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Ruling

Subject: Work related expense - damage to a vehicle

Question

Are you entitled to a deduction for the payment of the excess under your employer's motor vehicle insurance policy for a vehicle you damaged during the course of your employment?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are employed as an automotive mechanic.

You were involved in an accident whilst moving a vehicle within your employer's workshop.

Your employer organised the repair of the damaged vehicle through their insurance.

Your employer held you responsible to pay the insurance excess.

You paid the excess as there is a condition in your employment contract stating that you are responsible for any excess payable for damage caused to any vehicle you work on.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

You are entitled to claim a deduction for the expense incurred in paying the insurance excess as the expense was incurred in the course of you gaining or producing your assessable income.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for any losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic nature.

In Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431, the Court established that, for a loss or outgoing to be an allowable deduction, there must be a nexus between the outgoing and the assessable income so that the expenditure is incidental and relevant to the taxpayer's income-producing or business operations.

In your case, you work as an automotive mechanic and, whilst moving a vehicle within your employer's workshop, you were involved in an accident.

Your employer had the vehicle repaired through their insurance however, your employer held you responsible for the insurance excess payable.

You paid the excess as there is a condition in your employment contract that states you are responsible for any excess payable for damage caused to any vehicle you work on.

As the accident occurred during the course of you producing your assessable income and the expense associated in paying the insurance excess was a condition of your employment, the expense is considered to be incidental and relevant to the production of your assessable income and is not of a capital, private or domestic nature.

As such, you are entitled to claim a deduction under section 8-1 of the ITAA 1997 for the expense incurred in paying the insurance excess as a result of damage you caused to a vehicle during the course of your employment.