### What this Ruling is about

**Class of person/arrangement
**

1. This Ruling considers the deductibility of interest incurred by borrowers on moneys drawn down under line of credit facilities and moneys redrawn under other loans offering redraw facilities.  It considers the operation of section 8-1 of the *Income Tax Assessment Act 1997* ('ITAA 1997') (formerly subsection 51(1) of the *Income Tax Assessment Act 1936* ('ITAA 1936'))
**where the borrowed money has been applied for both income producing and non-income producing purposes.
**

2. The cases cited in this Ruling that consider deductibility under subsection 51(1) of the ITAA 1936 have equal application to section 8-1 of the ITAA 1997.  All references to subsection 51(1) should be taken as including a reference to section 8-1, and vice versa.

3. This Ruling applies only to line of credit facilities as described in paragraphs 4 to 8 below and redraw facilities as described in paragraphs 8 to 11 below.  This Ruling does not deal with facilities that permit the capitalisation of interest or the applicability of the 'refinancing principle' for funds borrowed by business partnerships as discussed in Taxation Ruling TR 95/25.

**
***Line of credit facilities*
**
**

4. A line of credit facility is a credit facility taken out with a financial institution under which a borrower may draw down funds up to an agreed credit limit.  There are a number of different facilities available.  There may be one or more loan contracts and one or more borrowers.  The line of credit may be fully drawn, i.e., the taxpayer borrows up to the credit limit, or partly drawn, i.e., the taxpayer draws only some of the funds leaving credit available to be utilised at a later date.  If the facility is fully drawn the taxpayer can only draw further funds if payments in excess of interest, fees and charges are made into the facility.  Where the facility is partly drawn the taxpayer can draw down further funds up to the credit limit without making repayments of principal.

5. The facility may operate with one account that is used for all draw downs.  Funds may be drawn down from a single line of credit account up to the full amount of the available credit limit and may be used for either income producing or non-income producing purposes or both.

6. Alternatively, the facility may be divided into a number of sub-accounts by agreement between the lender and the borrower.  Some financial institutions allow the sub-accounts to be held by different borrowers.  Some sub-accounts may be used for  income producing purposes ('investment sub-account') and others may be used for non-income producing purposes ('private sub-account').  Some sub-accounts may be used for mixed income producing and non-income producing purposes ('
**mixed purpose sub-account
**').  Funds may be drawn down from each sub-account up to an allocated portion of the overall credit limit.

7. While the focus of this ruling is on mixed purpose sub-accounts, the same principles apply to single line of credit accounts used for mixed purposes.

8. In most cases, the lender requires the borrower to make a minimum monthly payment equal to the interest, fees and charges that have accrued on the facility.  A payment into that facility in excess of the interest, fees and charges, is a repayment of principal.  Under these facilities, the borrower is able to make payments to reduce the amount owing under the line of credit account or sub-account at any time.  Any payments over and above the required minimum payments for interest, fees and charges increase the funds available to the borrower to draw down, subject to the agreed credit limit for that account or sub-account.  Where a taxpayer makes a payment over and above the required minimum payment, the taxpayer can direct this payment to be allocated to a particular sub-account.

**
***Redraw facilities*
**
**

9. There are a number of loan arrangements under which a borrower may redraw previous repayments of the loan principal.  There may be one or more loan contracts and one or more borrowers.  The loan may be for income producing purposes, non-income producing purposes or mixed purposes.  The lender prescribes a minimum payment that is due on the loan.  This minimum payment is at least equal to the amount of interest, fees and charges that accrues on the loan, but more commonly is a principal and interest payment.

10. The redraw facility allows the borrower to make payments over and above the minimum payments required under the loan agreement, and then permits the borrower to redraw an amount equivalent to those payments in excess of interest, fees and charges at a later time.  Those payments in excess of interest, fees and charges reduce the borrower's outstanding loan debt and money redrawn increases the outstanding loan debt.

11. A taxpayer may use the money redrawn for income producing purposes, non-income producing purposes or mixed purposes regardless of the use of the original borrowed funds.  In some cases the consent of the lender is required to redraw funds and the redraw may be subject to other conditions affecting the amount and frequency of redraws.  Redraws may also be subject to the consent of the loan guarantors.

### Ruling

**Line of credit facilities
**

12.  Where a line of credit facility is divided into sub-accounts and each sub-account is used for a specific purpose, interest is fully deductible where funds drawn down on an investment sub-account continue to be used exclusively for an income producing purpose.  Interest is not deductible where funds drawn down on a private sub-account are used for a non-income producing purpose.

13.  Where interest accrues periodically on the outstanding balance of a
**mixed purpose line of credit sub-account
**, the deductibility of accrued interest is determined by considering the application of the borrowed funds for income producing and non-income producing purposes.  The original application of the borrowed funds will not determine deductibility where funds borrowed under a line of credit facility have been recouped or withdrawn from the original use and are reapplied to a new use, e.g., upon sale of an asset purchased with borrowed funds.

14.  Where borrowed money applied to a particular use is recouped and redirected to another use, it is necessary to examine that new application of those borrowed funds in considering the deductibility of interest.  Where there are changes in the use of money borrowed under a line of credit facility, or in the amount of borrowed money used for a particular purpose, the deductibility of the interest accrued on that part of the outstanding debt will be determined by considering the advantages sought from that new application of those funds.  Interest will be deductible under section 8-1 to the extent that it is incurred on that part of the outstanding borrowed money used at that time for an income producing purpose.

15.  Where a taxpayer has a mixed purpose sub-account, the interest needs to be apportioned between the income producing and non-income producing purposes.  Apportionment must be made on a fair and reasonable basis.  One approach that we accept as fair and reasonable in relation to the apportionment of interest that has accrued on a daily basis on a mixed purpose account is set out in the following paragraphs.  We accept that this approach to apportionment is not the only approach that is fair and reasonable.

16. Where interest accrues daily under a mixed purpose sub-account, a taxpayer is entitled to a deduction in respect of that part of the interest that has accrued on the portion of the outstanding daily loan balance attributable to an income producing purpose.  In calculating the portion of the outstanding daily loan balance attributable to an income producing purpose, any repayment of principal is applied proportionately against the outstanding balance of amounts applied to income producing and non-income producing purposes respectively, at the time the repayment is made.  However, there are two exceptions.

***First Exception - Borrowed money recouped and repaid*
**

17.  Where money borrowed and applied to a particular use (the 'relevant use') is recouped in whole or in part, in the sense that the amount or some part of it is recovered ( e.g., on the sale of an asset purchased with borrowed funds) that part of the outstanding balance of the mixed purpose line of credit debt which had been applied to the relevant use can no longer be regarded as continuing to be applied to that use.  Where borrowed funds recouped are repaid to the mixed purpose sub-account in reduction of the outstanding balance, those funds have ceased to be outstanding funds used for any purpose.  The effect of the repayment of the recouped funds to the mixed purpose sub-account is to reduce only that part of the outstanding line of credit debt applied to the previous use of those funds.  The use of the balance of borrowed funds still outstanding is unaffected by the recoupment and repayment in these circumstances unless the amount of the sale proceeds paid into the mixed purpose sub-account exceeds the amount drawn down and applied to the relevant use (the 'relevant debt portion').  This would occur, for example, where the asset is sold at a profit and part or all of the recouped borrowed funds and profit are paid into the mixed purpose sub-account.  To the extent that the payment exceeds the relevant debt portion, such excess amount (i.e., the profit component) will be taken to have reduced prorata the amounts borrowed and applied to uses other than the relevant use.

