ATO Interpretative Decision
ATO ID 2001/748
Income Tax
Deductions: company obtains psychological counselling for employee director.FOI status: may be released
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This ATO ID was amended to clarify the title, facts and reasons for decision.
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Issue
Are expenses incurred by an employer for an employee to visit a clinical psychologist for stress counselling sessions deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Expenses associated with psychological counselling as a result of stress suffered by an employee are deductible to an employer in accordance with paragraph 8-1(1)(b) of the ITAA 1997.
Facts
The taxpayer is a company. An employee of the company suffered from work-related stress which adversely affected the employee's ability to properly perform work-related tasks. This employee is also a director of the company. The company paid for the employee to attend counselling sessions with a clinical psychologist. The employee will attend the counselling sessions over a period of time covering more than one financial year.
Reasons for Decision
Under paragraph 8-1(1)(b) of the ITAA 1997 a taxpayer carrying on a business is entitled to deduct outgoings or losses which are necessarily incurred in carrying on the business for the purpose of gaining assessable income.
Taxation Ruling TR 95/33, at paragraphs 36 to 38, indicates that 'necessarily' does not mean that the outgoing must be unavoidable or logically necessary but, rather, that the outgoing must be clearly appropriate or adapted for the ends of the business. For practical purposes, it is for the person carrying on the business to be the judge of what outgoings are necessarily incurred.
Where an outgoing is voluntary, the expense must be reasonably capable of being seen as appropriate to the carrying on of the business. Where the dominant motive of an expense is to provide a benefit to a director, this does not, of itself, prevent the outgoing from being necessarily incurred in carrying on the business.
In this case, the taxpayer is paying for an employee to attend counselling sessions for treatment of work-related stress. Although the employee is also a director of the company and will receive a personal benefit from this expenditure, the business also stands to benefit from a reduction of the ill-effects on the employee of the work-related stress. As a result, the outgoing is necessarily incurred in the carrying on of the business and is therefore deductible under section 8-1 of the ITAA 1997.
Date of decision: 31 October 2001Year of income: Year ended 30 June 2001 Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 8-1
paragraph 8-1(1)(b)
Related Public Rulings (including Determinations)
TR 95/33
Keywords
Deductions & expenses
Date reviewed: 14 December 2016
ISSN: 1445-2782
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