Edited version of private advice

Authorisation Number: 1051992753248

Date of advice: 8 June 2022

Ruling

Subject: Deductibility of notional expenditure

Question 1

Are you entitled to a deduction for your time to earn your salary/wage under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to a partial deduction for your time to earn your salary/wage under section 8-1 of the ITAA 1997?

Answer

Not applicable - see Question 1

Question 3

Are you entitled to a deduction for your time taken to earn your salary/wage under any other provision in Australian tax legislation?

Answer

No.

Question 4

If your salary/wage is your only source of income, is this taxable or should the result for your taxable income be $0?

Answer

Not applicable - see Question 1.

Question 5

As a man living in the area called Queensland are you liable to pay tax?

Answer

Decline to rule.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You have earned or expect to earn salary/wage income in Australia in the 20XX financial year.

Your salary/wage income is subject to income tax.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the 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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

•         it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478),

•         there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

•         it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

The term 'outgoing' encompasses all types of expenditure and suggests a movement of resources from a taxpayer (eg a payment). 'Expenditure' refers to an amount of money or property that can be valued and does not include notional expenditure. Oram v Johnson (1980) STC 222 is a leading authority for this proposition.

The Oram case showed that a taxpayers' personal resources such as labour or skill are excluded from being an expenditure for taxation purposes as Walton J found that the term 'expenditure' necessarily relates to something passing out from the person making the expenditure, and as such the notional expenditure the taxpayer sought to claim was disallowed.

Furthermore, Max Factor & Co v. Federal Commissioner of Taxation (1984) 84 ATC 4060 confirms thatnotional expenditure incurred to oneself as a single entity is not deductible. This means that even if you were to contrive a notional monetary valuefor your time, you cannot claim that amount against the income itself.

As your time and salary/wage income are both resources held by you as a single entity, you are not entitled to any deduction for your time taken to earn a salary/wage against your salary/wage under section 8-1 of the ITA 1997 or any other provision in Australian tax law.