Edited version of your written advice

Authorisation Number: 1012825642171

Ruling

Subject: Your bond payment

Question

Are you entitled to a deduction for a bond payment that you made?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You received training that was paid for by your employer.

You had a written agreement with your employer in the form of a bonding agreement. This agreement included an arrangement requiring you to pay your employer an agreed amount on a sliding scale if you left the employer within XX months from the date of commencing the training.

You have left the employer and this resulted in you becoming liable to pay your employer the amount set out in the bonding agreement.

The employer withheld all your entitlements as part payment, and requested you to pay the remainder of the bond amount. You have now settled your liability to your employer.

You gained employment with another employer doing the same type of work.

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.

In cases where money has been repaid by a taxpayer to a former employer for breaching the employment contract, the Board of Review have held that such monies are not allowable deductions: Case J20 (1958) 9 TBRD 109, Case J60 (1958) 9 TBRD 308, Case P20 (1963) 14 TBRD 97 and Case G80 75 ATC 564. It was confirmed that the liability to make the payment arose from the breach of the agreement, and was not incidental to the gaining or producing of assessable income.

In Case P20 (1963) 14 TBRD 97 a surveyor had entered into a bond with his employer prior to receiving his professional qualification. The bond provided that he reimburse his employer the employer's cost of his training should he resign his employment within 5 years of receiving his qualification. The taxpayer resigned 4 months after receiving his qualification and was required to repay the costs. The Board of Review stated:

The expenditure in question flowed directly from the taxpayer's breach of covenant. It was a consequence of the taxpayer's termination of his employment with the department in order to take up duties with a new employer, and even though an increased salary flowed from this move, in no sense can it be said that the outgoing in question was incurred in the course of gaining or producing assessable income from the new source. It was not truly incidental or relevant to the actual derivation of salary income.

In your case, you were required to pay an amount to your previous employer as a result of the early termination of an agreement you held them.

Although it is acknowledged that the payment originated from training your employer paid for, the reason for you making the payment is in consequence of you breaching the terms of your employment agreement. Therefore, the expenditure cannot be said to have been incurred as a deductible expense.

As your liability to pay this amount was neither incidental nor relevant to the production of your assessable income, you are not entitled to claim a deduction for the amount you paid to your previous employer.