***Second Exception - Refinancing mixed purpose debt*
**

18. A taxpayer may choose to refinance a debt outstanding on a mixed purpose sub-account by borrowing an equivalent amount under two separate accounts or sub-accounts.  If the sums borrowed under those two separate accounts are equivalent to the respective income producing and non-income producing parts of the existing outstanding debt, we accept that interest accrued on the debt incurred in refinancing the income producing portion of the mixed purpose debt will be deductible.

***Apportionment calculations*
**

19.  Where interest on borrowed money accrues daily, we accept that it would be unnecessarily onerous to require a manual daily apportionment calculation.  We accept that the interest accrued in a month is deductible under section 8-1 where it is calculated using an apportionment approach based on the average outstanding principal used that month for income producing purposes.  The deductible portion of interest accruing in each month is calculated as follows:

`total interest accrued for the month  *  deductible interest percentage figure
`

20.  The deductible interest percentage figure is calculated as follows:

`((A + B) / (C + D))  *  100

`

`
`

`where`

`

A  =  opening balance (beginning of month) of outstanding principal used for income producing purposes;

B  =  closing balance (end of month) of outstanding principal used for income producing purposes;

C  =  opening balance of total outstanding principal;

D  =  closing balance of total outstanding principal;

Note:  the closing balance for one month is the opening balance for the next month.`

21.  Where a taxpayer makes repayments over and above the required minimum payment and the line of credit facility comprises one mixed purpose sub-account only, the taxpayer cannot choose to notionally allocate the repayments to a particular portion of the total debt, e.g., the non-income producing portion.

**Redraw facilities
**

22.  The deductibility of interest on a further borrowing of money under a redraw facility depends upon the use to which the redrawn funds are put.

23.  Where the original borrowing is for non-income producing purposes and the taxpayer uses the redrawn funds wholly or partly for income producing purposes, that part of the accrued interest attributable to the redrawn funds used for income producing purposes is deductible.

24.  Similarly, where the original borrowing is for income producing purposes and the taxpayer uses the redrawn funds wholly or partly for non-income producing purposes, that part of the accrued interest attributable to the redrawn funds used for non-income producing purposes is not deductible.

25.  Where a taxpayer uses redrawn funds for a different purpose to the original borrowing in circumstances described in paragraphs 23 or 24, the loan account becomes a mixed purpose account and the same principles discussed above in relation to mixed purpose line of credit sub-accounts will apply to the mixed purpose loan account.  There is an ongoing need to apportion interest on a mixed purpose loan account.  That apportionment needs to be made on a fair and reasonable basis.  Subsequent repayments are apportioned between the outstanding debt used at that time for income producing and non-income producing purposes.  However, the two exceptions for borrowed money recouped and repaid and for the refinancing of a mixed purpose debt, discussed above at paragraphs 17 and 18 in relation to mixed purpose line of credit sub-accounts, are equally applicable to mixed purpose loan accounts.

### Date of effect

26.  This Ruling applies to years commencing both before and after its date of issue.  However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

### Explanations

27.  The nature of an interest expense was recently considered by the Full High Court in *Steele v. DC of T*  99 ATC 4242; 41 ATR 139.  The Court said, at 99 ATC 4242 at 4248;  (1999) 41 ATR 139 at 148, that:

>  '... interest is ordinarily a recurrent or periodic payment which secures, not an enduring advantage, but, rather, the use of borrowed money during the term of the loan.  According to the criteria noted by Dixon J in Sun Newspapers Ltd and Associated Newspapers Ltd v FC of T it is therefore ordinarily a revenue item.'
>

28.  Although interest is ordinarily a revenue expense, it will only be deductible under subsection 8-1 if the expense can be characterised as an outgoing that is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income and must not otherwise be excluded from being deductible, e.g. an outgoing of a private or domestic nature.

29.  The character of interest is determined by the purpose of the borrowing.  Generally, the purpose of a borrowing can be determined from the use of borrowed funds and outgoings of interest ordinarily draw their character from that use (see *Fletcher & Ors v. FC of T*  91 ATC 4950; (1991) 22 ATR 613).  It is recognised that it may be appropriate to distinguish between the purpose of the taxpayer in borrowing the money and the use to which the borrowed funds are put in an appropriate case (see *Steele v. DC of T*  99 ATC 4242, at 4251;  (1999) 41 ATR 139, at 150).

30.  The term 'use' in this context does not necessarily require a strict tracing approach to the application of the borrowed money (see *FC of T v. JD Roberts; FC of T v. Smith*  92 ATC 4380; (1992) 23 ATR 494).  Rather, the characterisation of interest on borrowed money (and the purpose of the borrowing) is ascertained by reference to the advantages sought from the use of the borrowed funds.  In *Kidston Goldmines Ltd v. FC of T*  91 ATC 4538 at 4545-6; (1991) 22 ATR 168 at 176-7, Hill J. stated:

> 'In most cases, the purpose of the borrowing will be ascertained from the use to which the borrowed funds were put...
>

> To be deductible the outgoing, or in a case of apportionment a part of an indivisible outgoing, must be seen to be incidental and relevant to the activity which is directed to the gaining or production of assessable income.  In the normal case, the fact that funds borrowed have been borrowed for the purpose of that activity and can still, in the year of income in which the deduction is claimed, be seen as having that purpose, will lead readily to the conclusion that the interest will be incidental and relevant to the income producing activity.  Again, in the usual case the application of funds for an income producing purpose will demonstrate the relevant connection between the outgoing and the income producing activity.  Indeed there is much to be said for the view that the tests of purpose and application of funds are but two sides of the one matter.'
>

31.  However, the original purpose of the borrowing and use of the borrowed funds will not always determine the deductibility of interest.  Where borrowed money has been used to purchase an income producing asset and that asset subsequently has been sold, the original use of that money will not necessarily determine the character of the interest expense accruing on those borrowed funds.  In such a case the question of the deductibility of interest '... must be resolved by determining whether the essential character of the interest outgoings after the sale ... was such that it can be said that those outgoings were incurred by the respondent in the course of the gaining or production of assessable income or, having regard to the business then carried on by it, they were necessarily incurred by the respondent in carrying on that business.'  (F.C. of T. v. Riverside Road Pty. Ltd. (in liq.) 90 ATC 4567 at 4576; 21 ATR 499 at 509).

32.  In some circumstances, for example where the loan contract imposes a continuing obligation to pay interest for a specified period, the sale of income producing assets purchased with those borrowed funds may not necessarily result in the immediate cessation of the relevant connection with the income earning activity.  For example, in *Riverside Road* the Full Federal Court held at 90 ATC 4567 at 4576; (1990) 21 ATR 499 at 509 that:

> 'It seems to us that it does not follow from *De Bavay's* case... that the mere fact that the land and buildings were sold necessarily results in the conclusion that as and from the date of sale the whole of the interest incurred was not deductible.  The respondent, pursuant to the contractual arrangements it had entered into, was obliged ... to pay interest until 1 May 1979.  Had it sought to discharge its obligation to the mortgagee, it could have been required to pay interest to this date.'
>

33.  In the circumstances of that case, the contractual obligation to pay interest for a fixed period meant that the sale of the assets did not alter the essential character of the interest payments incurred until that loan was discharged.

