Edited version of private ruling

Authorisation Number: 1011790113091

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Ruling

Subject: Administration fee

Question

Are you entitled to a deduction for the administration fee deducted from your pay by your employer, where the amount has already been subtracted from the total gross payments figure shown on your payment summary?

Answer

No.

Relevant facts and circumstances

For around a 12 month period, you were employed as a contractor by an employment agency.

During this time, you were contracted out to work for a bank.

You charged the bank for your services. The bank would then charge the employment agency, who in turn paid your wages.

The employment agency deducted a percentage of your gross payments as an administration fee for handling your wage and superannuation payments.

The gross payments figure reported on your payment summary has already been reduced by the administration fee. You declared this gross payments figure in your tax return.

Reasons for decision

Summary

You are not entitled to a deduction for the administration fee as this amount has already been deducted from the gross payments figure shown on your payment summary. As a lower gross payments figure was shown on your payment summary and consequently reported in your tax return, a lower amount of tax liability was calculated in your income tax assessment. That is, in effect you have already received a deduction for this administration fee. Any further deduction for this fee in your tax return would result in a double benefit to you.

Detailed reasoning

Section 8-1 of the ITAA 1997, allows deductions for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income. Deductions are not allowed under section 8-1 of the ITAA 1997 where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

An outgoing is considered to be incurred in gaining or producing assessable income if:

· there is a sufficient connection between the outgoing and the activities which produce or are expected to produce assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47); and

· the outgoing has the essential character of an income producing expense (Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; [1958] ALR 225; 11 ATD 404).

Administrative costs passed on by an employer to an employee for processing and paying an employee's weekly net wages disbursement into a nominated bank account is generally an allowable deduction under section 8-1 of the ITAA 1997.

Application to your facts

The employment agency deducted a percentage from your gross remuneration for the costs of handling your wage and superannuation payments.

Although this type of fee has a sufficient connection with your income earning activities, you are not entitled to a deduction as the amount was not included in the gross earnings reported on your payment summary.

If a deduction was allowed, you would effectively be gaining a double benefit as the gross earnings figure you declared in your tax return has already been reduced by the amount of this fee.

Therefore, you are not entitled to a deduction for the administration fee under section 8-1 of the ITAA 1997.