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Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) of the cost of storing personal items that were removed from their rental property?

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of storing personal items that were removed from their rental property.

The taxpayer owns a rental property from which they earn assessable rental income.

The taxpayer used one room of the rental property to store some of their personal items.

In order to facilitate a new tenancy agreement, the taxpayer removed the personal items they had stored in the rental property to another storage area.

The taxpayer has to pay rent for the storage of the personal items they had removed from their rental property.

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, or relate to the earning of exempt income.

A number of significant court decisions have established that, for an expense to satisfy the requirements of section 8-1 of the ITAA 1997: • it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166) • 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. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); 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 their assessable income ( Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).

The taxpayer has incurred costs in relation to storage of their personal property. The costs were not incurred in gaining or producing assessable income from their rental property and are also private in nature. Accordingly, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for the costs incurred in storing their personal items.