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Edited version of your written advice
Authorisation Number: 1012999304257
Date of advice: 18 April 2016
Ruling
Subject: Deductibility of costs associated with employing an assistant
Question and answer
Are you entitled to a deduction for the costs of employing a research assistant?
No.
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commenced on:
1 July 2015
Relevant facts and circumstances
You work in the research area.
You have employed a research assistant to assist you with administrative tasks which have become time consuming.
The employment of the research assistant enables you to spend more time on the technical aspect of your research and allows you to derive your income.
You have paid this person the award rate and have paid superannuation.
You believe your circumstances are similar to the case of Frisch as you have paid the award wage and superannuation.
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 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 considered the deductibility 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 was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242:
'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 or assist with the duties of their employment it is not an expense which is incurred by the taxpayer in gaining or producing their employment income. In addition, the wages paid would be an outgoing of a private or domestic nature.
In Frisch v Federal Commissioner of Taxation [2008] AATA 462; 2008 ATC 10-031; (2008) 72 ATR 551 the Tribunal found that the taxpayer does not delegate any of the employment tasks to the attendant. Rather, the attendant merely performs necessary physical Tasks under the direction and control of the taxpayer and the taxpayer merely obtains the assistance needed by her to fulfil her obligations and functions as an employee.
Accordingly the Tribunal decided that, to the extent that the expenditure of the taxpayer is in relation to non-personal services, the outgoing is incurred to enable the taxpayer to undertake her employment duties and is thus incurred in gaining her employment income. A deduction is available under s 8-1 ITAA 1997.
In your case you have employed a research assistant to carry out administrative tasks as these tasks have become too time consuming for you. The employment of the assistant enables you to spend more time on the technical aspect of your research. Your circumstances are different to that in the case of Frisch as the deduction was allowed because the taxpayer employed an assistant to carry out duties they were not physically able to carry out. Without this assistant the employee would not have been able to carry out their employment duties.
The assistant you have employed carries out tasks you are capable of doing yourself and the purpose of you employing the assistant is so you have more time to spend on your technical aspect of your research.
The deduction for the research assistant is not allowable under section 8-1 of the ITAA 1997 as it is private and domestic in nature and not an outgoing incurred in gaining or producing your assessable income.