| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012560565242
Ruling
Subject: Electricity usage
Question
Are you entitled to a deduction for electricity for your home business?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts
You run a business from home with a workshop separate to your residence.
You previously claimed a portion of your electricity costs as a business deduction.
You have recently purchased solar electricity for your house. The expense of the solar system is private and not a business expense.
Your electricity account shows the electricity used at the premises for the quarter and then lists the credits that the solar unit has made for the quarter.
Since the installation of the solar system, your electricity accounts show a credit balance.
If your business was not run from home, then your electricity usage would be less and your solar credits would be greater.
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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.
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 (Lunney's 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 (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), 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.
FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).
Taxation Ruling TR 97/7 sets out the Commissioner's views on the meaning of incurred. Generally, a taxpayer incurs an expense at the time they owe a present money debt that they cannot escape.
The guidelines developed by the courts that help to determine if an expense has been incurred include:
· there must be a presently existing liability to pay a pecuniary sum,
· presently existing liability is determined on the circumstances of the case,
· an expense is incurred when actually paid if there was no presently existing liability.
Taxation Ruling TR 94/26 also provides the Tax Offices views on the meaning of incurred and states at paragraph 6 that:
Whether there is a presently existing pecuniary liability is a question which must be determined in light of the particular facts of each case, and especially by reference to the terms of the contract or arrangement under which the liability is said to arise.
In your case, while it is accepted that some of your electricity usage relates to your business, a deduction is not available for the notional expense of such usage. As your electricity account is in credit and the business does not actually pay for the electricity used, you or the business are not actually incurring an electricity expense. The business does not actually have a liability in relation to the electricity used. Therefore, no deduction is allowed for electricity under section 8-1 of the ITAA 1997.
There is no other provision that allows a deduction for the electricity usage in these particular circumstances.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
