Foundations of Taxation Law

To arrive at their taxable income for an income year, taxpayers subtract their deductions from their assessable income. Most deductions fall within the general deduction provision in s 8-1 ITAA97. Section 8-1 replaces former s 51(1) ITAA36, which was drafted in similar terms, but was rewritten in 1997 as a consequence of the TLIP rewrite. This chapter examines the general deduction provision and the extensive body of case law that has considered it. Section 8-1 has two positive limbs and four negative limbs. This chapter commences with a discussion of the nature of a loss or outgoing followed by a detailed discussion of the positive and negative limbs of s 8-1. The meaning of the term ‘incurred’ and issues relating to the timing of deductions are examined. The chapter then builds on this framework to explore how the general deduction provision has been applied to some common kinds of losses and outgoings. It focuses on clothing, travel, management, self-education, home office, rent and licence fees, interest, legal and trade-tie expenses.