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Edited version of private ruling
Authorisation Number: 1011580522040
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Ruling
Subject: costs for term deposit
Are you entitled to a deduction for the travel and phone cost incurred in relation to your term deposits?
Yes.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts
You have a number of term deposits accounts as your major source of income.
To maximize the return for each term deposit you negotiate with the bank manager to obtain the best rate.
You meet on a face to face basis when negotiating your term deposit rates.
You travel to the banks and incur car expenses and phone costs in relation to your term deposits.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Division 28.
Reasons for decision
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 1997 (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.
A number of significant court decisions have determined that for an expense to be an allowable deduction:
· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166)
· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236), and
· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).
Expenses incurred in relation to bank accounts may be deductible under section 8-1 of the ITAA 1997 if they are held for investment purposes, for example, a term deposit.
In your case you incur costs in relation to your term deposits. These accounts are held for income-earning purposes. As your term deposits relate to your assessable interest income, the associated car expenses and phone costs are an allowable deduction. If your travel to the bank includes another purpose, for example, shopping or other personal activities, you must apportion the cost in a fair and reasonable manner.
Section 28-12 of the ITAA 1997 allows a deduction for car expenses using one of the four methods under Division 28 of the ITAA 1997. The subdivisions then prescribe how to calculate the deduction referrable to each method.
The cents per kilometre method is based on the number of business kilometres travelled in the income year. 'Business kilometres are the kilometres the car travelled in producing your assessable income. The business kilometres travelled may be calculated by making a reasonable estimate from diary entries.
Travel to your banks to negotiate a rate for your various term deposit accounts is incurred in connection with gaining interest income from these accounts and is therefore considered to be business kilometres travelled.
The relevant rate for the cents per kilometre method as well as details in relation to other methods available can be found in Tax Pack or from the Australian Taxation Office's website.
Please ensure you keep relevant records in relation to your allowable car and phone expenses.
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