Edited version of private advice

Authorisation Number: 1052199795536

Date of advice: 20 December 2023

Ruling

Subject: Work related expenses - union election expenses

Question

Are the expenses you incurred in applying for a promotion deductible under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You work in the health sector, and you hold an unconditional general registration with the relevant Board in Australia (the Board).

The Association for your particular vocation (the Association) is a registered trade Union organisation that covers your vocation in Australia.

You were employed from early 20XX by the Association as an 'Organiser' in an employment role relating to Industrial Relations.

You were initially employed on a one-year contract, and you were permanent full-time from late 20XX.

Your employment with the Association ended in late 20XX.

Your employment position with the Association is an appointed officer position, not an elected one.

The previous General Secretary of the Association, effectively resigned in mid- 20XX, and the Association's council appointed an individual as their successor and another individual as new Assistant General Secretary for the remainder of the previous General Secretary's term.

Nominations for elected positions opened on in mid-to-late 20XX. The Election schedule was posted on the Australian Electoral Commission's (AEC) website.

Gaining the more senior position of a General Secretary or Assistant General Secretary within the Association cannot happen without being elected by the members of the Union or its elected Council.

You nominated for the position of Assistant General Secretary (also referred to as Assistant Secretary) of the Association.

The recently appointed incumbent also nominated but nobody else did for that position. Therefore, it was a two-way contest that required campaigning by both parties.

Both nominations were accepted by the AEC, which triggered an official ballot contest.

Aspects of governance and organisation (incl. the duties of elected officers, nominations, eligibilities and how elections are conducted) are all outlined in the Associations registered Rules (the 'Rules').

Winning the elections and gaining the position of Assistant General Secretary would have significantly increased your gross annual salary.

The nominations were due to close in mid-to-late 20XX.

According to the Rules, the Assistant General Secretary assists the General Secretary in the execution of their duties, and in the temporary absence of the General Secretary act in the capacity of General Secretary and have the same powers, obligations, and duties as the General Secretary.

Some of these powers are:

a)  directing, controlling, and supervising the officers and employees of the Association.

b)  keeping of proper books of account and other financial records.

c)  issuing of receipts and the prompt banking of monies received on behalf of the Association.

d)  authorising of expenditure of Association funds for the objects and purposes the Association as set out in the Associations Rules, provided that they shall report such expenditure to the next meeting of Council. You continued working during the election campaign.

The campaigning primarily involved travelling to different sites to talk to other employees in your vocation about your vision and the election and giving them campaign materials (such as flyers and how-to-vote cards). You visited dozens of sites and spoke to hundreds of Association members as part of his campaign.

As part of the election campaign, you also used social media, including recording videos and writing posts.

You used emails and postal mailouts to members per the roll of voters that was provided to the Taxpayer by the AEC in accordance with the law.

You had a digital marketing team that you paid to work on the campaign and your website and social media posts on a regular basis.

The election results were announced in late 20XX. You were not elected to the position.

You incurred various expenses relating to the election campaign, including expenses relating to social media, posters, and flyers, electoral letters/mailouts, Digital services campaign, flyer and poster design services, digital campaign consultancy and content, stationary, and other campaign expenses.

Your employment position is an appointed officer position; it means individuals apply for the vacant position and undergo a recruitment process before getting hired if successful.

You applied for your employment position in early 20XX and were eventually employed effective a couple of months later after successfully being shortlisted and interviewed.

On the other hand, the Assistant General Secretary's position is elected. It means the Applicant, or any other eligible individual, should nominate themselves and be successfully voted into the position before holding this office.

The Assistant General Secretary's position undergoes an election process (often led by the Australian Electoral Commission) rather than a traditional selection or recruitment process (led by the human resources or employee relations department).

The election process becomes an election contest if more than one eligible member of the Association nominates for the one position of 'Assistant General Secretary'.

Your employment position as an 'organiser' and the 'Assistant General Secretary' both have the exact inherent requirement of holding a formal qualification in your chosen vocation..

The Board undertakes functions as set by the Health Practitioner Regulation National Law, as in force in each state and territory of Australia (the National Law).

The Board expects employees in your chosen vocation to declare on their registration renewal form that they have met the requirements set out in the registration standards as they apply to the vocation's professions.