34.  The deductibility of interest under the loan agreement considered by the Court in *Riverside Road* is distinguishable from the deductibility of interest under a line of credit facility.  The observations of the Full Federal Court in *FC of T v. Brown* 99 ATC 4600 at 4608; (1999) 43 ATR 1 at 10 provide support for this view.  The Full Federal Court stated at 99 ATC 4608; 43 ATR 10 that:

> 'Had the loan agreement in question been a "roll over" business loan facility which entitled the taxpayer conducting the business, on the date of each monthly payment, to elect to repay the principal and thereby avoid incurring liability for interest or to "roll over" the loan and continue to be liable for interest, that may have been a different situation.  In that circumstance there may be considerable force in the contention that the *occasion* of the liability was the election to "roll over" the loan on each monthly payment date, rather than any liability arising under the terms of the original loan agreement establishing the terms of the "roll over" facility.  In such a case the cessation of business or sale of the income-producing asset acquired with the borrowed funds might properly be regarded as breaking the nexus in much the same way as certain post cessation interest payments were not allowed in *Riverside Road*.'
>

35.  While the Full Federal Court did not express a concluded view on this issue, their comments suggest that in determining the deductibility of interest under a 'roll over' debt facility, the 'occasion' of the liability to pay interest was to be found in the circumstances concurrent with the accrual of the liability to pay interest which arose on each recurring monthly interest date.

36.  We believe the same principle will apply to a line of credit facility where interest accrues daily and the outstanding debt can be repaid at any time.  The obligation to pay interest under the terms of, and for the period of, the original borrowing can not be regarded as the 'occasion' of the interest liability which accrues in a subsequent period after a taxpayer has made an election not to repay the outstanding principal under a line of credit facility.  A line of credit debt has a continuing opportunity for repayment which distinguishes it from the type of loan debt considered in *Brown*.

37.  Where the funds borrowed under a line of credit remain outstanding, we believe the deductibility of interest is to be determined by considering the ongoing application of those borrowed funds.  Interest is considered to be the cost of retaining the use of the outstanding line of credit funds in the period in which that interest accrues.  Where borrowed funds are recouped from the sale of an income producing asset purchased with that money, the connection between the interest expense and the income producing use of that asset will be broken when the asset is sold.  Interest on those borrowed funds will only be deductible after that time if it can be established that the accrued interest continues to be incurred in the course of deriving assessable income or in carrying on a business.  For this to be the case under a line of credit, there would need to be a sufficient connection between the accrual of interest in a period and any new application for income producing purposes of those recouped borrowed funds.  Deductibility of interest on those borrowed funds will be determined by a consideration of the advantages sought from that new use to which those funds are redirected.

38.  Taxation Ruling TR 95/25 also outlines some general principles governing deductibility of interest.

**Further borrowings
**

39.  Where a loan facility allows for redraws of extra repayments, we consider those redraws constitute new borrowings of funds that cannot be traced to the extra repayments.  In this regard the term 'redraw' is a misnomer.  It is in effect a new borrowing of funds.  Similarly, a draw down on a line of credit that has not been fully drawn is a new borrowing of funds.

40.  In our view, it is not correct to characterise the reduced loan balance as comprising the previous loan balance with a notional offset credit available in respect of extra repayments as if those extra repayments were standing to the credit of the borrower in a separate account in the books of the lender.  The extra repayments do not create a debt due by the lender to the borrower.  Those funds used to make extra repayments simply cease to exist as an asset of the borrower after being used to discharge part of the loan debt.  In our view, the redraw facility does not involve separate loan and deposit accounts of the type discussed in paragraphs 6 to 8 of TR 93/6.

41.  In the case of a repayment of principal on a line of credit, the borrower acquires a contractual right to borrow a further amount equal to the difference between the reduced drawn-down amount and the available credit limit.  That right to borrow further funds is a contractual right under the loan agreement permitting the borrower to draw down funds up to the agreed credit limit.  The available credit is not an asset of the borrower and the available credit limit can be varied by the lender upon review.

42.  Similarly, under a redraw facility, the loan agreement gives the borrower the right, subject to restrictions in some cases, to borrow a further amount up to the balance of the loan debt that would have been outstanding if the minimum loan repayments required under the loan agreement had been made.  The extra repayments do not create a debt payable by the lender to the borrower and are not an asset of the borrower after they have been used to discharge part of the loan debt.

43.  We consider a draw-down from a line of credit account or sub-account, or a redraw from a loan account, is a separate borrowing.  Therefore, the deductibility of the interest on that separate borrowing depends on whether the interest is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.  To the extent borrowings are used for income producing purposes, that part of the accrued interest attributable to those borrowings is deductible.  Conversely, that part of the accrued interest attributable to borrowings used for non-income producing purposes is not deductible.

44. The balance outstanding on a mixed purpose line of credit sub-account or a mixed purpose loan account is an undivided single debt owed by the borrower to the lender.  When repayments of principal are made, it is not considered possible to direct those payments to only that part of the borrowed funds used for a particular purpose as if it were a separate debt.  While it may be possible to trace the uses to which different parts of the borrowed funds are put, it is considered repayments of principal need to be applied proportionately to reduce the balance of the outstanding principal attributable to income producing use and non-income producing use respectively, e.g.,  if 70% of an outstanding line of credit sub-account debt is used for income producing purposes, 70% of any repayment would be in respect of that part of the outstanding debt.  However, there are two exceptions.

***First Exception - Borrowed money recouped and repaid*
**

45. Where money borrowed and applied to a particular use is recouped, e.g., on the sale of an asset purchased with borrowed funds, that part of the outstanding balance of the mixed purpose debt can no longer be regarded as applied to that use.  Where the borrowed funds recouped are paid into the mixed purpose account or sub-account, those funds have ceased to be outstanding funds used for any purpose.  The effect of the repayment of the recouped funds to the mixed purpose sub-account is to reduce only that part of the outstanding line of credit debt applied to the previous use of those funds.
**Example four, at paragraph 66 of this ruling, outlines the practical application of these principles.
**

***Second Exception - Refinancing mixed purpose debt*
**

46.  A taxpayer may choose to refinance a mixed purpose debt by borrowing an equivalent amount under two separate accounts or sub-accounts.  Where a mixed purpose line of credit sub-account debt is replaced by two new debts and the advantage sought by these borrowings is the refinancing of the respective parts of the previous debt used at that time for income producing and non-income producing purposes, we consider that a strict tracing approach is not appropriate.  It is relevant to bear in mind the comments of Dixon CJ.  in *Hallstroms Pty. Ltd. v. FC of T*  (1946) 72 CLR 634, cited with approval by  Hill J in *FC of T v. JD Roberts; FC of T v. Smith* 92 ATC 4380, at 4391; (1992) 23 ATR 494, at 507, that the question of characterisation depends on:

> '... what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of legal rights...'
>

47. The sole purpose of the borrowing used to refinance money used at that time for income producing purposes is to continue to have the use of those funds for income producing purposes.  Similarly, the sole purpose of the borrowing used to refinance money used at that time for non-income producing purposes is to continue to have the use of those funds for non-income producing purposes.  Therefore, we accept that interest accrued on the debt incurred in refinancing the income related portion of the previous mixed purpose debt will be deductible.

### Alternative views

48.  It has been suggested that if funds were originally borrowed for income producing purposes and there is no requirement to repay those funds, the occasion of the interest liability remains the income producing activities of the taxpayer.  The decision in *FC of T v. Brown* 99 ATC 4600; 43 ATR 1 is cited in support of this proposition.  However, the comments made in that case in relation to 'roll over' loan facilities support our view of the law outlined above.

49.  It has also been suggested that funds withdrawn from a loan account or a line of credit account which can be attributed to the extra repayments made, simply represent a withdrawal of funds temporarily 'parked in the loan'.  This view depends upon a characterisation of the extra repayments as effectively remaining an asset of the borrower, available to the borrower by virtue of the contractual right to redraw them.  As discussed above, we believe this view is not correct.  The extra repayments have been used to discharge part of the loan or line of credit debt and the subsequent redraw or draw down is funded by a subsequent increasing of the loan or line of credit debt.  In our view, the redraw or draw down is a new borrowing of money.  The deductibility of the interest payable on those new borrowings depends upon the advantages sought from the use of those funds.

