Reasonable Business Expense - The Chartered Institute of Taxation

Reasonable Business Expenses: Discussion papereconomic efficiency concerns highlighted above. This would be a steptowards achieving an effective and efficient reasonable expenses rule,and constitute a significant improvement over the present status quo.However, other aspects of implementing such a reasonable business ruleinvolving apportionment need to be worked out. Similar expenses may beincurred by dissimilar individuals and entities in vastly differingcircumstances. What would be a ‘reasonable’ expense in one industry orsector may clearly be unreasonable in another context. Similarly, politicaland social consequences of any particular rule must be carefullyconsidered, particularly in the context of controversial costs such asthose for childcare expenses, medical expenditure and donations tocharity, with different countries seeking to implement rules closelyreflecting their own interpretations of distributional justice in incometaxation. 233 Practical rules and guidelines would necessarily have to dealwith the documentation of expenses and the means of decoupling workrelatedfrom non-work-related components and provide guards againstabuse by taxpayers. The next section examines how some of these issueshave been resolved in the Australian tax system that permits, in certaininstances, the apportionment of mixed purpose expenditure.4.4. EXAMPLES FROM ANOTHER JURISDICTION: AUSTRALIA 234Australia is an example of a jurisdiction where the apportionment ofmixed purpose expenses is allowed. Under the Income Tax AssessmentActs of 1936 235 and 1997 236 , special rules apply to deductions claimed233234235236Tim Edgar (1997) The Concept of Taxable Consumption and theDeductibility of Expenses under an Ideal Personal Income Tax Base, op cit,pp. 297 – 300.While this section cites Australia as an example of a jurisdiction whereapportionment has been used, this author is not an expert in Australian taxlaw. As such, this author was unable (within the confines of this Report) toprovide a fuller account of the historical development of the role ofapportionment of business expenses in Australian tax law.Hereafter, ITAA 1936.Hereafter, ITAA 1997.Bode OyetundePage 46 of 63PhD CandidateCentre for Commercial Law StudiesQueen Mary & Westfield College