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Edited version of your written advice
Authorisation Number: 1012831666658
Date of advice: 30 June 2015
Ruling
Subject: Meal, accommodation and electricity expenses
Question
Are you entitled to a deduction for the income producing portion of the meal, accommodation and electricity costs incurred for the volunteer workers?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on:
1 July 2011
Relevant facts
You conduct an income earning activity on your rural property.
Your activity utilises volunteer workers from a particular organisation.
The workers stay in a room in your house and are provided with three meals a day.
You incur costs for their food and accommodation as well as additional electricity 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 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).
In your case, you are incurring additional costs for food, accommodation and electricity in relation to the workers staying on your property. As the workers are helping you derive your assessable income, it is considered that there is a sufficient connection between the assessable income and the associated costs. You are therefore entitled to a deduction under section 8-1 of the ITAA 1997 for the additional food, accommodation and electricity costs incurred that directly relate to the workers who are working and living on your property.
Please note, that it is only the additional costs incurred for food, accommodation and electricity that directly relate to the workers that are an allowable deduction. As the workers stay in your own home, you are not entitled to a deduction for the private portion that relates to costs incurred for you or your family. Apportionment is a question of fact and involves a determination of the proportion of the expenditure that is attributable to deductible purposes. The Commissioner believes that the method of apportionment must be fair and reasonable in all the circumstances.
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