Edited version of private ruling

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Ruling

Subject: Deductibility of visa expenses

Question 1

Are the expenses (including visa application fee, English test, medical examination and translation of relevant documentation) associated with renewing a visa deductible as other work related expenses?

Answer

No.

Question 2

If the answer to the above question is no, are the expenses in relation to the English test deductible as work related self education expenses?

Answer

No.

This ruling applies for the following period:

Financial year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You were granted with temporary residency in the form of a business sponsorship visa in a previous income year, and have been working as an employee since.

You had to renew your visa in order to continue earning income.

You are still working for the same employer and in the same position as was shown in the original visa application.

You are only applying for a temporary visa rather than permanent residency.

You have stated that you have no intention of spending the rest of your life in Australia, and that the purpose of your stay is simply to earn money.

You believe that there is therefore a direct connection between all visa expenses and your current work activity, and that the expenses are deductible.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

Summary

The expenses associated with renewing the visa are not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because they were not incurred in gaining or producing assessable income and are also private in nature.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income, except to the extent that the loss or outgoing is of a capital, private or domestic nature.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431; 4 AITR 236 the High Court stated that:

For 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. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.

To be an allowable deduction under section 8-1 of the ITAA 1997, the expenditure must therefore have a relevant connection to the production of assessable income.

Expenses incurred as a prerequisite to employment

Expenses incurred by an employee as a prerequisite to employment are generally not deductible because the expenses come at a point in time too soon to be regarded as being incurred in the course of gaining or producing assessable income. Such expenses are a prerequisite to the earning of income. They are not incurred in the course of doing the work that earns the assessable income.

The leading case on this issue is FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena's Case). In that case, a taxpayer who earned his living as an employee electrician and as a professional footballer claimed for travel and legal expenses incurred in seeking and obtaining a contract with another Rugby League club. It was held that the expenses were not deductible. Barwick CJ stated (ATC at 4162; ATR at 548):

The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.

Reference should also be made to Lunney v. FC of T (1958) 100 CLR 478 (Lunney's Case), where the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income.

In Lunney's Case it was held that the costs incurred by a taxpayer in travelling to their place of work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. Williams, Kitto, and Taylor JJ stated (at pages 498 - 499):

It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.

The above principles were applied in Waters v. FC of T [2010] AATA 846 (Waters' Case). In that case, the Administrative Appeals Tribunal (AAT) denied the taxpayer's claim for deductions for expenses (including airfares, passports and visas) incurred in relation to overseas employment. The taxpayer was an Australian resident who ordinarily lived in Perth, but he and his spouse were living in Panama while he worked on the construction of a hydroelectric dam. Before leaving for Panama the taxpayer was required to arrange a work visa (which involved him obtaining a medical certificate, having various documents certified, having identification photos taken and obtaining police clearance certificates). The taxpayer claimed that all the costs were incurred as a direct result of his employment in Panama, that is, they were incurred in gaining or producing his assessable income.

The AAT held that there was no entitlement to a deduction under section 8-1 of the ITAA 1997 for the expenditure incurred. The expenditure on airfares and in obtaining passports, visas and various certificates was incurred at a point too soon to be regarded as being incurred by the taxpayer 'in the course of' gaining or producing assessable income. The AAT stated that the costs incurred by the taxpayer on arranging visas, including obtaining medical certificates, passport photos and certification and police clearances were costs which were clearly necessary to the commencement of his work in Panama. However, the AAT held that this was an insufficient nexus for the purpose of section 8-1, and stated:

To be deductible, the expenditure must have been incurred by Mr Waters "in the course of" earning income from his work on the construction of the dam. Clearly, that expenditure was incurred at a point in time which is too soon to be so regarded: Maddalena and Lunney applied. The fact that Mr Waters would not have needed the visas and associated documents if he did not work in Panama or if he were to travel to Panama on a holiday is irrelevant for s 8-1 purposes.

Your case

You believe that your visa expenses should be allowable as work deductions because it was a requirement that you renew your visa in order to continue earning income in Australia.

Whilst it is acknowledged that without the visa you would not be able to earn assessable income in Australia, the expenses associated with the visa are a prerequisite to earning your income. These expenses are incurred at a point in time too soon and are not incurred in the course of earning income from your work (as in Maddalena's Case, Lunney's Case and Waters' Case).

In addition, the cost of renewing the visa is considered private in nature because the purpose for renewing the visa was to enable you to remain legally in Australia (albeit on a temporary basis).

Accordingly, the expenses associated with renewing the visa are not deductible under section 8-1 of the ITAA 1997 because they were not incurred in gaining or producing assessable income and are also private in nature.

Question 2

Summary

As the deductibility of self education expenses falls for consideration under section

8-1 of the ITAA 1997, the expenses in relation to the English test are not deductible as work related self education expenses.

Detailed reasoning

Self education expenses

The deductibility of self education expenses falls for consideration under section 8-1 of the ITAA 1997.

Taxation Ruling TR 98/9 sets out the circumstances in which self education expenses are allowable as deductions, and states that self education expenses are deductible under section 8-1 where they have a relevant connection to the taxpayer's current income earning activities.

For the purposes of TR 98/9, self-education includes courses undertaken at an educational institution (whether leading to a formal qualification or not), attendance at work-related conferences or seminars, self-paced learning and study tours, including sabbatical (whether within Australia or overseas).

The Ruling states that a deduction is allowable for self education expenses if:

· a taxpayer's income earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables the taxpayer to maintain or improve that skill or knowledge

· the study leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income earning activities in the future.

However, TR 98/9 states that no deduction is allowable for self education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (Maddalena's Case)).

Your case

As discussed above, the expenses associated with renewing your visa (including the English test) are not deductible under section 8-1 of the ITAA 1997 because they are a prerequisite to earning income. They are therefore not incurred in the course of gaining or producing your assessable income. As the deductibility of self education expenses falls for consideration under section 8-1, the expenses in relation to the English test are not deductible as work related self education expenses.

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