Edited version of private ruling

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Ruling

Subject: Work related expenses

Are you entitled to a deduction for the out of pocket insurance costs associated with an accident in a colleague's car?

Yes.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You went overseas for work related purposes.

You borrowed a work colleague's car and crashed it.

You paid some of the insurance costs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (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 N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236 (Ronpibon's Case), 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; (1986) 29 CTBR (NS) Case 25 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's Case 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.

In your case, you were travelling in the course of your work when the accident occurred. As the accident occurred in the course of producing your assessable income, the expenses associated with paying the insurance involved in the accident are incidental and relevant to the production of that assessable income.

Therefore, you are entitled to a deduction for costs incurred as a result of damage caused in a motor vehicle accident that happened during the course of your employment.

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