According to all the above, both positions of your employment position and 'Assistant General Secretary' have the exact same nature and are counted as the same vocation which you currently undertake from the Board's perspective.

The incumbent 'Assistant General Secretary' must, renew their professional Registration under the exact premise of 'practice' and 'recency of practice' defined by the Board.

The relationships and key features of your employment position are outlined in the relevant position description.

The 'Assistant General Secretary' of the Association would continue to perform the duties of your employment while also taking up additional and higher responsibilities and contributing to the overall functioning of the Union.

The position 'promotion' would not have resulted in a change in your income earning activities, and the points below provide further information on this:

Representing the Union:

As an 'Organiser', their primary duty would be to represent the Association and its Union members. As an 'Assistant Secretary', they would continue to advocate for the rights and interests its Union members in various forums, including negotiation meetings with employers, government bodies, and other relevant stakeholders.

Membership engagement:

Like an 'Organiser', the 'Assistant Secretary' would focus on engaging and organising the members of the Association. Both would formally and informally communicate with members daily using different means. They would continue to participate in meetings, events, and campaigns to ensure Union members are aware of their rights, stay updated on industry developments and participate in Union activities that advocate for their work health and safety (WH&S) rights, professional protections, and employment rights and conditions.

Building and maintaining relationships:

'Organisers' are responsible for building relationships with members, healthcare organisations, media persons, politicians, policymakers, government officials, and other Unions or associations. 'The Assistant Secretary' would continue to foster such critical relationships with various stakeholders to ensure effective collaboration and robust lobbying for the interests of the Union members.

Recruitment and retention:

To ensure the Association remains robust and representative of employees in your vocation, 'Organisers' are often involved in membership recruitment and retention efforts. The 'Assistant General Secretary' would continue to develop strategies to attract new members and retain existing ones, yet on a broader organisational level. This would involve targeted outreach, awareness campaigns, and addressing any concerns, grievances, complaints, feedback, or issues raised by the members.

Collective bargaining and industrial action:

Appointed officers, such as 'Organisers', play a pivotal role in organising Union members and leading them in collective actions (Union Activism), such as rallying, petitioning, negotiating collective enterprise agreements and advocating for improved wages, working conditions, and member benefits. The 'Assistant Secretary' would continue to oversee and participate in collective bargaining processes and will be involved in planning and leading industrial actions if necessary.

Exercising 'Right of Entry' to workplaces:

Union officers, such as the 'Organiser and 'Assistant Secretary' have a right to enter the workplace or business premises to investigate suspected contraventions of the Fair Work Act or related instruments (for example, an Award or enterprise agreement) or to hold discussions with employees to exercise their right of entry to a workplace under the Fair Work Act, the 'Organiser and 'Assistant Secretary' need to have a valid right of entry permit and meet other entry requirements.

Education and training:

'Organisers' often provide education and training programs to members to enhance their industrial knowledge and skills. The 'Assistant General Secretary' would continue to contribute to developing and delivering such programs, ensuring members have access to resources that raise their awareness about their workplace rights and responsibilities and support their professional growth and development.

Policy and strategy development:

As part of the Association's leadership team, the 'Assistant General Secretary' would contribute to developing organisational policies, strategic plans, and campaigns in consultation with and alongside' Organisers'. Both would provide insights, suggestions, and feedback based on their frontline experience and interactions with members and other key stakeholders.

Administration and reporting:

While taking up additional leadership and management responsibilities, the 'Assistant Secretary' would still be expected to carry out administrative tasks related to the role of an 'Organiser'. This involves:

•         creating and maintaining data, confidential records, and file notes,

•         writing reports,

•         preparing speeches and delivering them,

•         making verbal and non-verbal media statements,

•         giving interviews,

•         organising and attending meetings and events, and

•         assisting in the coordination of internal and external Union activities.

In summary, as the 'Assistant General Secretary' of the Association, the Applicant would have continued to fulfil the duties of an 'Organiser' while also taking on broader and responsibilities within the Union's leadership team, ensuring that the interests and concerns of employees in your vocation are effectively represented, and advocating for their work rights and professions.

