ATO Interpretative Decision

ATO ID 2003/616 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at Car expenses (QC 31951).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for costs incurred as a result of damage caused to another vehicle involved in a motor vehicle accident that happened during the course of the taxpayer's employment?

Decision

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for costs incurred as a result of damage caused to another vehicle involved in a motor vehicle accident that happened during the course of the taxpayer's employment.

Facts

The taxpayer owns a motor vehicle. The taxpayer did not have third party property or comprehensive insurance cover.

The taxpayer was an employee and used their motor vehicle for work purposes.

The taxpayer was involved in a motor vehicle accident which resulted in damage to the vehicle of another party.

The taxpayer was using their motor vehicle in the course of their work at the time of the accident.

The taxpayer is liable for damages/compensation for the damage caused to the other vehicle.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowable where the losses or outgoings are of a capital, private or domestic nature or another provision prevents the deduction.

Expenditure in the form of compensation or damages paid to third parties will be an allowable deduction under section 8-1 of the ITAA 1997 to the extent that it is incurred in the course of gaining or producing assessable income, and the expense is not of a capital, private or domestic nature.

In Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 8 ATD 431; (1949) 4 AITR 236 (Ronpibon), the High Court stated that for an expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end.

In Case T22 86 ATC 223; Case 25 (1986) 29 CTBR (NS) 173, a lawn mowing contractor caused a motor accident while driving in the course of his work. In making its decision, the Board of Review applied the 'incidental and relevant' test from the decision of the High Court in Ronpibon and held that the payments made to the other parties involved in the accident were deductible as the expenses were 'incidental and relevant' to the gaining or producing of the taxpayers assessable income. The Board of Review further stated that 'the expenses were clearly not...outgoings of a capital, private or domestic nature'.

Although the decision in the above Board of Review case was made in reference to the second limb of subsection 51(1) of the Income Tax Assessment Act 1936 it is considered that it has equal application to both limbs of section 8-1 of the ITAA 1997.

The taxpayer was travelling in the course of his work when the accident occurred. As the accident occurred in the course of producing assessable income, the expenses associated with the liability to pay for the damage to the other vehicle involved in the accident are incidental and relevant to the production of that assessable income and are not of a capital, private or domestic nature.

Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997, for costs incurred as a result of damage caused to another vehicle involved in a motor vehicle accident that happened during the course of the taxpayer's employment.

Amendment History

Year of income:  Year ended 30 June 2003

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

Case References:
Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949)
   78 CLR 47
   [1949] HCA 15
   4 ATR 236
   (1949) 8 ATD 431

Business Line:  Small Business/Individual Taxpayers

Date of publication:  18 July 2003

ISSN: 1445-2782