Are you entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 for wages paid to another person?
No. This ruling applies for the following periods : For the income year ended DDMMYYYY For the income year ended DDMMYYYY The scheme commenced on: DDMMYYYY
You are employed on a full-time basis with X since DDMMYYYY. Your contract of employment states at clause X that you must not enter into any agreement to compensate, remunerate or pay commission to any other party with respect to any dealing with a client except where the prior consent from your employer is received in writing. The contract also states at clause X that you must not disclose any confidential information to any other person. Another person assists you with a significant number of personal assistant duties on your behalf such as client recruiting/research, tender opportunities, travel itinerary planning/organising, record keeping and reconciliations of monthly income. Your income is commission based. You consider that without their assistance you would not have been able to earn as much commission with less time to service/attract new clients. You would pay a portion of your income to the other person for this assistance, along with superannuation guarantee.
Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subparagraph 8-1(2)(b) Does IVA apply to this private ruling? No.
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. ATO Interpretative Decision ATO ID 2002/472 Income tax - Deductibility of wages paid by an employee to another person considers this issue. The Board of Review considered the deductibility of wages paid by an employee in Case M55 80 ATC 366; (1980) 24 CTBR (NS) Case 30. In that case an employee pathologist was denied a deduction for wages paid to his wife to take messages for him when he was on call. The Board considered that the expenditure was not incurred in gaining or producing the assessable income and was of a private or domestic nature. Dr Beck stated at ATC page 368, CTBR (NS) page 242:
'If an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the workload, of gaining time off, of filling a gap in the employees competence, or, perhaps of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded...[from being deductible]' Where a taxpayer pays another to perform part of or assist with the duties of their employment it is not an expense which is incurred by the taxpayer in gaining or producing their employment income. In addition, the wages paid would be an outgoing of a private or domestic nature and not deductible due to subparagraph 8-1(2)(b) of the ITAA 1997.