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Edited version of private ruling
Authorisation Number: 1011759974841
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Ruling
Subject: Business deductions
Question
Are you entitled to a deduction for the expenses incurred in paying the phone bill that you use for business purposes?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a sole trader.
Your friend is a sole trader who has a phone number under their name that they do not use.
You use this phone number to service your business clients.
You pay the bill for this phone number.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
The expenses you incurred relating to the use of the phone for business purposes are considered to be connected to your income producing activities and are therefore deductible.
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or carrying on a business 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 your case you have incurred expenses relating to the use of a phone that you use for business purposes. These expenses have a sufficient connection to your income producing activities and are therefore deductible.
Note
If your friend starts using this number as well or if you also use the number for personal calls the cost of the bill may need to be apportioned.
It is noted that you asked for the private ruling to apply for the 2011 income year and onwards. The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement or the law in question. Also, a public ruling may issue which affects the private ruling. Therefore, we have only ruled for the 2011 to 2013 income years.