ATO Interpretative Decision

ATO ID 2002/472

Income Tax

Deductibility of wages paid by an employee to another person
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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, who is an employee, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for wages paid to another person?


No. The taxpayer, who is an employee, is not entitled to a deduction under section 8-1 of the ITAA 1997 for wages paid to another person.


The taxpayer is employed as a salaried lecturer.

Another person has contributed to the preparation of course material, student reports and correspondence for the taxpayer.

The taxpayer considers that without this assistance they would not have been able to fulfil all the duties of their employment.

The taxpayer paid a portion of their gross income to the other person for this assistance.

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.

The Board of Review considered the deductibility of wages paid by an employee in Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30. In that case an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242:

'If an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded ...[from being deductible]'

Where a taxpayer pays another to perform part of or assist with the duties of their employment it is not an expense which is incurred by the taxpayer in gaining or producing their employment income. In addition, the wages paid would be an outgoing of a private or domestic nature.

Note: In some circumstances the payment of wages by an employee to an assistant may be deductible. In Frisch v Federal Commissioner of Taxation [2008] AATA 462; 2008 ATC 10-031; (2008) 72 ATR 551, the Tribunal found that wages paid by the taxpayer who was disabled to an assistant, who provided certain services to enable the taxpayer to work as a law clerk, were deductible. The reasons for this decision are discussed in the Decision Impact Statement.

Amendment History

Date of Amendment Part Comment
3 July 2015 Reasons for Decision Amended for clarity
Added note on Frisch case with link to the Decision Impact Statement
Case References Added case reference to Frisch and Decision Impact Statement

Date of decision:  7 February 2002

Year of income:  Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001

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

Case References:
Case M55 / Case 30
   80 ATC 366
   (1980) 24 CTBR (NS) 239

Frisch v Federal Commissioner of Taxation
   [2008] AATA 462
   2008 ATC 10-031
   (2008) 72 ATR 551

Other References:
Decision Impact Statement - Frisch v Federal Commissioner of Taxation

Deductions & expenses
Salary and wages expenses

Siebel/TDMS Reference Number:  DW382102; 1-AX95BTZ

Business Line:  Small Business/Individual Taxpayers

Date of publication:  17 April 2002
Date reviewed:  27 September 2017

ISSN: 1445-2782

  Date: Version:
  7 February 2002 Original statement
You are here 3 July 2015 Updated statement