50.  It has been further suggested that the taxpayer can allocate a repayment to that portion of borrowed moneys used for a particular purpose.  The decision in *FC of T v. Carberry* 88 ATC 5005; (1988) 20 ATR 151, is cited in support of this view.  In *Carberry* a husband and wife borrowed money to acquire undivided real estate comprising a private residence and a kindergarten business and premises.  The taxpayers  applied the proceeds of sale of a previous private residence towards the purchase of the new property.  The proceeds from the sale of the previous residence exceeded the cost attributable to the purchase of the new residence.  In the circumstances, the Administrative Appeals Tribunal held at first instance that the whole of the funds borrowed to finance the acquisition of the property was used by the partnership to purchase the kindergarten.

51.  The decision in *Carberry* is relevant to establishing the original use of the borrowed funds.  On the facts of that case it was open to the tribunal to conclude that the whole of the borrowed funds were applied to an income producing use.  In reaching this conclusion, the Tribunal did not apply a strict tracing approach to the borrowed funds.  However, as recognised by Davies J in that case on appeal to the Federal Court, an apportionment of interest would have been required if the Tribunal had found as a matter of fact that the borrowed funds had been applied to both income producing and private purposes.

52.  The decision in *Carberry* is not inconsistent with the basis of apportionment outlined in this ruling in relation to cases involving borrowed funds applied to both income producing and non-income producing purposes.


## Value of home when first used to produce income

If you use your home to produce income you are generally taken to have acquired it at the time you first used it for this purpose.

This means when you sell your home, you work out the capital gain or loss using its market value at the time you first used it to produce income.

This is called the 'home first used to produce income rule'.

If you sell your home within 12 months of when you first use it to produce income, you can’t use the CGT discount.

### Market valuation

You must get a [market valuation](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/market-valuation-of-assets) of your home when you first start using it for rental or business, if this was after 20 August 1996.

You need to know this value to calculate your capital gain or loss when you sell it.

### Exclusions

If you:

- use your home to produce income from the time you acquire it, the rule doesn’t affect you – for an example, see [Rental property becomes your main residence](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/using-your-home-for-rental-or-business#Rentalproperty)
-
[inherit a dwelling](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/inherited-assets-and-capital-gains-tax/inherited-property-and-cgt) that was a deceased’s main residence – the rule doesn’t apply if you sell the dwelling within 2 years
- choose to [continue treating a property as your main residence after you move out](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/treating-former-home-as-main-residence) – if the property is fully exempt, the rule doesn’t apply.


# Who can access their super early

There are eligibility rules you need to meet to access your super early.

## on this page

- [If you’re in severe financial hardship](https://www.servicesaustralia.gov.au/who-can-access-their-superannuation-early?context=21971#sevfinhardship)
- [If you’re over preservation age and retired](https://www.servicesaustralia.gov.au/who-can-access-their-superannuation-early?context=21971#a2)

You normally can’t get your super until you reach your preservation age and retire. Preservation age is usually between 55 and 60, depending on your birth year. You can read about when you can [withdraw and use your super](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super) on the Australian Taxation Office (ATO) website.

In some cases, you may be able to get some of your super early. You’ll need to meet one of the following eligibility requirements:

- be in [severe financial hardship](https://www.servicesaustralia.gov.au/who-can-access-their-superannuation-early?context=21971#sevfinhardship)
- have a terminal illness
- be a temporary resident
- have less than $200 in your super fund
- meet compassionate grounds.

Read full details about [early access to super](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super) on the ATO website.

## If you’re in severe financial hardship

Your super fund will decide if you can access your super early because of severe financial hardship. We don’t decide if you can access your super early or if you’re in severe financial hardship.

Your super fund assesses your application for an early release of super due to financial hardship according to the rules in the *Superannuation Industry (Supervision) Regulations 1994*. Decisions aren’t made under the Social Security Act (SSA) which means we can’t review or change a decision your super fund makes.

According to the *Superannuation Industry (Supervision) Regulations 1994* you’re considered to be in severe financial hardship if:

- you’re unable to pay for reasonable and immediate essential family living costs
- you’ve been getting an eligible income support payment from us for 26 weeks continuously with no gaps
- you’re getting an eligible income support payment on the day you apply for an early release of super.

Read more about the [*Superannuation Industry (Supervision) Regulations 1994*](https://www.legislation.gov.au/details/f2022c00954) on the Federal Register of Legislation website.

There are different rules if you’re over preservation age and haven’t retired. You must meet all of the following:

- you’ve reached your preservation age plus 39 weeks
- you get an income support payment for at least 39 weeks in total since you reached your preservation age.
- you’ll still be out of retirement, which means you’re looking for work, studying, working full or part time.

Your super fund may also consider other factors when making their decision. You should ask them what their eligibility requirements are.

## If you’re over preservation age and retired

If you’re over your preservation age and retired, you can access your super under normal conditions. You should contact your super fund.

### Eligible payments

The Department of Treasury decides which [income support payments](https://www.servicesaustralia.gov.au/income-support-payment) allow you to apply for your super early. Most income support payments are eligible but there are some that aren’t.

### Payments that aren’t eligible

You can’t access your super early if you get one of these income support payments:

- ABSTUDY
- Austudy
- Youth Allowance as a full-time student.

#### Other reasons that can make you ineligible

Other things can make you unable to meet the income support requirements or reset your continuous period to zero. This can include any of these:

- you didn’t get any Centrelink payment in one or more fortnights in the last 26 weeks. This includes when you had a non-payment period because of non-compliance or no payment entitlement due to the earnings you declared being too high to receive any payment.
- your payment was suspended for 14 days or more
- you only get an allowance such as Family Tax Benefit or Carer Allowance
- you were in prison or went overseas and had a gap in your payment of 14 days or more
- you changed your income support payment type and had a gap of more than one day
- you weren’t getting an eligible income support payment at the time you submitted your application to your super fund
- you have a New Zealand non-protected Special Category Visa (SCV).


## What is a home-based business?

A home-based business is one where an area of your home is set aside and used exclusively as a place of business.

The types of expenses you can claim depend on how you operate your business out of your home and the business structure. You can only claim deductions for the business portion of your expenses.

If you do not have an area set aside and used exclusively as a place of business but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Be aware that you may have to pay [capital gains tax (CGT)](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/home-based-business-and-cgt-implications) when you sell your home if you used part of your home for business purposes – remember to keep the right records to work out your deductions for CGT. If you are eligible, you may be able to reduce your CGT by applying the small business CGT concessions.

Remember, if your business is entitled to goods and services tax (GST) input tax credits, you must claim the deduction in your income tax return at the GST exclusive amount.

## Home-based business expenses

If you operate some or all of your business from home, you may be able to claim tax deductions for the business portion of expenses.

These may include:

- running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
- occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
- the cost of [motor vehicle trips](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicle-expense-calculation-methods) between your home and other locations, if the travel is for business purposes.

For a summary of this content in poster format, download [Home-based business expenses (PDF, 284KB)](https://www.ato.gov.au/api/public/content/5a8421ea864d4b0fb699f625f4fdefeb?v=5e7436ed).

**Media:** Claiming deductions home-based business expenses

[https://tv.ato.gov.au/ato-tv/media?v=bi9or7od7bgywiExternal Link](https://tv.ato.gov.au/ato-tv/media?v=bi9or7od7bgywi) (**Duration:** 01:09)

## Running expenses

Running expenses are the increased costs from using your home’s facilities for your business.

You can claim running expenses if you run your business from home, such as in a separate study or a desk in a lounge room, even if it doesn’t have the character of a ‘place of business’.

