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Edited version of private ruling
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Ruling
Subject: Business expenses reimbursed by employee
Question:
Is a deduction available under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses paid on behalf of a company in which you are a director?
Answer: No.
This ruling applies for the following period:
Year ended 30 June 2009
Scheme commenced:
1 July 2008
The scheme that is the subject of this ruling
You used your personal credit card to cover business expenses.
They relate to your directorship of the company.
These expenses included travel and other expenses on behalf of the business.
The travel expenses were incurred in relation to clients of the company.
You were employed as a company director.
You are normally reimbursed for these expenses by the company.
The company is unable to reimburse you for these payments as they have entered administration.
These expenses were incurred prior to the company entering administration.
You have sought reimbursement of these expenses through the administrator.
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 that they are incurred in gaining or producing the taxpayer's assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income.
You cannot claim a deduction under Section 8-1 of the ITAA 1997 for expenses incurred on behalf of the company because the expenses were incurred for the purposes of generating the assessable income of the company, rather than your own assessable income. Therefore the necessary nexus between the incurring of the expense and the production of your assessable income is too remote, notwithstanding that the company would have failed had you not covered these expenses.