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Edited version of your private ruling
Authorisation Number: 1012538377198
Ruling
Subject: Deduction for motor vehicle repairs
Question
Are you entitled to a deduction for the cost of repairing a car that you damaged in an accident?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
When travelling between two places of employment in your private car you were involved in a motor vehicle accident. In this accident you caused damage to another person's car. You received a letter of demand from the insurer of the other car. You were considered responsible for the accident and asked to reimburse the insurance company for the cost of repairs.
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 all losses or outgoings to the extent that they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowable where the losses or outgoings are of a capital, private or domestic nature or another provision prevents the deduction.
In Commissioner of Taxation v. Payne [2001] HCA 3 (Payne's case) the High Court held that expenses incurred in travelling between two places of unrelated income-earning activity were not deductible under section 8-1 of the ITAA 1997 (the general deduction provision). The Court held that the expenses were not incurred in the course of earning income from either activity but rather incurred in the interval between the two activities.
As explained by the High Court in Payne's case, the deduction is denied because it did not occur when the taxpayer was engaged in either work activity and therefore could not be said to be incurred 'in the course of' deriving income from either activity.
Section 25-100 of the ITAA 1997 was introduced to overcome the effect of Payne's case and to continue to allow an income tax deduction for certain expenses incurred in travelling between workplaces.
Section 25-100 of the ITAA 1997 states:
When a deduction is allowed
25-100(1): If you are an individual you can deduct a transport expense to the extent that it is incurred in your travel between workplaces.
Section 900-220(3) defines a 'transport expense' as a loss or outgoing to do with transport, including the decline in value of a depreciating asses used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport.
Transport expenses, therefore, include your car expenses which in your case your car expenses are covered by your use of the 'cents per kilometre' method of calculating your claim.
The Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No. 1) Act 2004, which explains the intention of section 25-100 of the ITAA 1997, says that the intention of this section is to maintain the arrangement in place prior to Payne's case where a deduction had been allowed for the cost of travelling directly between two places of employment.
Expenditure in the form of compensation or damages paid to third parties is an allowable deduction under section 8-1 of the ITAA 1997 to the extent that it is incurred in the course of gaining or producing assessable income.
Prior to the introduction of section 25-100 a deduction for damage caused other persons property is an allowable deduction under section 8-1 to a person travelling between two places of employment.
The intention of the introduction of section 25-100 was to preserve the deductions previously available to a tax payer, in these circumstances, under section 8-1.
In your case, you were travelling between two places and you are entitled to claim a deduction for your transport expenses which includes compensation paid to a third party.
Therefore, you are entitled to a deduction for costs incurred as a result of damage caused in a motor vehicle accident that happened during the course of your travelling between two places of employment.