### Calculating your claim

There are several ways to work out your running expenses. You can use any method to calculate your running expenses, provided:

- it is reasonable in your circumstances
- you exclude your normal (private) living costs
- you have records to show how you calculated the business expense.

#### Actual cost method:

- where you can only claim based on receipts or other written evidence.

#### Fixed rate method:

- allows you to claim 70 cents for each hour you operate your business at home. This amount covers your deduction for energy expenses (electricity and gas), phone and internet usage, stationery, and computer consumables.

To use this method, you must keep a record of all the hours worked from home for the entire year, using a diary, spreadsheet, or similar document.

You can also claim a deduction for any other running expenses not covered by the rate, for example, cleaning your home office.

#### Floor area method:

- you can use the floor area method if you have an area of your home set aside as a 'place of business'. In addition to the floor area method, you can also claim a deduction for decline in value of the business-related portion of depreciating assets and equipment.

For more information, see [Home-based business expenses – sole trader or partnership](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/home-based-business-expenses-sole-trader-or-partnership#ato-Runningexpenses).

## Depreciation (decline in value) of business assets

If you use the 70 cents an hour fixed rate method, you can separately claim a deduction for the decline in value of depreciating assets, such as laptops, mobile phones and office furniture.

If you use assets for both personal and business use, you need to apportion your business deprecation expenses from personal based on your pattern of use.

If you have an aggregated turnover of less than $10 million, you can choose to use the simplified depreciation rules. You may also be eligible for the $20,000 [instant asset write-off](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/instant-asset-write-off) in the 2023–24 and 2024–25 income year. Find out more at [Simpler depreciation rules for small business](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business).

## Occupancy expenses

Occupancy expenses are expenses that you pay to own or rent your home.

You can only claim occupancy expenses if the area of your house set aside for your business has the character of a ‘place of business’ (including if most of your business is conducted online). Indicators that the area of your home that you’ve set aside is a place of business include:

- clearly identifiable as a place of business (such as a sign at the front of your house)
- not easily suitable or adaptable for private or domestic use
- used exclusively or almost exclusively for your business
- used regularly for business visits by your clients.

If you’re eligible to claim occupancy expenses, you can also claim running expenses.

You usually calculate occupancy expenses based on the proportion of the floor area of your home that is a place of business and the proportion of the year it was used for business.

If you earn personal services income (PSI), you may not be able to deduct some occupancy expenses. To find out more, see [Personal services income (PSI)](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income).

For more information, see [Home-based business expenses – sole trader or partnership](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/home-based-business-expenses-sole-trader-or-partnership#ato-Occupancyexpenses).

## Records you need to keep

You need to keep [complete and accurate records](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/record-keeping-for-business/index-record-keeping-for-business) for at least 5 years to substantiate your claims for all of your home-based business expenses.


## How to report back payments

Sometimes there may have been an oversight or delay and you need to make a back payment to an employee. As back payments are not a single type of payment, there is no single way to report them through single touch payroll (STP). Instead, you need to consider the circumstances of the back payment.

In some cases, the back payment you are making may be a [lump sum E](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/reporting-back-payments#LumpsumE) payment. This is a separately reported payment type for STP.

If you are making a back payment to an employee and it is not lump sum E, then report it in STP as the relevant payment type (such as gross, allowances or overtime).

## Lump sum E

Lump sum E is an amount of back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment.

Prior to 1 July 2025, you must report a back payment as **Lump sum E** if the amount was equal to or greater than the lump sum E threshold amount of $1,200.

Post 1 July 2025, the $1,200 threshold no longer applies. Any amount that qualifies as a lump sum E payment must be reported as **Lump sum E**.

Your payroll solution may report lump sum E:

- in each STP report, or
- only when you finalise your reporting at the end of the financial year.

Both ways are acceptable.

You must report lump sum E year-to-date (YTD) amounts by specifying each prior financial year to which the amount relates.

When you report lump sum E payments, you no longer need to issue a lump sum E letter to employees at the end of the financial year. This information will now be available on their income statement.

## Lump sum E reporting examples

The following table outlines some examples of what should and shouldn't be included in **Lump sum** **E**.

Lump sum E reporting examples

Include

Don't include

For payments made prior to 1 July 2025:

- back payments which accrued, or were payable, more than 12 months before the date of payment and are equal or greater than the lump sum E $1,200 threshold.

For payments made post 1 July 2025:

- back payments which accrued, or were payable, more than 12 months before the date of payment regardless of the amount.

For more information, see [Reporting the amounts you have paid](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid).

### Example: lump sum E reporting paid prior to 1 July 2025

Ross' employer identified on 15 February 2022 that Ross has not been paid his higher duties allowance for the past 22 months totalling $3,300, due to an administration error. Using the normal ATO backpay rules, the pay office has split the payment into the following categories:

- The past 12 months of backpay (15 February 2021 to 15 February 2022) totals $1,800. This is taxed and reported in the current financial year. As the backpay is for an allowance, it will be reported in the appropriate allowance field.
- The amount that is greater than 12 months old (14 February 2021 and earlier) totals $1,500 which means it must be reported as lump sum E because it is greater than the lump sum E threshold of $1,200. The lump sum E component must be allocated to the appropriate financial year. $600 relates to the 2020–21 financial year and $900 relates to the 2019–20 financial year.

This is reported in STP Phase 2 as follows:

- KN tasks $1,800
- Lump sum E 2021 $600
- Lump sum E 2020 $900.

Ross’ employer does not need to provide him with a letter as the lump sum E amounts have been allocated to the appropriate financial years in the STP report.

End of example

### Example: lump sum E reporting paid post 1 July 2025

Brett’s employer identifies on 7 October 2025 that Brett has not claimed his cents per kilometre allowance for the first quarter of the prior financial year (1 July 2024 to 30 September 2024) due to a technical issue.

- At that time, the ATO reasonable rate that Brett’s employer used was 0.88c a km.
- Brett’s timesheet shows that he travelled 583 km.
- The payment was accrued more than 12 months prior to the date Brett's employer was going to pay him his backpay.

Because the back payment is being made after 1 July 2025, the lump sum E threshold of $1,200 does not apply and the payment must be reported as Lump sum E. The amount of 0.88 × 583 = $513.04 is reported in STP Phase 2 as follows:

- lump sum E 2024 $513.04.

Brett’s employer does not need to provide him with a letter as the lump sum E amounts as they have included the amount per the relevant financial year in their STP reporting.


## When to use market value

If you sell, transfer or gift property to family or friends for less than it is worth, you’ll be treated as if you received the market value of the property for capital gains tax (CGT) purposes.

You use the market value of a property to calculate your CGT if both of the following are true:

- what you received was more or less than the market value of the property
- you and the new owner were not dealing with each other at arm's length.

This is called the 'market value substitution' rule.

You are dealing at 'arm’s length' with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction.

We look at the relationship between the parties and the quality of the bargaining between them.

If the property was your main residence, you can claim the [main residence exemption](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/eligibility-for-main-residence-exemption) from CGT.

### Exceptions

There are 2 exceptions to the market value substitution rule. If you transfer property to:

- your former spouse on the [breakdown of your marriage or relationship](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/relationship-breakdown-and-capital-gains-tax), the rule may not apply
- the trustee of a special disability trust for no payment, you can disregard any capital gain or capital loss.

## Valuing your property

You need to know the [market value of the property](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/market-valuation-of-assets) at the time you disposed of it.

### Example: selling property for less than market value

Antoine owned a rental property. The lease on the property was about to end.

Antoine owed $120,000 on the mortgage. He offered to sell the property to his son for the balance owing on the mortgage. His son accepted the offer and purchased the property for $120,000.

