Deductibility of work-related expenses prior to income being derived

Is a taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in a year prior to the derivation of income?

Yes. A taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for expenses incurred prior to deriving income where the taxpayer has incurred the expenses with the intention of producing assessable income.

The taxpayer commenced casual employment in June of the relevant income year.

The taxpayer did not receive any income in the relevant income year. However, income was received in the following income year.

The taxpayer incurred work-related expenses during the relevant income year.

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 classic statement of the principle of expenditure relating to income yet to be derived comes from the case of Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at p57 where Latham CJ, Rich, Dixon, McTiernan and Webb JJ said: 'In brief substance, to come within the initial part of the sub-section it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.'

The taxpayer incurred work-related expenses in the relevant income year. The taxpayer expected to produce assessable income as a result of these expenses, and did so, albeit in the following income year. Thus the taxpayer incurred these expenses in order to gain or produce assessable income.

Accordingly, the taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for the work-related expenses incurred in the relevant income year.