ATO Interpretative Decision

ATO ID 2002/1068

Income Tax

Employee Driver - deductibility of contributions to a traffic fund
FOI status: may be released
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Is the taxpayer, employed as a driver, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for contributions paid into a traffic fund?


No. The taxpayer, employed as a driver, is not entitled to a deduction under section 8-1 of the ITAA 1997 for contributions paid into a traffic fund.


The taxpayer is employed as a driver.

The taxpayer contributes to a traffic fund by way of a weekly levy.

The fund provides the following benefits for members:

payment of fines for traffic offences incurred whilst performing their duties as an employee driver; and
payments for legal representation in the event a member disputes a driving charge or a fine.

Reasons for Decision

Section 8-1 of the 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 determining whether a deduction for the traffic fund levy 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; [1946] HCA 34; (1946) 3 AITR 436; (1946) 8 ATD 190). The nature or character of the levy follows the advantage that is sought to be gained by incurring the expense. If the advantage to be gained is of a capital or private nature, then the expenses incurred in gaining the advantage will also be of a capital or private nature.

The payment of the levy is in the nature of an indemnity whereby the fund agrees to indemnify the taxpayer upon the occurrence of a future potential economic loss. The payment does not relate to a specific economic loss, rather a loss that may be incurred due to the imposition of any traffic fine or related legal expense. While the costs involved in obtaining some specific legal services may have a connection with earning the taxpayer's assessable income, the payment of the levy has no such connection. The taxpayer has not incurred this expense in earning their assessable income, rather the expense is in the nature of a capital expense incurred in order to secure a potential future benefit unrelated to the taxpayer's day to day activities.

Furthermore, penalties or fines imposed for breaches of the law committed whilst exercising a trade or undertaking employment are not deductible. The nature of the penalty or fine severs it from constituting an income-producing expense (Madad v. Federal Commissioner of Taxation (1984) 4 FCR 420; (1984) 55 ALR 379; (1984) 84 ATC 4739; (1984) 15 ATR 1118).

The principle objective of the fund is to indemnify members against future economic loss arising out of breaches of the traffic code. Thus the levy paid by the taxpayer to the traffic fund is considered to be too remote from the earning of the taxpayer's assessable income. The traffic fund levy cannot be described as an expense incurred by the taxpayer in earning their assessable income. Accordingly, the taxpayer is not entitled to a deduction for the amount of the levy under section 8-1 of the ITAA 1997.

Amendment History

Date of amendment Part Comment
20 June 2014 Facts minor grammatical change
Reasons for decision update case references
Case references Updated
Reasons for decision amended to update legislative references and to improve clarity
Legislative References Updated

Date of decision:  4 November 2002

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Case References:
Hallstroms Pty Ltd v. Federal Commissioner of Taxation
   (1946) 72 CLR 634
   [1946] HCA 34
   (1946) 3 AITR 436
   (1946) 8 ATD 190

Madad v. Federal Commissioner of Taxation
   (1984) 4 FCR 420
   (1984) 55 ALR 379
   (1984) 84 ATC 4739
   (1984) 15 ATR 1118

Associations & membership expenses
Deductions & expenses
Fines expenses
Legal action
Legal expenses
Trade union & employee associations
Work related expenses

Siebel/TDMS Reference Number:  CW3166965; 1-5J86PZV; 1-AX95BSK

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 November 2002
Date reviewed:  23 October 2017

ISSN: 1445-2782

  Date: Version:
  4 November 2002 Original statement
You are here 20 June 2014 Original statement