ATO Interpretative Decision
ATO ID 2004/659
Income TaxDeductions: travel and incidental expenses - legal action to recover unpaid wages
FOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for travel and incidental expenses incurred in relation to a legal action to recover unpaid wages?
Yes. A taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for travel and incidental expenses incurred in relation to a legal action to recover unpaid wages.
The taxpayer worked for their employer on a casual basis.
The taxpayer considered that they were paid below award rates as set out in the relevant employment agreement.
The taxpayer took legal action to recover the unpaid wages plus interest.
As part of the legal process the taxpayer incurred the following costs:
- travel costs (including transport, accommodation and food) to attend the court hearing
- travel costs (including transport, accommodation and food) for witnesses to attend the hearing; and
- incidental costs such as, telephone, photocopying, stationary, and certifying documents costs.
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 expenditure has the character of a capital or revenue payment... the advantage for which the expenditure was incurred must be identified and the manner in which it "is to be relied upon or enjoyed" must be considered...' (Magna Alloys & Research Pty Ltd v. Federal Commissioner of Taxation 80 ATC 4542 at 4548; 11 ATR 276 at 283).
In the present case the advantage sought was the recovery of an amount on revenue account, that is unpaid wages plus interest. As such, the character of the expenditure is also of a revenue nature.
In addition, as the occasion for the incurring of the expenses was to recover unpaid wages plus interest, both of which are assessable as ordinary income, there is a sufficient connection between the taxpayer's expenses and the gaining or producing of their assessable income. Therefore, the taxpayer's expenses were incurred in gaining or producing their assessable income.
Accordingly, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for travel and incidental expenses incurred in relation to a legal action to recover unpaid wages.Date of decision: 16 June 2004
Year of income: 30 June 2004
Income Tax Assessment Act 1997
Magna Alloys & Research Pty Ltd v. Federal Commissioner of Taxation
(1980) 11 ATR 276
80 ATC 4542
Related Public Rulings (including Determinations)
Taxation Determination TD 93/29