Clients now and then may need to be directed towards the supplementary section of a tax return if they are keen to claim a deduction that does not sit comfortably within the other items that precede it.
The supplementary section is where we find item D15, “other deductions”. In its guidance, the ATO makes it clear that taxpayers should not make claims at D15 for the following:
- expenses relating to their work as an employee
- expenses relating to income from carrying on a business as a sole trader (including personal services income or as a share trader)
- expenses relating to investment planning and advice involving shares, unit trusts and interest-bearing deposits
- losses from the disposal of shares or real property that are capital in nature.
But expenses that individual taxpayers may be eligible to claim at D15 include the following (a few of the obscure expenses* are teased out below):
- election expenses for local, territory, state or federal candidates
- income protection, sickness and accident insurance premiums*
- foreign exchange losses
- expenses related to income earned from the sharing economy or other marketplace that is not derived from carrying on business or as an employee of the digital platform
- debt deductions incurred in earning assessable income that are not disallowed under the thin capitalisation rules and have not been claimed elsewhere
- debt deductions incurred in earning certain foreign non-assessable non-exempt income that are not disallowed under the thin capitalisation rules
- amounts deductible for certain business-related capital expenditure under section 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997)*
- over five income years relating to a business carried on through a company or a trust, or
- immediately as start-up expenses relating to the structure or the operation of the business that is proposed to be carried on
- a deduction for the net personal services income loss of a personal services entity that related to personal services income*
- certain deductible capital expenditure not claimed in full before ceasing a primary production business where a deduction can be claimed in a subsequent year or years; for example, water conservation expenditure, which may be deducted over a three-year period
- non-capital losses incurred on the disposal or redemption of a traditional security which are deductible under section 70B of the Income Tax Assessment Act 1936 (ITAA 1936); for more information, see the section on Sale or disposal of company bonds and convertible notes in You and your shares 2020
- small business pool deductions for depreciating assets of a small business pool that cannot be claimed at item P8 Business income and expenses on the Business and professional items schedule for individuals 2020 because the taxpayer did not carry on a business in 2019-20; for more information, see Small business entity concessions
- self-education expenses incurred in doing a course to satisfy the study requirements of a taxable scholarship.
Note that your client cannot claim deductions for expenses incurred in actively seeking paid work if they receive Newstart Allowance, Youth Allowance or Jobseeker payment as a job seeker.
To further explain to your client some of the more obscure claims listed above (those marked with an asterisk*), the ATO has provided brief guidance.
Income protection, sickness and accident insurance premiums
You can claim the cost of any premiums you paid for insurance against the loss of your income. You must include any payment you received under the policy for loss of your income at items 1, 2 or 24 on your tax return.
You cannot claim a deduction for a premium or any part of a premium which you paid under a policy to compensate you for such things as physical injury. Life insurance, trauma insurance and critical care insurance are some types of policies for which premiums are not deductible.
You cannot claim a deduction for a premium where the policy is taken out through your superannuation fund and the premiums are deducted from your superannuation contributions.
Net personal services income loss of a personal services entity that related to your personal services income
There are special rules for the income tax treatment of certain personal services income. Personal services income is income that is mainly a reward for your personal efforts or skills and is generally paid to you or to a personal services entity (being a company, partnership or trust).
Where the payment was made to a personal services entity and that entity incurred a personal services income loss relating to your personal services income, you can claim a deduction for that loss.
For more information about personal services income deductions, see Company, partnership or trust.
Section 40-880 deductions
This section allows you to claim a deduction for certain business-related capital expenditure over five income years or immediately in case of some start-up expenses.
Expenditure deductible over five income years
Claim a section 40-880 deduction at this item if:
- you incurred the relevant capital
- the expenditure relates to a business that was proposed at the time the expense was incurred
- the business commenced by 30 June 2020, and
- you are carrying on the business through a company or trust, or
- you incurred the relevant capital expense and the expenditure relates to a business which ceased in a previous income year and you carried on the business through a company or trust.
If you incurred relevant section 40-880 expenses in relation to a business which ceased in a previous income year and you carried on the business as a sole trader or through a partnership, claim the amount at item P8 Business income and expenses on the Business and professional items schedule for individuals 2020. If this applies to you, then you should lodge your tax return using myTax or a registered tax agent.
Certain start-up expenses
From 1 July 2015, section 40-880 of the ITAA 1997 allows a taxpayer who is not in business, or who is a small business entity, to immediately deduct certain start-up expenses relating to the structure or operation of a business that is proposed to be carried on.
Expenditure is fully deductible in the income year in which it is incurred if it:
- is incurred by you and you are a small business entity or you were not in business during the income year, and
- relates to a business that is proposed to be carried on, and
- is either
- incurred for advice or services relating to the structure or operation of the business, or
- paid to an Australian government agency in relation to setting up the business or establishing its operating structure.
If you incurred relevant section 40-880 expenses that do not qualify for immediate deduction and you had not commenced the business by 30 June 2020, your deduction for this amount will be deferred until the year in which the business activity commences. The deferred amount may be deducted in the income year in which the activity commences.
For more information about section 40-880 deductions, see Guide to depreciating assets 2020.