ATO Interpretative Decision

ATO ID 2001/717 (Withdrawn)

Income Tax

• This ATO ID is a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer entitled to claim a deduction for expenditure incurred in purchasing a money order under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The cost of obtaining the money order is deductible under section 8-1 of the ITAA 1997.

Facts

As a way of earning some income, the taxpayer tutors students in certain subjects.

As part of this tutoring, the taxpayer operates through a referral service (XYZ Services). A student will contact XYZ Services requesting to be tutored in a subject(s). XYZ Services will then contact the taxpayer and give the taxpayer the details so that the taxpayer can contact the student and arrange a day for the tutoring to take place.

At the first lesson the taxpayer collects a set enrolment fee as well as the fee that is to be levied for the tutoring service.

Under the referral service arrangement the taxpayer is obliged to forward the enrolment fee to XYZ Services. The taxpayer does this by purchasing a money order from the post office and sending it to XYZ Services.

The post office charges a set fee for the provision of a money order.

Reasons for Decision

The taxpayer has an arrangement with XYZ Services who, in return for the payment of the enrolment fee, refers clients for tutoring. Without this referral service, the taxpayer would not be able to earn the assessable income from tutoring activities. Therefore, it can be said that the taxpayer is forwarding the enrolment fee to XYZ Services in order to gain assessable income as a tutor.

The cost of obtaining the money order is incurred for the purpose of forwarding the enrolment fee to XYZ Services and therefore, meets the requirements of subsection 8-1 of the ITAA 1997.

The cost of a money order would not be regarded as being capital or private or domestic in this case. The taxpayer is earning assessable income from tutoring activities and therefore it cannot be said that the cost of the money order relates to exempt income. Furthermore, there is no section contained in either the ITAA 1997 or Income Tax Assessment Act 1936 which would prevent the taxpayer from claiming a deduction for such an expense. Given this situation, subsection 8-1(2) of the ITAA 1997 would not preclude the taxpayer from claiming the cost of the money order as a deduction.

As the cost of purchasing the money order satisfies both subsection 8-1(1) of the ITAA 1997 and is not precluded from being deducted under subsection 8-1(2) of the ITAA 1997, the taxpayer will be entitled to claim a deduction for the cost of purchasing the money order.

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   section 8-1
   subsection 8-1(1)
   subsection 8-1(2)

Keywords
Deductions & expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2001

ISSN: 1445-2782