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Ruling
Subject: Deductibility of wages and travel allowances
Question
Are you entitled to a deduction for wages and travel allowance paid to the director of your corporate trustee and his spouse where the payments are made at commercial rates?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You have been engaged to provide management services to Person X) in relation to their activities.
You have engaged Person Y and Person Z (Person X's relatives) to carry out the engagement.
Person Y is the sole director of your corporate trustee.
You pay Person Y and Person Z travel allowances for each trip they accompany Person X. The travel allowance is paid at a commercial rate.
You intend to commence paying Person Y and Person Z wages at rates that are commercial for the type of work carried out.
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 or necessarily incurred in carrying on a business except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it.
An entity is entitled to a deduction for wages and travel allowances paid to employees who are carrying out duties as part of the entity's income earning activities.
You earn your assessable income by co-ordinating Person X's activities and interests. You have employed Person Y and Person Z to assist with these activities.
You are entitled to a deduction for travel allowances and wages paid to Person Y and Person Z as the expenses have been incurred in earning your assessable income.
As Person Y and Person Z will be paid at commercial rates, their relationship with Person X or your corporate trustee does not affect the deductibility of the travel allowances and wages paid to them.