If you had had been elected, you would have still carried out the duties of an Organiser with added responsibilities and tasks as Assisted General Secretary.

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 or 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.

In determining whether union election expenses are incurred in gaining or producing assessable income it is relevant to consider the following cases:

•        In FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541; travel and legal expenses incurred by a professional footballer in seeking and obtaining a contract with a different Rugby League club were disallowed. The court held that expenditure incurred in changing or securing a new employment was not 'incurred in gaining or producing' assessable income. The expenditure was incurred at a point too soon to be deductible.

•        In Case S10 85 ATC 160; (1985) 28 CTBR (NS) Case 17 expenses incurred in being re-elected as an alderman of a city council were disallowed. The Board of Review found that the expenditure was incurred, not in the 'performance' of the taxpayer's duties but in 'obtaining' that appointment.

•        In Case V46 88 ATC 375 a union official's claim for expenses incurred in conducting a successful re-election campaign was disallowed. The Administrative Appeals Tribunal held that the re-election costs were expenses incurred in obtaining a 'separate discrete period of employment' and were regarded as 'the cost to an employee of obtaining his employment'.

Union election expenses incurred by taxpayers seeking re-election do not relate to maintaining a position because there is no continuity of office. The holding of an election represents the expiration of one term of office and the potential start of another term. Each election thus represents a break in continuity. For continuity to exist, you would have to be guaranteed their union position without the need for an election.

However, your case slightly differs to this, as you were employed by the Association in an employment role on a permanent basis (as an employee) starting in 20XX, and that it was during that time that you contested the election for the new set term in office as Assistant General Secretary, along with the fact that you continued to work in your role as an employee during the contested election.

Despite this slight contrast in your situation, the election expenses were incurred, not in the performance of your employment duties, but in attempting to obtain a new set term in office as a paid union official. Accordingly, a deduction is not allowable under section 8-1 of the ITAA 1997 for the expenses you incurred in contesting an election as a paid union official, as these expenses have been incurred at a point too soon to be deductible.

In addition, there was no continuity of office in the position you ran for in the election, as it was for set term, as opposed to an employee position.

Note: section 25-60 of the ITAA 1997 allows a deduction for expenses incurred in contesting elections for membership of the Federal or a State Parliament or the ACT or Northern Territory Legislative Assembly. Section 74A of the Income Tax Assessment Act 1936 allows a deduction for expenses incurred in contesting elections for membership of local government. However, neither of these provisions extend to allow election expenses incurred in relation to union positions, and there are no other provisions which would allow these election expenses.

Your contentions

You contend that TD 93/175 Income tax: is expenditure incurred by an employee in applying for a promotion deductible under subsection 51(1) of the Income Tax Assessment Act 1936? is relevant to your situation, which provides that if the expenditure (not being expenditure of a capital, private or domestic nature) will objectively lead to, or will be likely to lead to, an increase in the employee's assessable income without effecting a change in the employee's current income-earning activities, it will be deductible.

However, your circumstances differ from TD 93/175, as you incurred election expenses in attempting to obtain a new term in office as the Assistant General Secretary (a contracted Union position), as opposed to applying for a promotion as an employee. As such, we do not consider that your circumstances align with TD 93/175, or any of the examples set out in it.

In contrast, we consider that your circumstances more appropriately align with ATO ID 2002/143 Income Tax: Union Election Expenses (Withdrawn).

Whilst this ATO IDis now withdrawn due to guidance on this issue being found at Election expenses | Australian Taxation Office (ato.gov.au) (QC 72175), the principles will still apply to your circumstances, whereby, if you are a salaried, elected trade union official, you can't claim a deduction for contributions into a general fund for the election of trade union officials. The expense is not incurred in gaining your assessable income, but rather to assist in obtaining future employment for yourself and others.

You also contend that ATO ID 2002/943 Income Tax: Union Election Expenses (Withdrawn) does not apply to your circumstances, as you were employed by the Association on a permanent basis (as an employee) starting in 20XX, and that it was during that time that you contested the election for the new term in office as Assistant General Secretary, along with the fact that you continued to work in your role as an employee during the contested election and up until the termination of your employment in late 20XX.

