Issue
Is the taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for payments made to their spouse for work done for the taxpayer in their capacity as executor of a deceased estate?
Decision
No. The taxpayer is not entitled to claim a deduction under section 8-1 of the ITAA 1997 for payments to their spouse for work done for the taxpayer in their capacity as executor of a deceased estate because the payments were not incurred in gaining or producing the taxpayer's assessable income.
Facts
The taxpayer was appointed as the executor of a deceased estate.
The taxpayer also performed some professional services for the estate. They billed the estate for their professional services. The taxpayer, in their capacity as executor, paid themselves for these services out of estate funds.
The taxpayer asked their spouse to assist with some work in respect of the estate. However they did not bill the estate for this work. The taxpayer did not receive any payment from the estate for this work.
The taxpayer paid their spouse out of their own funds for the work they performed.
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, or relate to the earning of exempt income.
The courts have considered the meaning of 'incurred in gaining or producing assessable income' and determined that for expenditure to be deductible it must have been incurred in the course of producing that income ( Ronpibon Tin NL Tong Kah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47).
The income received by the taxpayer was for their professional services in administering the estate. The payments made by the taxpayer to their spouse were not incurred in the course of producing that income. The taxpayer has chosen to pay their spouse for work for which they have not billed the estate. Therefore, the payments made to the taxpayer's spouse were not incurred for the purpose of producing the taxpayer's assessable income.
Accordingly, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997.