the agreement, and was not incidental to the gaining or producing of assessable income. The most that could be said for the payment was that it was expenditure incurred by the taxpayer in choosing between two possible avenues of employment (as a teacher or otherwise). As discussed above, the money you were required to pay related to your relocation reimbursement to your previous employer. It is not considered to be an expense incurred in the course of earning your assessable income as an employee. It is a payment required to be made under the agreement you had with your employer. Your expenses were not incurred to produce income, but to repay a debt under the agreement. The liability to repay would not have arisen had you continued to work at the new location. Your expenditure for repaying the relocation benefit is not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is not incurred in the actual performance of your work.