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Ruling

Subject: Deduction for payment to a friend

Question:

Are you entitled to a deduction for paying a friend to assist you to make a presentation for a bonus?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are an employee and you are entitled to bonuses.

You have to convince your employer that you are entitled to a bonus and the quantum.

Your friend assisted you by documenting your achievements to present a case, preparing documentation and a power point presentation relating to your high performance work and general administration duties to enable you to achieve a better than average performance when compared with your peers.

You agreed to pay your friend a percentage of any bonuses you received. However, you would pay them nothing if you did not get the bonus.

Your friend is not in the business of doing work presentations.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

The Board of Review had dealt with the issue of wages paid by an employee in Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30. In that case an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and is of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242 that:

   'If an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded ...[from being deductible]'

Where a taxpayer pays another to perform part of the duties of their employment it is not an expense which is incurred by the taxpayer in gaining or producing their employment income.

The amount you paid to your friend is considered to be a private and domestic arrangement and is not considered to be a commercial arrangement due in part, to the fact that the quantum of the payment is not commensurate with the amount for the work required (that is, if you were to seek the presentation from a commercial source you would not be expecting to pay the amount agreed with your friend) and generally if the work had been completed for you on a commercial basis you would be expected to pay for the services whether or not you received a bonus.

As you are an employee a deduction is not allowable for the payment to your friend as it is not an expense which is incurred in gaining or producing your income and it is considered that the payment is a private and domestic arrangement.