General deductions (chapter 13):

You can deduct from your accessible income any loss or outgoing to the extent that

 it is incurred in gaining or producing your accessible income,

 it is necessarily incurred in carrying on a business for the purpose of gaining or producing your
accessible income.

However, you cannot deduct a loss or outgoing under this section, to the extent that

 it is a loss or outgoing of capital or of a capital nature,

 it is a loss or outgoing of a private or domestic nature.
 it is incurred in relation to gaining or producing your exempt income or your non assessable
nonexempt income,
 a provision of this act prevents you from deducting it

Terms:

 Loss: a taxpayer’s financial resources have been diminished (p323)

 Outgoing: some form of payment, outlay or expenditure (P323)
 Positive limbs (P325): incurred in gaining or producing assessable income or incurred in carrying
on a business
o There must be a connection between the loss or outgoing and the income earning
activities, matching is not necessary as long as there’s a connection (P325)
o In the course of & incidental and relevant test (P327)
 Amalgamated Zinc Ltd v FC of T (1935) (P327): it looked rather to the scope of
the operations or activities and the relevance thereto of the expenditure than to
purpose in itself
 W Nevill & Co Ltd v FC of T(1937) (P327): the court treated the payments to an
unsuccessful manager, who actually incurred a loss instead of income, is
deductible, the initial purpose is still to increase income but failed, and were
therefore incurred in the course of gaining or producing accessible income
 Charles Moore & Co (WA) Pty Ltd v FC of T (1956) (P327): a department store
being allowed a deduction for the money that was lost when its employees
were robbed, the court held that there’s sufficient connection here, even
though no income had been produced but it would be expected to produce
assessable income
o The character test (P328): whether an outgoing is deductible or not depends upon
whether it has the essential character of a business or working expense
 Lunney & Hayley v FC of T (1958) (P328): The court held that the travel costs
from home to work were not deductible since they could not be characterised
as a working or business expense. Because an outgoing is a prerequisite to the
earning of accessible income that is not sufficient of itself to make the outgoing
deductible
 Objective advantages obtained (P329):
 Cecil Bros Pty Ltd vs FC of T (1964) (P329)
 FC of T v Phillips (P329)
  Subjective purpose (P330):
 Ure vs FC of T (P330)
 Magna Alloys & Research Pth Ltd vs. FC of T (P331)
 Fletcher & Ors v FC of T (P331)
o Carrying a business:
 FC of T vs Snowden & Wilson (1958) (P335): the company sought deductions for
costs incurred in defending itself before a royal commission, which included the
costs of placing newspaper advertisements expressing its side of the story. The
high court allowed the company the deductions
 Temporal connection (P336):
 Before the commencement of a business (P336)
o Softwood Pulp vs FC of T (1976)
o Griffin Coal Mining vs FC of T (1990)
o Goodman Fielder Wattie vs FC of T (1991)
 After the cessation of a business (P337)
o Amalgamated Zinc Ltd v FC of T (1935)
o AGC advances v FC of T (1975)
o Placer Pacific Management vs FC of T (1995)
o FC of T vs Brown (1999)
o Capital in nature (P341)
 Once and for all test (P341): that expenditure incurred once and for all is usually
capital in nature, whereas expenditure incurred regularly is usually revenue in
nature
 Vallambrosa Rubber Co Ltd v Farmer (1910) (P341)
 capital in nature
 British Insulated & Helsby Cables vs Atherton (1926) (P342)
 Business entity test (P342): expenditure relating to the establishment,
organization, enlargement, extension or protection of a business entity is
usually treated as capital in nature
 ewspapers Ltd vs FC of T (1938) (P342)
o Private or domestic nature (P343): private is personal and domestic is something that
concerns household affairs
 Lodge v FC of T (P344): the court denied deductions to a law clerk for nursery
fees paid to have her child minded so that she could undertake work
o Related to exempt income or non-assessable non-exempt income (P345)
o A provision (P345)
 To the extent that (P323): in certain circumstances a loss or outgoing may need to be
apportioned, in which case the loss or outgoing will only be partly deductible.
o Ure v FC of T (P324): interest expenditure incurred by a taxpayer on a loan used for both
income-producing and private purposes should be apportioned between those objects.
o Ronpibon Tin NL & Tongkah Compound v FC of T (1949) (P324): the company earn both
exempt income and ordinary income under Australian aw and after they ceased the
business, the court allow the company to deduct part of the expense
  Incurred & timing of deductions (P346): whether a loss or outgoing has been incurred depends
on the existence of a liability rather than whether or not it has been discharged
o FC of T v James Flood Pty Ltd (P346): employees needed to complete a minimum of 12
months continuous service in order to be eligible for holiday pay. The court denied a
deduction to the taxpayer on the basis that no liability to make the payments had yet
arisen, so no amount had yet be incurred. The taxpayer must have completely subjected
itself to the loss of outgoing
o Nilsen Development Labs vs FC of T (P346): similar facts as the James flood case but this
time the employees are entitled to the leave without working 12 month continuous
service, while high court held that it was only when employees took their leave that a
liability to pay arose and an outgoing could be considered to be properly incurred

Various expenses

o Clothing expenses (P353):

 Mansfield vs FC of T (P353): generally clothing is private in nature and not
deductible under s8-1.
 However, under certain circumstances, it may be deductible
 Additional clothing – FC of T v Edwards (P353)
 Clothing have special features or harsh working conditions result
frequent damage: Morris v FC of T (P353)
 Protective clothing (P354)
o Travel expenses (P354)
 Travel on work vs. travel to work
 Lunney & Harley v FC of T (1958) (P354)
 John Holland Group Pty Ltd v FC of T (2015) (P355): the court allowed
travel expense deduction for the construction worker who worked in
Geraldton and lived in Perth
 FC of T v Wiener (P355): the court allowed travel expenses for a teacher
travel between different schools but not from home to school
 FC of T v Collings (P356): when it involved stand-by or on-call duties,
travel expense is deductible
 Travel between two unrelated jobs (P356):
 FC of T v Payne (P356): the travel cost between works generally is not
deductible
 Travel to find new job (P357): differences between travel to find new client and
travel to find new employment
 FC of T v Maddalena (P357)
o Self-education expenses (P358)
 Linked to current occupation (P423): generally deductible
 FC of T v Finn (1961) (P358)
 Not linked to current occupation (P360): generally non-deductible
 FC of T v Roberts (P360)
o Home office expenses (P363): depend upon whether the home could be regarded as a
place of business or whether the taxpayer simply find it ient to do part of their work at
home
 Handley v FC of T (P363): not deductible
 Swinford V FC of T (P363): deductible
o Legal expenses (P374):
 Sunraysia Broadcasters Pty Ltd v FC of T (P375)
o Interest expenses (P367)
 The use of the borrowed funds: FC of T v Munro (P363)
 Steele v DFC of T (P363)