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Edited version of your written advice
Authorisation Number: 1051490644475
Date of advice: 05 March 2019
Ruling
Subject: Work-related expenses
Question
Are the expenses paid for the breach of agreement deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You were part of Scheme X.
Under Scheme X, Y paid a proportion of your education expenses.
A requirement of the agreement stated that you were to work in a rural/remote area for a period of two years.
You could not satisfy this condition and were required to repay the funding that Y provided to fund your degrees.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings 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 & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431 the High Court stated that:
'For expenditure to form an allowable «deduction» as an outgoing incurred in gaining or producing 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.
The expenditure must therefore be related to the production of assessable income.
The repayment of your education expenses due to the breach of your agreement is not related to the earning of your assessable income. The payment represents expenditure incurred by you for breaching the agreement. This is a personal expense that does not related to earning your income. While not working as required under the agreement does allow you to earn income from your own medical practice, the expense is incurred because you breached a private agreement dealing with the funding of your education.
Accordingly, the amounts repaid under the agreement will not be an allowable deduction under section 8-1 of the ITAA 1997 as it was not occurred in gaining or producing assessable income.
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