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Ruling
Subject: Expenses
Question
Are you entitled to a deduction for the cost of making your relative a Power of Attorney?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are investigating the purchase of a system that will enable you to earn some money.
Due to travel for work, you made a relative a Power of Attorney to sign any documents in your absence.
The costs incurred largely related to fees from lawyers to have legal documents drafted.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income. However, no deduction is allowed where the losses or outgoings are capital, or are of a capital, private or domestic nature or another provision prevents the taxpayer from deducting it.
The courts have considered the meaning of incurred in gaining or producing assessable income. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431, the High Court stated that:
For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income, it must be incidental and relevant to that end. The words incurred in gaining or producing assessable income mean in the course of gaining or producing such income.
The expenditure must therefore be related to the production of assessable income and not incurred at a point too soon to be deductible (FC of T v. Maddalena (1971) 45 ALJR 426; 2 ATR 541; 71 ATC 4161). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.
It is acknowledged that in the future you can produce income; however, the costs incurred in making your relative a Power of Attorney have no direct connection to the gaining or producing of your assessable income. The purpose of the expenses is to allow your relative to sign documents on your behalf. Also, as the expenses were incurred prior to the installation of the system, they are considered to be incurred at a point too soon to be incurred in relation to the production of assessable income.
Therefore you cannot claim a deduction for costs incurred to make your relative a Power of Attorney under section 8-1 of the ITAA 1997.