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Edited version of your written advice
Authorisation Number: 1051276619738
Date of advice: 19 September 2017
Ruling
Subject: Compulsory insurance premiums
Question
Are you entitled to a deduction for the cost of the compulsory contributions to a Death and Disability Scheme?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commenced on
1 July 2015
Relevant facts
You work for the emergency services industry and are required to pay for death and disability insurance cover. This requirement is compulsory. Any benefits paid would be non-assessable.
The scheme involved is the Relevant Service of NSW Death and Disability (X) Award.
All eligible officers are required to contribute to the scheme.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
The contributions for your death and disability cover are not sufficiently related to the earning of your assessable income. Furthermore, the expense is capital in nature. Therefore you are not entitled to a deduction for the compulsory contributions for your Death and Disability cover.
Detailed reasoning
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 except where the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income.
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,
● 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 Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper), Hill J said:
...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing.
Whilst it is acknowledged that the contributions are compulsory this does not convert an expense to an allowable deduction.
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