ATO Interpretative Decision
ATO ID 2004/393
Income TaxDeductions: motor vehicle expenses - insurance policy excess
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the taxpayer, a delivery driver, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the payment of the excess under their employer's motor vehicle insurance policy?
Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the payment of the excess under their employer's motor vehicle insurance policy.
The taxpayer was employed as a delivery driver.
The taxpayer used their own motor vehicle to carry out their employment duties.
The taxpayer's use of their motor vehicle for work related purposes was covered under their employer's business vehicle insurance policy. The taxpayer retained their own private motor vehicle insurance to cover them for their private use of their motor vehicle.
The taxpayer's employment agreement provides that they are liable to pay any insurance excess that arises out of any claim against their employer's insurance provider, for any motor vehicle accident that occurs whilst driving their motor vehicle for work related purposes.
The taxpayer was involved in a motor vehicle accident, whilst driving their motor vehicle in the course of their employment, for which they were found to be at fault.
As a result of this accident, a claim was made against the employer's insurance provider and an excess was payable.
The taxpayer paid the excess in relation to this claim.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or 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 Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431, the Court established that, for a loss or outgoing to be an allowable deduction, there must be a nexus between the outgoing and the assessable income so that the expenditure is incidental and relevant to the taxpayer's income-producing or business operations.
Case T22 86 ATC 223; Case 25 (1986) 29 CTBR (NS) 173 (Case T22) recognised that liabilities arising out of motor vehicle accidents may be incidental and relevant to the taxpayer's income earning activities.
That case dealt with the deductibility of liabilities arising out of a motor vehicle accident for which the taxpayer admitted fault. The Board of Review found that an accident and any ensuing liability is a normal risk of using public roads for business purposes. In finding that the taxpayer was entitled to a deduction for the liabilities he incurred as a result of the accident damage, the Board stated that amongst other things:
...in the circumstances of the accident, the vehicle driven by him was the immediate cause of damage to the other vehicles which, in turn gave rise to the expense in issue. In the circumstances, we are of the opinion that the expenses are incidental and relevant to gaining or producing the taxpayer's assessable income...
It is considered that the principles espoused in Case T22 are equally relevant to the circumstances here. This taxpayer was involved in a motor vehicle accident whilst driving their motor vehicle on public roads in the course of their employment.
The taxpayer's employment agreement provided that they were liable to pay any insurance excess that arose out of a claim made in relation to any motor vehicle accident that occurred whilst driving their motor vehicle for work related purposes. The insurance excess was only payable in respect of a claim arising out of the work related used of the taxpayer's motor vehicle. The excess was payable by the taxpayer regardless of whether any other party was involved in the work related motor vehicle accident, and whether or not any damage was sustained by the taxpayer's own motor vehicle.
The expense in paying the insurance excess, which could arise only in relation to work related motor vehicle accidents, was incurred as a result of the taxpayer's conditions of employment. As such the expense was incidental and relevant to the gaining or producing of the taxpayer's assessable income.
Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the payment of the insurance excess.Date of decision: 5 April 2004
Year of income: 30 June 2004
Income Tax Assessment Act 1997
Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 4 AITR 236
(1949) 8 ATD 431
86 ATC 223 Case 25
(1986) 29 CTBR(NS) 173
Deductions & expenses
Insurance excess under an insurance policy
Motor vehicle insurance