Mathews and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal considered an appeal by Mr. Mathews against a decision of the Commissioner of Taxation regarding deductions claimed for the financial year ending 30 June 2020. Mr. Mathews sought to deduct significant amounts for car repairs, car expenses, and other miscellaneous expenses, including those related to mineral exploration drilling equipment. The Commissioner disallowed these deductions, leading to the dispute.

The primary legal issues before the Tribunal were whether the expenses claimed by Mr. Mathews were deductible under section 8-1, section 8-5, or section 40-730 of the *Income Tax Assessment Act 1997* (ITAA 1997). This required the Tribunal to determine if the expenses were incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for that purpose. Further considerations included whether the expenses were of a capital, private, or domestic nature, and whether Mr. Mathews could substantiate the claimed expenses. A new ground of objection was also raised, asserting that Mr. Mathews was carrying on a business of exploration or prospecting for minerals, thus potentially bringing the expenditure within the scope of section 40-730.

The Tribunal analysed the nature of Mr. Mathews' income, which was derived from a contract with Hays and work performed for Pilbara Drilling. The Commissioner contended that the Hays contract constituted employment and the work for Pilbara Drilling was personal services. Mr. Mathews argued he was an independent contractor operating through his "Drilling and Watering Systems" business. The Tribunal examined the Hays contract, noting its terms referred to "Terms of Engagement – PAYG – Australia" and conditions of employment aligned with the Fair Work Act 2009. Crucially, the contract did not reference Mr. Mathews' business or ABN. The Tribunal found that Mr. Mathews was not carrying on a business of exploration or prospecting for minerals or quarry materials, and therefore, the expenses were not deductible under section 40-730. The general deduction provisions under section 8-1 were also not satisfied as the expenses were not incurred in gaining or producing assessable income, nor necessarily incurred in carrying on a business. The Reviewable Decision of the Commissioner was affirmed.