Employees guide for work expenses

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Part A - Claiming a deduction: the basic conditions

The basic conditions – a summary
You must 'incur' the expense
Expenses incurred 'in gaining or producing' employment income
Expenses aren't capital or capital in nature
Expenses aren't private or domestic
Gaining or producing exempt income or non-assessable non-exempt income

The basic conditions – a summary

To claim a deduction against your assessable employment income, the work expense must meet several conditions. This Guide explains these conditions in more detail and gives examples of how they apply.

We refer to expenses related to your employment as work expenses or work-related expenses.

You can only claim an expense as a general deduction if it meets all of the following conditions:

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you actually incurred the expense

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the expense was incurred gaining or producing your employment income ^[1]

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it is not capital or capital in nature

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the expense is not private or domestic ^[2]

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the expense was not incurred in gaining or producing exempt income or non-assessable non-exempt income

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you satisfy the relevant substantiation requirements.

Expenses that are capital or capital in nature may still be deductible but they are claimed as a deduction for the decline in value of a depreciating asset over a period of time. If you have incurred an expense that is related to both earning your employment income and your private purposes, you need to apportion the expense and deduct only the portion that relates to your employment income.

For more information, see:

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Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997

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Decline in value under the capital allowance provisions

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Apportioning work-related expenses .

You must 'incur' the expense

To claim a deduction, you must incur the expense yourself. To incur an expense means that you must actually pay, or be obliged to pay, for the good or service. A deduction is not allowed if someone else pays for the good or service or gives it to you for free or as a gift, or you are reimbursed by your employer.

Example – gifts

Roisin's parents buy her a leather-bound diary for Christmas. She uses it every day for her work. Roisin can't claim a deduction for the expense as she did not incur any amount for the diary.

For more information, see:

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Taxation Ruling TR 97/7 Income tax: section 8-1 – meaning of 'incurred' – timing of deductions .

If your employer pays you back for an expense, even if you haven't paid for it yet, this is a reimbursement. You can't claim a deduction for an expense that has been reimbursed.

Example – reimbursement of expense

Ramesh takes a taxi to attend a meeting with clients in another suburb. He spends $46 on the taxi. When he returns to his office, he gives the receipt to his employer who repays him the $46. As this is a reimbursement, Ramesh can't claim a deduction for the taxi expense.

For more information, see:

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Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement .

Expenses incurred 'in gaining or producing' employment income

For an expense to be incurred in gaining or producing your employment (assessable) income, there must be more than just a general or broad connection between the expense and the earning of your assessable income. There must be a real and close connection between the expenditure and your employment activities. In other words, the expense must directly relate to what you do to earn your employment income.

Your employment activities include the duties and tasks that are expected of you by your employment contract, position description or company directives. Incurring expenses to get you ready for duty – such as job searching or obtaining qualifications for a new job – aren't incurred in earning your employment income. Expenses you incur to put you into a position to earn income or are a prerequisite to earning income aren't deductible.

The fact your employer requires you to purchase a good or service doesn't mean the expense is automatically deductible. You still need to demonstrate how the expense has a genuine connection to your employment activities.

Example – gaining or producing assessable income

Joshua works as a sales assistant at a shoe store. His employer requires him to wear shoes of a similar kind to those sold in the store when he is at work but they aren't part of a uniform. The employer also requires Joshua to be well-groomed for his customer service role in the store.

Joshua can't claim deductions for the cost of shoes he purchases, or any items he acquires to maintain his personal appearance. These are conventional clothing and grooming items that put him in a position to work but aren't directly related to the employment activities of selling shoes and maintaining the store through which he earns his income.

The expenses are private in nature.

For more information, see:

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Expenses aren't private or domestic .

Expenses aren't capital or capital in nature

Expenses that are capital or capital in nature aren't deductible under the general rules. An amount is capital or capital in nature where the purchase has an enduring or lasting benefit, such as a work tool, computer or motor vehicle. The law recognises that these purchases decline in value over time, so the annual decline in value on purchases of depreciating assets that are used for work purposes may be deductible under the capital allowance provisions. ^[3]

Example – capital expenditure

Due to the nature of his employment, Ali is rarely in his work office and he needs to be able to write up documents while he is out of the office. He purchases a new laptop for $2,100 to help him with his work on the road. As the laptop provides an enduring benefit, and is therefore a capital expense, Ali can't claim a deduction for its cost under the general provisions. However, Ali should consider whether he is entitled to a deduction for the annual decline in value of his computer under the capital allowance provisions.

For more information, see:

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Decline in value under the capital allowance provisions

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Guide to depreciating assets .

