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
- 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 under section 40-880 of ITAA 1997 (five-year write-off for certain business-related capital expenditure) not claimed in full before your client ceased business or before they stopped carrying on the business as an individual (for example, if they started to carry on the business through a company or in a partnership)*
- certain start-up expenses deductible under section 40-880 of the ITAA 1997 that are immediately deductible if you are a small business entity or for a business that you propose to carry on
- a deduction for the net personal services income loss of a personal services entity that related to your client’s 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 that are deductible under section 70B of ITAA 1936; for more information, see the section on Sale or disposal of company bonds and convertible notes on page 15 of the ATO document You and your shares 2018 (NAT 2632)
- interest incurred on money borrowed to invest under the infrastructure borrowings scheme if your client intends to claim a tax offset at item T10 Other non-refundable tax offsets
- small business pool deductions for depreciating assets of your small business pool that you cannot claim at item P8 on the Business and professional items schedule for individuals because your client did not carry on a business in the income year; for more information, see Small business entity concessions
- self-education expenses your client incurred in doing a course to satisfy the study requirements of a taxable scholarship.*
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
Your client can claim the cost of any premiums they paid for insurance against the loss of their income. They must include any payment they received under the policy for loss of income at items 1, 2 or 24 on the tax return.
Note that they cannot claim a deduction for a premium or any part of a premium which they paid under a policy to compensate them 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.
Also note that they cannot claim a deduction for a premium where the policy is taken out through their superannuation fund and the premiums are deducted from their superannuation contributions.
Section 40-880 deductions
This section allows your client to claim a deduction for certain business-related capital expenditure over five income years.
Claim a section 40-880 deduction at this item if:
- your client incurred the relevant capital expense and
- the expenditure relates to a business that was proposed at the time the expense was incurred
- the business commenced before 30 June 2017, and
- they are carrying on the business through a company or trust, or
- they incurred the relevant capital expense and the expenditure relates to a business which ceased in a previous income year and they carried on the business through a company or trust.
If they incurred relevant section 40-880 expenses in relation to a business which ceased in a previous income year and they carried on the business as a sole trader or through a partnership, claim the amount at item P8 on the Business and professional items schedule for individuals 2018.
If they incurred relevant section 40-880 expenses that do not qualify for immediate deduction and they had not commenced the business by 30 June 2017, the 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 the Guide to depreciating assets 2018 (NAT 1996).
Net personal services income loss of a personal services entity that related to 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 personal efforts or skills and is generally paid to the individual 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 client’s personal services income, they can claim a deduction for that loss.
Self-education expenses related to satisfying the study requirements of a taxable scholarship
Your client may claim at D15 expenses they incurred in meeting the study requirements of a taxable scholarship. However do not claim these expenses here if they were an employee of the provider; claim them at D4 Work-related self-education expenses.
Examples of expenses your client can claim are textbooks, stationery, student union fees, student services and amenities fees, the decline in value of your computer and certain course fees.
Note that they cannot claim a deduction for travel from their home to their normal place of education and back.
For more information go to the Self-education expenses calculator. The words “Scholarship expenses” can be used if a “Description of claim” is required.