A point of clarification about an item in our last eNewsletter.

In our last eNewsletter we wrote about getting a tax deduction for managing tax affairs (this was titled ‘A strategy to increase your client’s deductions for simply lodging their tax’, but this has since been taken down*).

The section that gives you this deduction (section 25-5(1) ITAA 1997) says: “You can deduct expenditure you incur to the extent that it is for…complying with an obligation imposed on you by a Commonwealth law, insofar as that obligation relates to the tax affairs of an entity…”

This provision is, primarily, aimed at people such as Public Officers that have the obligation to lodge an entity’s income tax return.

There is a view that this provision could apply to, say, two spouses where one spouse pays for the completion of the tax return of the other spouse. Please note that the word “entity” is defined in the tax law to include an individual.

As tax agents know, a spouse (“A”) is required to declare certain tax details in his/her return about his/her spouse (“B”). It could be argued that there is an obligation imposed on A by the law to include in A’s tax return the details of B’s taxable income and other details. Accordingly if A incurs expenditure in having B determine his/her taxable income, that this expenditure is deductible to A under section 25-5(1) ITAA 1997.

We are not sure whether this view has ever been tested with the ATO.


* To refresh readers’ minds who may not have seen the original article, you can download a PDF of the text here. For background purposes and also out of academic interest, see this ruling. And also see TD 94/91 for tax related matters for trusts.