Taxation Determination

TD 93/161

Income tax: employment agreement: are costs associated with employment agreements deductible under subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA) to the employer?

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FOI status:

may be releasedFOI number: I 1215902

1. Yes. Costs incurred by an employer in hiring staff are an expense in the carrying on of an existing business and such costs are deductible under subsection 51(1). These costs include costs associated with the hiring of new employees, as well as the renewal and variations of employment agreements with existing employees.

2. Where the hiring of staff is part of the setting up of a new business, the cost of employment agreements are of a capital nature and are not deductible.

3. Under the Employee Relations Act (Vic) 1992, relationships between employers and employees are governed by employment agreements. Existing award conditions are to be phased out.

4. An employment agreement is a written, legal and binding confirmation of the employer/employee relationship. The agreement covers rates of pay, working conditions, leave entitlements and many other special provisions. Agreements are for a fixed term, which cannot exceed five years.

5. There are two types of agreements, individual agreements and collective agreements. An individual agreement is between one employee and the employer. A collective agreement is between a group of workers and the employer. Collective agreements are required to be lodged with the Employee Relations Commission of Victoria, whereas individual agreements do not have to be.

6. Costs incurred may include:

.

representation (which could be an employer organisation, an accountant, a lawyer or any other representative) during negotiation;

.

costs associated with the drawing up of the agreement;

.

lodgment fees; and

.

costs associated with settlement of disputes.

Commissioner of Taxation
19 August 1993

Previously issued as Draft TD 93/D161

References

ATO references:
NO MBN AC MS 1492 CPX 17

Related Rulings/Determinations:

TD 93/162
TD 93/163
TD 93/164
TD 93/165

Subject References:
employment agreement

Legislative References:
ITAA 51(1)