Week 6

Question 1

Assessable income =

Answer 1

Ordinary income + statutory income - deductions

Question 2

Two types of deductions

Answer 2

General and specific

Question 3

Deuctions

Answer 3

Expenses or outflows incurred in gaining or producing assessable income; or Necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Question 4

If the nexus between the expense and the production of assessable income is too remote, it is not deductible
Some cases exist where it is questionable as to whether a nexus can be established, for example:

Answer 4

Expenses involving alleged or actual wrongdoing by the taxpayer

Expenses to reduce future expenses

Involuntary losses or outgoings

Question 5

Denied deductions

Answer 5

Reimbursements
Certain penalties imposed under Australian or foreign laws: s 26-5
Leave payments: s 26-10
Expenses related to rebatable benefits (eg, Austudy): s 26-19
Repayments of certain student assistance loans owing to the Government in respect of studies (eg, higher education): s 26-20
Political gifts or donations made by business taxpayers: s 26-22
Relative’s travel expenses: s 26-30
Travel expenses related to earning assessable income from residential premises: 26-31
Excessive amounts paid to related entities (e.g. family members): s 26-35
Recreational club expenses (e.g. membership): s 26-45
Bribes to foreign public officials & public officials: ss 26-52 and 26-53
Expenditure relating to illegal activities (e.g. La Rosa case): s 26-54

Question 6

Payments to related parties

Answer 6

Payments to related parties may be limited to an amount that is considered “reasonable”: s 26-35.