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Edited version of private ruling
Authorisation Number: 1011694212053
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Ruling
Subject: Deductions
Question:
Are you entitled to a tax deduction for the costs associated with obtaining a visa?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
You are originally from overseas.
You live and work in Australia.
You wish to apply for a permanent visa for you and your spouse.
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 and outgoings to the extent to which 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 allowed where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
Capital expenditure often produces an enduring benefit. Revenue expenditure is often repetitious or recurring in nature and often does not produce assets or advantages of an enduring 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. FC of T; (1958) 100 CLR 478 (Lunneys case)),
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; The words incurred in gaining or producing assessable income mean in the course of gaining or producing such income. (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and
Visa expenses
Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities. This was the view taken by the High Court in Lunney's case where it was found that the expenses in traveling from home to work did not have a connection with the activities carried out by the taxpayer to earn their income. It was considered that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity undertaken in the course of earning their income.
Although your expenses in applying for a permanent visa are different to those expenses related to home to work travel, the nature of the expense is the same. It is acknowledged that without the visa you would not be able to earn assessable income. In that sense, the expenses associated with the visa are a pre-requisite to earning your income. However, as in Lunney's case, this does not mean that the expenses are incurred in the course of producing your assessable income. This is because the visa itself is not related to the duties that you perform with your employer but rather enables you to continue working in Australia legally.
Alternatively, the predominant purpose of applying for a permanent visa is to allow you to continue to live and work in Australia rather than earn assessable income. Therefore the expense of obtaining such a visa is considered private or domestic in nature.
As the expenses incurred in applying for a permanent visa were not incurred in gaining your assessable income and are private or domestic in nature, they are not deductible under section 8-1 of the ITAA 1997.
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