Edited version of private advice

Authorisation Number: 1051612983964

Date of advice: 12 December 2019

Ruling

Subject: Income Tax - Deductions - Foster Carer

Question

Are you entitled to claim a deduction for expenses incurred to maintain a foster child?

Answer

No.

This ruling applies for the following period:

30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You are employed by Entity A. In addition to your employment duties you are also a foster carer for the same client.

As outlined in clause 7.1 (remuneration package of the employment agreement) you are paid a remuneration package by Entity A fortnightly, this includes salary and superannuation.

Clause 7.3 outlines that you are reimbursed for all reasonable work related expenses necessarily incurred in providing Out-of-home care to the client and performing carer duties.

Clause 7.5 outlines that you are paid a fortnightly allowance from your employer which is paid to the company by Department of Family and Community services (FACS). This allowance is dependent on the age and special needs of the client.

Clause 7.5 (e) outlines that both parties agree that the quantum of the foster carer allowance is appropriate having regard to the age, relevant special care needs of the client and any other relevant considerations.

The foster carer allowance is intended to cover the following expenses;

·        Food

·        Daily Travel

·        Clothing and footwear

·        Suitable car restraints

·        Gifts

·        Household provisions and cost

·        Hobbies and activities

·        Holidays

·        General education expenses

·        General medical expense

·        General pharmaceutical cost

·        Pocket money

You intend to claim expenses for the following;

·        A portion of Interest repayments on her mortgage, based on the use of the bedroom by the Foster child.

·        A portion of the council rates, water rates and electricity.

·        The cost of everyday meals for the foster child.

·        Accommodation & Cost for courses for the foster child.

·        Cost of furnishing the foster child's room, e.g. Bed Frame, Mattress and Drawers.

·        Expenses relating to schooling e.g. Reading Material, Books, School bag, Pens & Pencils.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1(1) of the Income Assessment Act 1997 (ITAA) states that you can deduct from your assessable income any loss or outgoing to the extent that:

·        It is incurred in gaining or producing your assessable income; or

·        It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

Section 8-1(2) of the ITAA 1997 states that you cannot deduct a loss or outgoing under this section to the extent that:

·        It is a loss or outgoing of capital, or of a capital nature; or

·        It is a loss or outgoing of a private or domestic nature; or

·        It is incurred in relation to gaining or producing your *exempt income or your * non-assessable non-exempt income; or

·        A provision of this Act prevents you from deducting it.

A deduction is not allowable where the expense incurred by the employee is reimbursed.

·        A person makes a payment in discharge, in whole or in part, of an obligation of the taxpayer to pay an amount to a third person in respect of an amount of a loss or outgoing incurred by the taxpayer.

·        A person reimburses the taxpayer, in whole or in part, in respect of an amount of a loss or outgoing incurred by the taxpayer.

In the case of a reimbursement, the amount of the reimbursement is not included in the taxpayer's assessable income.

Application to your situation

Under Section 8-1(1) of the ITAA 1997 you are unable to claim the specified expenses you have requested. The amount of money paid to you on a fortnightly basis is considered exempt income in which you are not taxed on. According to section 8-1 of the ITAA 1997 you cannot claim a deduction or outgoing if it is incurred in the production of exempt income. In addition to the allowance you receive you are also reimbursed for any expenses necessarily incurred in providing out-of-home care to the client and performing carer duties. The reimbursement of these expenses will reduce any amount you have incurred to nil.

UnderSection 8-1(1) of the ITAA 1997a deduction is not allowable where the expense incurred by the employee is reimbursed. Clause 7.3 titled Reimbursement of expenses states:

"Upon production of a receipt, you will be reimbursed for all reasonable work-related expense necessarily incurred by the you in providing Out-of-Home care to the Client and performing the duties under this agreement in accordance with applicable company policy and FACS' recommendations".

You receive a carer allowance that is considered exempt income which covers the expenses of maintaining the child and any further expenses you incur are reimbursed, therefore you are unable to claim a deduction under section 8-1 of the ITAA 1997 for the care of the child.