Expenses in connection with adoption of child

Is a taxpayer entitled to a tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in adopting a child?

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for expenses incurred in adopting a child as they were not incurred in gaining or producing assessable income.

The taxpayer incurred various expenses (legal costs, court costs and other fees) in adopting a child in Australia after the 1 July 1985.

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.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8ATD 431 the High Court stated that: 'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

The expenditure must therefore be related to the production of assessable income.

The child adoption expenses were not incurred by the taxpayer in gaining or producing assessable income.

Alternatively, the expense in connection with adoption of a child is considered private in nature and not deductible under section 8-1 of the ITAA 1997 because the purpose for making an application for adoption of a child was to add to the taxpayer's family. Note: Section 159X of the ITAA 1936 specifically allowed expenses in connection with adoption of a child to be considered in calculating concessional rebates but was repealed and is not available for assessments issued for income years that commence on or after 1 July 1985.