Antoine obtained a market valuation from a professional valuer. The market valuation showed the value of the property at the time of transfer was $450,000.

When Antoine calculates his capital gain or loss, his capital proceeds are the market value of $450,000.


## How compulsory repayments work

Compulsory repayments of your study and training support loan are made through the income tax system.

You don't have to provide loan information in your tax return. If you have a loan when you lodge your tax return and your repayment income is above the minimum repayment threshold, we will work out your compulsory repayment and include it on your notice of assessment. This will occur even if your tax return is for an income year before you started studying.

Your compulsory repayment rate increases as your income increases. The more you earn, the higher your repayment. Your compulsory repayment is based on your income alone – not the income of your parents or spouse.

You won't have to make a compulsory repayment if you have a spouse or dependants and if (due to low family income) you:

- are entitled to a reduction of the Medicare levy
- don't have to pay the Medicare levy.

If you don't have to make a compulsory repayment, you may ask your employer not to withhold additional amounts from your pay by completing the *Medicare levy variation declaration* form (NAT 0929).

You can also make additional [voluntary repayments](https://www.ato.gov.au/individuals-and-families/study-and-training-support-loans/voluntary-repayments).

Ask a question or read answers to questions at our online community:

[ATO community](https://community.ato.gov.au/s/article/a079s0000009GnGAAU/paying-my-hecs-help-student-loan)
For more information see:

-
[Study and training loan repayment thresholds and rates](https://www.ato.gov.au/tax-rates-and-codes/study-and-training-support-loans-rates-and-repayment-thresholds)

-
[Medicare levy variation declaration](https://www.ato.gov.au/forms-and-instructions/medicare-levy-variation-declaration)

-
[Study and training loan repayment calculator](https://www.ato.gov.au/calculators-and-tools/study-and-training-loan-repayment-calculator)

##
[
]()Compulsory repayment changes

Change to compulsory repayments are now law. From the 2025–26 income year, you only need to make a compulsory repayment when your repayment income exceeds $67,000. Your compulsory repayment will only be calculated on the portion of your income that exceeds $67,000.

For more information, see [Study and training loans – what's new](https://www.ato.gov.au/individuals-and-families/study-and-training-support-loans/study-and-training-loans-what-s-new).

##
[
]()Advising your employer

You must advise your employer if you have a study or training support loan. Under the pay as you go (PAYG) withholding system, your employer will withhold an additional amount from your salary and wage income to cover your compulsory repayment.

Advise your employer by ticking the relevant box on one of the following forms that applies to your situation:

- If you're starting a new job, complete a *Tax file number declaration* (NAT 3092) and include your loan type when asked to do so.
- If you're already working and being paid, complete a *Withholding declaration* (NAT 3093) and include your loan type when asked to do so.
- When you pay off your loan in full, complete a new *Withholding declaration* (NAT 3093) to advise you no longer have an outstanding loan. Update your loan type when asked to do so.

These forms are usually given to you by your employer.

### Employer deductions showing on your account

When your employer withholds additional amounts to cover your anticipated compulsory repayment, these amounts are remitted to the ATO as part of the employer's PAYG withholding obligations.

The additional tax withheld is not applied to your loan account until:

- you have lodged your tax return, and
- a compulsory repayment has been calculated based on your repayment income.

Your loan balance doesn’t reduce after each pay cycle; it is only applied as a lump sum after your income tax return is lodged.

For more information see:

-
[Types of loans](https://www.ato.gov.au/individuals-and-families/study-and-training-support-loans/types-of-loans)

-
[Tax file number declaration (NAT 3092)](https://www.ato.gov.au/forms-and-instructions/tfn-declaration)

-
[Withholding declaration (NAT 3093)](https://www.ato.gov.au/forms-and-instructions/withholding-declaration)

-
[Tax in Australia: what you need to know](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/coming-to-australia/tax-in-australia-what-you-need-to-know)

-
[Tax tables](https://www.ato.gov.au/tax-rates-and-codes/tax-tables-overview)

##
[
]()If you earn business or investment income

[Pay as you go (PAYG) instalments](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments) is a system where you make regular payments towards your expected tax liability if you earn business or investment income. You pay your tax in instalments throughout the year rather than when you lodge your tax return.

If you are making PAYG instalments, we take your loan into account when working out your PAYG instalment amount and rate.

You can vary your instalment amount or rate to allow for your personal circumstances, see [How to vary your PAYG instalments](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/how-to-vary-your-payg-instalments).


## Taxable payment reporting system services

The services that come under the Taxable payment reporting system (TPRS) are:

- building and construction
- cleaning
- courier and road freight
- information technology (IT)
- security, investigation or surveillance.

If your business provides these services and pays contractors to deliver them, you may need to lodge a TPAR.

## When your business provides TPRS services and other unrelated services

If your business provides both courier and road freight services, you must combine the payments you receive for both these services. Do this when you work out if you need to lodge a TPAR.

If TPRS services are only part of the services your business provides, you need to work out what percentage of the payments you receive are for TPRS services each financial year. You do this to determine if you need to lodge a TPAR.

This doesn't apply to [building and construction services](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/reports-and-returns/taxable-payments-annual-report/work-out-if-you-need-to-lodge-a-tpar/building-and-construction-services) you provide.

If the total payments you receive for TPRS services are:

- 10% or more of your business income: you must lodge a TPAR
- less than 10% of your business income: you do **not** need to lodge a TPAR.

### Steps to work out if you need to lodge

**Step 1: calculate your total payments received from contractors for each relevant service.**

Add up all payments your business received for each relevant TPRS service during the financial year. Include payments received when employees, contractors or sub-contractors performed services on your behalf.

**Step 2: calculate your current or projected business income**

If you have been operating your business for:

- the full financial year: use your current [business income](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/registering-for-gst) for the year
- less than 12 months of the financial year: use your projected business income. Do this by working out what your business income will be for the next full financial year.

**Step 3: calculate what percent of your business income is from a relevant service**

Calculate this percentage by using the following formula for each financial year:

**Total payments received for a relevant service** ÷ **current or projected business income** x **100** = **%**

You must lodge a TPAR if:

- 10% or more of your business income for the financial year is from a relevant service
- you made payments to contractors for a relevant service during the year.

If you need to lodge a TPAR, report the total contractor payments made to each contractor for the relevant service provided on your behalf.


## When a gift or donation is deductible

You can only claim a tax deduction for a gift or donation to an organisation that has the status of a [deductible gift recipient](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/gifts-and-donations#Whatisadeductiblegiftrecipient) (DGR).

To claim a deduction, you must be the person that gives the gift or donation and it must meet the following 4 conditions:

1. It must be made to a DGR.
2. It must truly be a gift or donation – that is, you are voluntarily transferring money or property without receiving, or expecting to receive, any material benefit or advantage in return. A material benefit is something that has a monetary value.
3. It must be money or property – this can include financial assets such as shares.
4. It must comply with any relevant gift conditions – for some DGRs, the income tax law adds conditions affecting the types of deductible gifts they can receive.

DGRs sometimes authorise a business to collect donations on their behalf. For example, a supermarket may be authorised to accept a donation at the register that they then send onto the DGR. You can claim a deduction for a gift or donation you make in this way, if:

- it meets the 4 conditions above
- you have [a receipt from the third party](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/keeping-a-record-of-your-donation).

If you receive a material benefit in return for your gift or donation to a DGR – for example, you purchase a ticket to a fundraising dinner – it's considered [a contribution and extra conditions apply](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/is-it-a-gift-or-contribution).

To claim a deduction, you must have a [record of your donation](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/gifts-and-donations#Keepingrecordsforgiftsanddonations) such as a receipt.

