ATO Interpretative Decision

ATO ID 2001/225 (Withdrawn)

Income Tax

• This ATO ID refers to inoperative provisions. It was also a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the cost of a 24 months extended warranty on a computer deductible as a self education expense under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A deduction for cost of the extended warranty is allowable under section 8-1 of the ITAA 1997 to the extent that the computer is used for work related self education. In calculating the deductible amount, the cost of the warranty is not apportioned over the period of the agreement as the cost is less than $1000.

Facts

The taxpayer is undertaking a course of study relevant to the taxpayer's current occupation. The taxpayer purchases a computer to use as a study tool. The taxpayer also purchases a 24 months extended warranty for the computer costing less than $1000.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for expenses which have sufficient nexus to the production of assessable income. However a deduction is only allowed to the extent that it is not capital, private or domestic in nature. A deduction for self education expenses is limited under section 82A of the Income Tax Assessment Act 1936 (ITAA 1936) to the net amount of expenses which exceeds $250.

Expenditure is generally deductible in full under section 8-1 of the ITAA 1997 in the year that it is incurred. However, where an agreement provides for a prepayment of fees, such expenditure incurred by a taxpayer may be subject to section 82KZM of the ITAA 1936.

Section 82KZM of the ITAA 1936 applies where the expenditure is incurred prior to 1 July 2001 by a non business taxpayer under an agreement for services or things of a similar kind which will not be completed within 13 months after the day the expenditure is incurred.

Section 82KZM of the ITAA 1936 only allows a proportion of the deduction which is available under section 8-1 of the ITAA 1997 in each year of income during which the period of the agreement runs. The section also provides a formula to ascertain the proportion of the deduction to claim in each of those years of income. However subparagraph 82KZM(1)(b)(ii) of the ITAA 1936 has the effect of excluding expenditure of less than $1000 from the requirement to apportion.

The taxpayer is entitled to claim a deduction for expenses incurred in running and maintaining the computer under section 8-1 of the ITAA 1997 to the extent that it is used for work related self education. In calculating the deductible amount, the cost of the warranty is not apportioned over the period of the agreement as the cost of it is less than $1000. The deduction allowable for the self education expense is subject to the $250 exclusion under section 82A of the ITAA 1936.

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Related Public Rulings (including Determinations)
TR 98/9

Keywords
Self education expenses
Prepayment
Deductions & expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  21 August 2001

ISSN: 1445-2782