Taxation Determination

TD 94/46

Income tax: when calculating separate net income for the purposes of the spouse rebate under section 159J of the Income Tax Assessment Act 1936, (a) can the cost of work related child care or travel be taken into account? (b) do the substantiation rules apply?

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FOI status:

Question (a)

1. Yes. The separate net income of a spouse is the total of the spouse's gross income less expenses that are direct costs against that income in accordance with ordinary accounting and commercial principles (Case N49 (1981) ATC 243 at 244; Case 3, 25 CTBR (NS) 11 at 12). The costs of work related child care and travel are such expenses.

2. Only the net child care costs relating to child care provided because the spouse is working may be taken into account. This means that if as a result of the Childcare Rebate Act 1993, which comes into operation from 1 July 1994, an amount is received as a cash rebate in respect of child care expenses, the cash rebate must be deducted from the gross child care costs before the separate net income of the spouse is determined.

3. Work related travel includes travel to and from work, business travel and travel to deliver and collect children from work related child care. For the purposes of calculating work related travel expenses, if the travel is by car, the Commissioner will accept calculations based on a rate per kilometre multiplied by the number of kilometres travelled. The rate that may be used is the same rate as is used to substantiate motor vehicle expenses, which is published each year in Taxpack. These rates, for the 1993-1994 year, are:

Question (b)

4. No. The substantiation provisions of the Act, sections 82KUA and 82KZ of Subdivision F of Division 3 of Part III, do not apply to deductions made in calculating separate net income. Taxpayers need not satisfy the formal requirements of the substantiation rules. However, they must be able to demonstrate that they actually incurred the relevant child care costs because the spouse worked or that the travel undertaken was work related.

Example 1

Joan is the spouse of Albert. Joan places her child in child care allowing her to work. Joan's income is $6,000 and the cost of child care is $4,000. Joan also receives a child care cash rebate of $1,800. The net cost of child care therefore reduces Joan's separate net income to $3,800 ($6,000 - [$4,000-$1800]).

Example 2

Assume a spouse travels 6,000 kilometres to and from work during the year ending 30 June 1994. The appropriate rate for a car with an engine capacity of 1800cc is 52.7 cents per kilometre. To calculate the spouse's separate net income the gross income of the spouse may be reduced by $3162.00 (6000 km x 0.527).

Commissioner of Taxation
19 May 1994

Previously issued as Draft TD 94/D36.

References

ATO references:
NO MSF 8/35

Related Rulings/Determinations:

CGT Determination Number 49, now TD 49
TD 94/27
IT 255
IT 2114
IT 2187
IT 2391
IT 2453

Subject References:
separate net income
child care expenses
travel expenses
spouse rebate

Legislative References:
ITAA 82KUA
ITAA 82KZ
ITAA 159J
ITAA Subdivision F of Division 3 of Part III

Case References:
Case N49
81 ATC 243