## What is a deductible gift recipient?

A DGR is an organisation or fund that registers to receive tax deductible gifts or donations.

Not all charities are DGRs. For example, crowdfunding campaigns are a popular way to raise money for charitable causes. However, many of these crowdfunding websites are not run by DGRs. Donations to these campaigns and platforms aren't deductible.

You can check the DGR status of an organisation at [ABN Look-up: Deductible gift recipientsExternal Link](https://abr.business.gov.au/Tools/DgrListing).

## What you can claim

The amount you can claim as a deduction depends on the type of gift:

- Gifts of money – you can claim the amount of the gift, but it must be $2 or more.
- Gifts of property or shares – there are different rules depending on the type and value of the property – see [Gift types, requirements and valuation rules](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/gift-types-requirements-and-valuation-rules).
- Gifts under the Heritage and Cultural programs – there are special circumstances where donations can also be deductible – see:
- [Donating under the Cultural Gifts Program](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/gift-types-requirements-and-valuation-rules/donating-under-the-cultural-gifts-program)
- [Heritage gifts](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/gift-types-requirements-and-valuation-rules/heritage-gifts)
- [Claiming conservation covenant concessions](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/in-detail/fundraising/claiming-conservation-covenant-concessions).

If you receive a token item for your donation you can still claim a deduction. Token items are things of no material value that are used to promote the DGR, such as lapel pins, wristbands and stickers.

You claim the deduction for your gift in the income year in which you give the gift. In some circumstances you may elect to [spread the tax deduction over a period of up to 5 income years](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/tax-deductible-donations/when-can-i-claim).

### Bucket donations

If you made one or more small cash donations, each of $2 or more, to bucket collections – for example, to collections conducted by a DGR for natural disaster victims – you can claim a total tax deduction of up to $10 for those donations for the income year without a receipt.

To claim donations of more than $10, you need a receipt.

### Political party and independent candidate donations

In some circumstances, you can claim a deduction for gifts and donations to registered political parties or independent candidates.

This includes paying a membership subscription to a registered political party.

You must have made the gift or donation as an individual (not in the course of carrying on a business) and it can't be a testamentary donation.

Your gift or donation must be worth $2 or more. If the gift is property, the property must have been purchased within 12 months of making the donation.

The most you can claim in an income year is:

- $1,500 for contributions and gifts to political parties
- $1,500 for contributions and gifts to independent candidates and members.

To claim a deduction, you must have a written record of your donation.

For more information see [Claiming political contributions and gifts](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/in-detail/fundraising/claiming-political-contributions-and-gifts).

## What you can't claim

You can't claim gifts or donations that provide you with a personal benefit, such as:

- raffle or art union tickets – for example, an RSL Art Union prize home
- items such as chocolates, mugs, keyrings, hats or toys that have an advertised price
- the cost of attending fundraising dinners (you may be eligible to claim a deduction as a *contribution* if the cost of the event was more than the [minor benefit supplied as part of the event](https://www.ato.gov.au/businesses-and-organisations/not-for-profit-organisations/gifts-and-fundraising/fundraising-events/supporting-fundraising-events))
- club membership fees
- payments to school building funds made in return for a benefit or advantage – for example, as an alternative to an increase in school fees or placement on a waiting list
- payments where you have an understanding with the recipient that the payments will be used to provide a benefit to you
- gifts to family and friends, regardless of the reason
- donations made under a salary sacrifice arrangement
- donations made under a will.

You can't claim a tax deduction for donations made to social media or crowdfunding platforms unless they are a registered DGR.

### Example: material benefits where a deduction can't be claimed

Robbie is an office worker. Each year his workplace gets involved in the Daffodil day appeal to raise money and awareness for the Cancer Council. Robbie buys a teddy bear toy on Daffodil Day at a cost of $30.

Robbie can’t claim a deduction for the cost of the toy as he has received a material benefit in return for his contribution to the Cancer Council.


## FBT exemption for eligible vehicles

There is no fringe benefits tax (FBT) when an employee uses your vehicle if:

- it is an [eligible vehicle](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Vehicleseligiblefortheexemption), and
- [private use of the vehicle is limited](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Useseligiblefortheexemption).

There is a separate exemption for [eligible electric cars](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption).

## Vehicles eligible for the exemption

The following vehicles are eligible for the limited private use exemption:

- a **single cab ute**
- a **dual cab ute** that is designed to either

- [carry a load of 1 tonne or more](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Calculateloadcarryingcapacityof1tonneorm)
- carry more than 8 passengers (including the driver)
- carry a load of less than 1 tonne but is not designed for the principal purpose of carrying passengers. To work out if a dual cab ute meets this condition, see [MT 2024](https://www.ato.gov.au/law/view/document?Docid=MTR/MT2024/NAT/ATO/00001&PiT=99991231235958) *Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel* on our legal database
- a **panel van **or **goods van**
- a **modified vehicle** (such as a hearse) if, for the entire FBT year when the car is used by the employee, the modification permanently affects the inherent design of the vehicle. To find out what constitutes a modified vehicle, see [MT 2033](https://www.ato.gov.au/law/view/document?locid='FOI/1209153P'&PiT=19940127000001) *Fringe benefits tax: application of sub-section 8(2) exemption to modified cars*
- a **taxi**
- any **4-wheel drive vehicle** that is designed either

- to [carry a load of 1 tonne or more](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Calculateloadcarryingcapacityof1tonneorm)
- to carry more than 8 passengers (including the driver)
- for a principal purpose other than carrying passengers, as indicated by its appearance, marketing specification or carrying capacity – for more information see [TD 94/19](https://www.ato.gov.au/law/view/document?docid=TXD/TD9419/NAT/ATO/00001)
- any **other road vehicle** that is designed to carry either

- a [load of 1 tonne or more](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Calculateloadcarryingcapacityof1tonneorm)
- more than 8 passengers (including the driver).

If the vehicle your employee is using is:

- an eligible vehicle, check that their use is limited to [uses that qualify for the FBT exemption](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles#Useseligiblefortheexemption)
- a car that is not an eligible vehicle, FBT applies to the employee's private use of it. You calculate the [taxable value of this use as a car fringe benefit](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/cars-and-fbt/taxable-value-of-a-car-fringe-benefit).

### Calculate load carrying capacity of 1 tonne or more

To determine if a vehicle is eligible, you may need to know if it is designed to carry a load of 1 tonne or more.

You can use the following formula to calculate the carrying capacity of a vehicle:

Maximum loaded vehicle weight (or gross vehicle weight, which is typically shown on the compliance plate attached to a vehicle's engine bay, door pillar or footwell by the manufacturer or importer).

*Less*:

Unladen vehicle weight (or basic kerb weight, which is the weight of the vehicle with a full capacity of lubricant, coolant and fuel together with spare wheel, tools (including jack) and installed options, but excluding the weight of goods or occupants).

## Uses eligible for the exemption

FBT does not apply if your employee only uses your eligible vehicle for the following:

- travel between home and work
- travel that is incidental to travel in the course of employment duties
- non-work-related use that is minor, infrequent and irregular (such as occasional use of the vehicle to remove domestic rubbish).

If FBT does not apply to your employee's use of your eligible vehicle, then it also does not apply to:

- any road or bridge tolls you incur while your employee is using the vehicle
- use of the vehicle by your employee's associate (such as their partner), provided their use is also minor, infrequent and irregular.

To check what we consider minor, infrequent and irregular use, see [PCG 2018/3](https://www.ato.gov.au/law/view/document?DocID=COG/PCG20183/NAT/ATO/00001) *Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles* on our legal database*.*

### Record keeping

You don't have to keep special records to be eligible for the exemption. However, you must be able to demonstrate that the use of the vehicle at all times meets the limited private use conditions.