Expenses aren't private or domestic

Private or domestic generally means expenses that are personal or related to the home or household. Expenses like everyday clothing, food, drink and shelter are private or domestic, even if your employer has required you to purchase the items or specified which type to buy.

Example – private expense

Brenton is an employee architect and purchases a coffee and lunch every day at work. Even though he spends the money while he is at work, food and drink is a private expense. There is nothing specifically about Brenton's work as an architect that requires him to spend money on food and drink.

Example – domestic expense

Charlie is a teacher who often prepares her lesson plans and marks her students' work at home. Even though she works at home, she can't claim any of her rent costs as a work expense. This is because her rent is a domestic expense and therefore not deductible. Merely working at home doesn't make the expense deductible.

For more information, see:

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Working from home expenses .

Gaining or producing exempt income or non-assessable non-exempt income

If the income you receive from your employment is tax exempt or non-assessable, you can't claim a deduction for expenses relating to that employment. This includes some income of Australian Defence Force or Australian Federal Police personnel when they are deployed overseas.

Amendment history

 

 

References

Related Rulings/Determinations:
IT 2477
IT 2543
TR 92/15
TR 93/30
TR 94/22
TR 95/25
TR 95/34
TR 96/18
TR 97/7
TR 97/12
TR 97/24
TR 98/5
TR 2000/2
TR 2003/16
TR 2004/6
TR 2020/1
TR 2021/1
TR 2021/4
TR 2024/3
TD 93/114
TD 97/19

Related Practice Statements:
PS LA 1999/2
PS LA 2001/6
PS LA 2005/7

Case References:
AT85/98 and Commissioner of Taxation
[1987] AATA 145

B636/1985 and Commissioner of Taxation
[1986] AATA 318

Case C47; Case 44
71 ATC 219
11 CTBR (NS) 207

Case K2; Case 21
78 ATC 13
22 CTBR (NS) 178

Case No 69/1978
79 ATC 488
23 CTBR (NS) 680

Case No M 99/1981
82 ATC 139
25 CTBR (NS) 696

Case No M 282/1979
81 ATC 383
25 CTBR (NS) 200

Case No M 208/1983
84 ATC 411
27 CTBR (NS) 867

Case Nos M 309/1980, M 216/1981
82 ATC 72
25 CTBR (NS) 608

Case N44; Case 114
81 ATC 216
24 CTBR (NS) 915

Case P31; Case Q17
82 ATC 141
83 ATC 62

Case P114; Case 47
82 ATC 586
26 CTBR (NS) 365

Case R49; Case 104
84 ATC 387
27 CTBR (NS) 836

Case R70; Case 124
84 ATC 493
27 CTBR (NS) 981

Case S82; Case 87
85 ATC 608
28 CTBR (NS) 678

Case T47; Case No 1409/1985
86 ATC 381
29 CTBR (NS) 345

Commissioner of Taxation v Faichney
[1972] HCA 67

Commissioner of Taxation (Cth) v Finn
[1961] HCA 61

Commissioner of Taxation (Cth) v Forsyth
[1981] HCA 15

Commissioner of Taxation (Cth) v Smith
[1981] HCA 10

Commissioner of Taxation (Cth) v Vogt
[1975] 1 NSWLR 194

Commissioner of Taxation (Cth) v Wiener
8 ATR 335

Federal Commissioner of Taxation v Maddalena
71 ATC 4161
2 ATR 541

Frankcom, Terrence James v Commissioner of Taxation
[1982] VicSC 469

Fullerton, L.W. v Commissioner of Taxation
[1991] FCA 702

Handley v Commissioner of Taxation (Cth)
[1981] HCA 16

Lodge v Commissioner of Taxation (Cth)
[1972] HCA 49

Lunney v Commissioner of Taxation
[1958] HCA 5

Morris v Commissioner of Taxation
[2002] FCA 616

NT85/4959 and Commissioner of Taxation
[1987] AATA 575
87 ATC 470

Re Taxation Appeals
[1991] AATA 197

Re Taxation Appeals
[1994] AATA 315

Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation
[1949] HCA 15

Sun Newspapers Limited v Federal Commissioner of Taxation
[1938] HCA 73

ST86/633 and Commissioner of Taxation
[1987] AATA 567
87 ATC 575

ST87/36 and Commissioner of Taxation
[1987] AATA 424

TT 87/8, TT 87/168 and Commissioner of Taxation
[1987] AATA 863

Thomas v Commissioner of Taxation (Cth)
[1972-73] ALR 368

Other References:
Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025
PCG 2023/1
PCG 2024/2