However, we refute this contention, as despite you being employed during the time you contested the election, the union position that you were contesting for was not a promotion in terms of an employee situation. In addition, the increase in salary you would have received if you had been successful in the election process is not the same as a promotion as an employee, as the higher salary sought as a union member was dependant on the election (as compared to a promotion).

In your case, and as supported by reasoning by the courts in several other cases, the election expenses were incurred at a point too soon to be deductible.

In reference to FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541, your expenses were incurred at a point too soon to be deductible, as they were only incurred to enable you to contest the election as a paid union official, which was a new position with a separate set period only (and not an ongoing position as an employee).

To expand on our reasoning above, I have included some further detailed references to relevant court cases below which outline the principles on why your election costs are not deductible:

In Vance v FC of T 2005 ATC 4808 (Vance), the taxpayer was an unsuccessful candidate for the position of Mayor in the Queensland local government election, who wanted to claim over $37,000 in election expenses as a deduction. In Vance it was found that the expenditure incurred by the taxpayer was not incurred in carrying on a business for the purpose of producing assessable income, along with the fact that they were seeking to achieve a position from which they would thereafter derive assessable income, and until that point when it was possible for them to derive income from that position, they were not carrying on a business.

In Vance, it was also found that expending money in seeking to become mayor was not expending money in the carrying on of the business of mayor, and even if the taxpayer had been elected as mayor, the expenses would still have not been deductible as they would have been incurred at a point too soon. As such, it was found in Vance that that the expenditure was preparatory to carrying on a business for the purpose of gaining or producing assessable income.

In Case S10 85 ATC 160; (1985) 28 CTBR (NS) Case 17, the taxpayer, an alderman of a City Council since 1979, wanted to claim the expenditure incurred in being re-elected in 1982. In this case it was found that the expenditure was incurred, not in the performance of the taxpayer's duties as an alderman by which he earns his fees for attendances etc, but in obtaining the appointment, and it was also found that there was no relevant distinction between a first election and a re-election.

In Case U22 87 ATC 188 (Case U22), the taxpayer was an unsuccessful candidate for a local council election who had incurred expenses incurred in contesting an election for alderman of a municipal authority, and it was found that there was no material distinction from the decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541, where it was held that similar expenditure was at a point too soon to be incurred in the derivation of assessable income. As such, the taxpayer was denied the deductions as a the time they incurred the expenses they were not in the actual position of alderman but incurred the expenses in attempting to contest the election for the alderman position.

In Case V46 88 ATC 375 (Case V46), the taxpayer was the secretary-treasurer of the Victorian branch of a trade union, which was a full-time, salaried office in the union. For the 1980- and 1984-income years, the taxpayer was wanting to claim a deduction for the expenses of printing and postage which they incurred in successfully seeking re-election to the post of secretary-treasurer of the union.

In Case V46, it was found that each elected term was a separate discrete period of employment, where at the end of the term any person who complied with the requirements could have nominated for the office of secretary treasurer, but they would have no continuing position in that office, and no special right.

Also, in Case V46, the taxpayer did not gain a promotion on his original position, and the higher level of salary sought as a union member was dependent on re-election (compared to a permanent promotion as an employee). This principle aligns to your situation, whereby the higher level of salary sought as the Assistant General Secretary was also dependent on being elected, as opposed to being promoted as an employee. As such, in your situation, as was the case in the circumstances outlined in Case V46, your election costs were also incurred in obtaining a separate period of employment and is therefore a cost to an employee of obtaining other employment, and therefore incurred at a point too soon to be deductible.

In Case V46, it was also found that the facts in this case are indistinguishable from the facts in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 and the principle there stated applies to the applicant's election expenses.

Are election expenses work-related expenses?

Subsection 8-1 of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. The High Court in Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15, interpreted the phrase 'incurred in' to mean 'in the course of' gaining or producing income. This requires there to be more than a mere casual connection between the expense and the income earned.

The activities of an individual contesting an election does not amount to the carrying on of business; nor is a political candidate remunerated for the activities they undertake in contesting an election. Because no assessable income was earned, it follows that election expenses cannot be incurred in the course of gaining or producing assessable income. Therefore, the expenses incurred to contest an election are not deductible under section 8-1 of the ITAA 1997.

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