Taxation Determination
TD 93/175
Income tax: is expenditure incurred by an employee in applying for a promotion deductible under subsection 51(1) of the Income Tax Assessment Act 1936 ?
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Please note that the PDF version is the authorised version of this ruling.
FOI status:
may be releasedFOI number: I 1216059| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). |
1. Generally yes. If the expenditure (not being expenditure of a capital, private or domestic nature) will objectively lead to, or will be likely to lead to, an increase in the employee's assessable income without effecting a change in the employee's current income-earning activities, it will be deductible under subsection 51(1).
2. However, if the expenditure is incurred in applying for a promotion which will involve a change in the employee's current income-earning activities, it will not be deductible. This proposition is supported by the decisions in Case Z1 92 ATC 101; 22 ATR 3549 and FC of T v Maddalena 71 ATC 4161; 2 ATR 541.
3. We consider that if the promotion will result in the opening up of a new income-producing activity for the employee, the expenditure is not deductible. It is not deductible because it is incurred in getting the job, not in doing the job, and as such, "it would come at a point too soon to be properly regarded as incurred in gaining assessable income." FC of T v Maddalena 71 ATC 4161 at 4163; 2 ATR 541 at 549 per Menzies J.
4. Dobbs v Commissioner of Inland Revenue 74 ATC 6001 , a decision of the Supreme Court of New Zealand, held that legal expenses incurred by a public servant in respect of a successful appeal which resulted in a promotion were deductible. This decision supports the proposition that expenditure incurred by an employee in applying for a promotion is an allowable deduction under subsection. 51(1), and has since been approved by the Administrative Appeals Tribunal decision in Inglis & Anor v FC of T 87 ATC 2037 at 2047; 2048.
Example 1
A school teacher applies for three Deputy Principal positions during an income year which requires the following expenditure to be incurred :
Typing of Applications $ 60
Motor Vehicle travel to Interviews (as distinct from travel
between the teacher's home and the school at which he/she
currently teaches which is not deductible; see TD 93/113) $ 480
Accommodation $ 152
The expenditure is deductible under subsection 51(1) because it will objectively lead to, or will be likely to lead to, an increase in the taxpayer's assessable income without causing a change in his/her current income-producing activities.Example 2
Following a recommendation from a senior colleague, an employee purchases several new suits/outfits in an attempt to enhance his/her personal "image" for the purposes of obtaining a promotion, including the purchase of a new suit/outfit for the interview itself. The employee is successful in obtaining the promotion. Although it may be concluded that the expenditure has a nexus to the employee's assessable income, the expenditure is nevertheless of a private nature, and consequently, is not deductible under subsection 51(1).Example 3
After completing a law degree through part-time study, a clerk who is employed in a non-legal area of the public service applies for a position as a solicitor with another government department. Expenditure similar to that which is contained in Example 1is incurred as a result of the successful application.
We consider that the expenditure is not deductible under subsection 51(1) because it is incurred in opening up a new income-earning activity for the taxpayer, and consequently, "...would come at a point too soon to be properly regarded as incurred in gaining assessable income."
Commissioner of Taxation
2/9/93
Previously issued as Draft TD 93/D128
References
ATO references:
NO ALB 920159
Related Rulings/Determinations:
TD 93/113
Subject References:
Expenditure
Application for promotion
Deductibility
Legislative References:
ITAA 51(1)
Case References:
Case Z1
92 ATC 101
FC of T v Maddalena
71 ATC 4161
Dobbs v Commissioner of Inland Revenue
74 ATC 6001
Inglis & Anor v FC of T
87 ATC 2037