For example, you could regularly compare the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work.

## What to do if use of vehicle is subject to FBT

If an employee's use of your eligible vehicle doesn't meet the conditions for limited private use, it is a car fringe benefit or residual fringe benefit.

You need to:

1. work out the [taxable value of the private use of the eligible vehicle](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/exempt-use-of-eligible-vehicles/taxable-value-of-private-use-of-eligible-vehicles)
2. [calculate how much FBT](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/calculating-your-fbt) to pay
3. [lodge your FBT return](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/fbt-registration-lodgment-payment-and-reporting/lodging-your-fbt-return-and-paying)
4. [pay the FBT amount](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/fbt-registration-lodgment-payment-and-reporting/lodging-your-fbt-return-and-paying)
5. [check if you should report the fringe benefit](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/fbt-registration-lodgment-payment-and-reporting/reportable-fringe-benefits) through Single Touch Payroll (or on your employee’s payment summary).

### Claiming tax deductions

You can claim a [deduction for expenses for motor vehicles](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses) used in running your business. If you pay FBT, the:

- FBT you pay is tax deductible
- private use expenses of the vehicle that you pay FBT on is tax deductible.


### Other allowances (allowance type OD)

These are other allowances that are not otherwise separately itemised. These can either be deductible or non-deductible expenses. If the allowance belongs in one of the more specific allowance types detailed above, you must report it in the specific allowance type and not as other allowances.

Anything you report as 'other allowances' needs to have a description for the category of expense. These categories will help us assist each of your employees to complete their individual tax returns.

The following table outlines the description codes descriptions you can use.

Other allowances description codes and examples

Allowance code

Description

H1 (home office)

Use this code for deductible expense allowances related to the employee maintaining a home office (such as allowances to assist with initial set up or running costs). Do not use this code to report allowances that relate to specific tools and equipment that are reported as tool allowance (allowance type TD).

ND (non-deductible)

Use this code for non-deductible expense allowances. Generally, these will be allowances related to an expense which is not work-related, not for business purposes, or is for private purposes.

T1 (transport or fares)

Use this code for deductible expense allowances related to the employee travelling on public transport, or in taxis and rideshare services. Do not use this code to report allowances that relate to transport that was not for business purposes, use ND instead.

U1 (uniform)

Use this code for deductible expense allowances related to uniforms, as long as they are not for non-deductible expenses (use ND instead).

V1 (private vehicle)

Use this code for deductible expense allowances related to the employee travelling in a private vehicle. This includes cents per kilometre allowances for vehicles that are not cars.

Don't use this code to report allowances that relate to transport that was not for business purposes (use ND).

G1 (general)

Use this code for deductible expense allowances that don't belong in one of the other codes above.

Specific description we tell you to use

Sometimes we will tell you to use specific descriptions in relation to certain programs, such as the specific descriptions relating to the JobMaker Hiring Credit scheme (which has now ended). If we tell you to use a specific description, use it instead of the main allowance codes.

Depending on the product you use, these will appear in your STP report as either:

- the code only (for example, G1)
- the code and name (for example, U1 uniform)
- the code and the pay code description you have used in your payroll (for example, H1 internet allowance).

The following table outlines some examples of what should and should not be included in **Other allowances**.

Other allowances reporting examples

Include

Don't include

G1 (general)

- laundry allowances for the cost of laundering deductible conventional clothing

H1 (home office)

- home office equipment allowances
- internet allowances

ND (non-deductible)

- cents per km payments for private travel such as travel between home and work
- allowance payments for the cost of transport for private purposes
- laundry allowance for the cost of laundering uniforms for private purposes
- allowances paid for travel that is for private purposes
- part-day travel allowances
- allowances paid in relation to equipment used for private purposes

T1 (transport or fares)

- Allowance payments for the cost of transport for business related travel not traceable to a historical award in force on 29 October 1986

U1 (uniform)

- allowances paid for the purchase of a uniform

V1 (private vehicle)

- cents per km payments for vehicles other than a car such as a motorbike or van
- flat rate car allowance that is referable to the kilometres travelled

- direct reimbursement of business expenses – this is not reported
- living away from home allowance – this falls under the FBT legislation and is not reported here
- tool allowances – this should be reported as tool allowances ([allowance type TD](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/allowances#ToolallowanceAllowancetypeTD))
- cents per kilometre – this should be reported as cents per km allowance ([allowance type CD](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/allowances#CentsperkmallowanceAllowancetypeCD))
- qualification and certificate allowances – this is reported in qualification and certification allowances ([allowance type QN](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/reporting-the-amounts-you-have-paid/allowances#QualificationandcertificationallowancesA))


## Types of vehicles

**Cars** (for income tax purposes) are defined as motor vehicles (including 4-wheel drives) designed to carry both:

- a load less than one tonne
- fewer than 9 passengers.

**Other vehicles** include:

- motorcycles
- vehicles designed to carry either

- one tonne or more (such as a utility truck or panel van)
- 9 passengers or more (such as a minivan).

The motor vehicle must be owned, leased or under a hire-purchase agreement.

If you operate your business as a company or trust, you can also claim for [motor vehicles provided to an employee](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicles-used-by-your-employees) or their associate as part of their employment.

## Expenses you can claim

You can claim:

- fuel and oil
- repairs and servicing
- interest on a motor vehicle loan
- lease payments
- insurance cover premiums
- registration
- depreciation (decline in value).

Make sure you use the correct calculation method when claiming motor vehicle expenses. Using the wrong method can lead to incorrect claims. For more information, see [Calculation methods for claiming business motor vehicle expenses](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicle-expense-calculation-methods).

## Separate private from business use

If you use a motor vehicle for both business and private use, you must be able to correctly identify and justify the percentage that you are claiming as business use. The percentage that is for private use isn't claimable and fringe benefits tax may apply (see [Cars and FBT](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/cars-and-fbt)). This is an area where we often see errors made.

It is important to keep records. You can use a [logbook or diary](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/logbook-method#Whattorecordinyourlogbook) to record private versus business travel. For more information, see [Motor vehicle expense records you need to keep](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicle-expense-records-you-need-to-keep).

Travelling between your home and your place of business is considered private use, **unless** you are a [home-based business](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses) and your trip was for business purposes. For more information, see [Motor vehicle expenses for a home-based business](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/calculating-car-expenses-prior-to-1-july-2015).

You can also refer to [Motor vehicles used by shareholders of private companies](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicles-used-by-shareholders).

## Car limit

There is a [limit on the cost](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/assets-and-exclusions) you can use to work out the depreciation of passenger vehicles (except motorcycles or similar vehicles) designed to carry a load of less than one tonne and fewer than 9 passengers.


## When services are used outside Australia

The supply of service is GST-free if the supply is used or enjoyed outside Australia or the supply is made to a non-resident who is not in Australia when the supply is made.

Start of exampleExample: service used outside Australia

Tom, a GST registered Australian freelance writer, is engaged by an English company to write a chapter of a book that will be published in England.

He writes the chapter in Australia and sends it to the non-resident publisher based in England. His service has been exported to the non-resident publisher who is not in Australia when the supply is made, so he does not include GST in his invoice to the publisher.

End of example
## When services are used in Australia

The supply of service is not GST-free if the service is provided in Australia even if the recipient is not in Australia.

Start of exampleExample: service used in Australia

A GST registered school in Australia provides tuition to overseas students currently studying in Australia. However, it bills the overseas parents of the students directly.

The supply may be under an agreement entered into between the Australian school and the overseas parents. However, as it is provided to the students in Australia, the supply is not GST-free.