Edited version of private ruling

Authorisation Number: 1011830678282

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Ruling

Subject: Work related expenses

Questions and answers:

Are you entitled to a deduction for one third of the expenses incurred in washing, polishing, servicing, insuring and registering your vehicle?

Yes.

Are you entitled to a deduction for one third of the insurance excess paid for repairs following a car accident whilst on the road for work?

Yes.

Are you entitled to a deduction for one third of the decline in value of your vehicle?

Yes.

Are you entitled to a deduction for one third of the interest expense incurred in the purchase of your vehicle?

Yes.

Are you entitled to a deduction for parking fees and freeway tolls incurred in attending your university classes?

Yes.

Are you entitled to a deduction for a portion of the decline in value of your home computer that has been used extensively for university and work?

Yes.

Are you entitled to a deduction for the cost of upgrades to your home computer?

Yes.

Are you entitled to a deduction for running expenses associated with a home office?

Yes.

Are you entitled to a deduction for the work-related proportion of your internet access charges and phone line usage?

Yes.

Are you entitled to deduct university HECS fees incurred in the income year ending 30 June 2006?

No.

Are you entitled to a deduction for university student union fees?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2006

Year ended 30 June 2007

The scheme commenced on:

1 July 2005

Relevant facts:

You worked as a fulltime professional in a particular field from 2004 until 2006.

You studied part time at university in this same field of expertise.

You held a private vehicle under a hire purchase agreement.

You used your vehicle in the course of your employment.

You travelled more than 5000 business kilometres in each income year.

You have elected to use the one-third of actual expenses method to calculate the deduction for your car expenses.

You regularly washed, polished and buffed your vehicle to meet corporate code standards set by your employer.

You had the vehicle serviced by the original manufacturer service centres.

You had an accident whilst on the road for work which was your fault. You claimed the vehicle repairs on your comprehensive insurance and paid the excess.

You incurred expenses in comprehensively insuring and registering your vehicle.

You utilised you own vehicle to travel from home to work to university to home.

You paid parking fees and freeway tolls when travelling in your vehicle to university classes.

You had a designated study/home office set up in your house in which you primarily completed work and study tasks on your own.

You extensively used your personal computer in your home office for university and work purposes.

You have the phone line connected at home solely to access the internet and utilise your mobile phone to make and receive calls.

You utilised your home internet for work and university purposes.

You upgraded your personal computer's hard drive at a cost of approximately $100 and the memory at a cost of approximately $30. You also purchased a bigger computer screen for approximately $250.

These upgrades were predominantly necessary because of your extensive work and study use of the computer.

You incurred HECS fees from your university course.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 26-20
Income Tax Assessment Act 1997 Division 28
Income Tax Assessment Act 1997 Division 40
Income Tax Assessment Act 1997 Subdivision 900
Income Tax Assessment Act 1936 Section 82A

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Car expenses

Car expenses are defined in section 28-13 of the ITAA 1997 and broadly include expenses to do with operating the car and the decline in value of the car. If these expenses are incurred in the course of deriving assessable income, they are allowable deductions under section 8-1 of the ITAA 1997. Expenses that are allowable deductions include petrol, oil, repairs, servicing, new tyres, lease charges, interest on a car loan, car washes and polishes, bridge or road tolls, car registration, third party insurance and insurance excess.

In relation to car expenses, there are specific rules that must be followed in order to claim a deduction, which can be found in Division 28 of the ITAA 1997. Section 28-12 of the ITAA 1997 provides that you must use one of four methods to calculate the amount of deduction: that is, the cents per kilometre, 12% of original value, one-third of actual expenses and the log book methods. Each method requires you to travel business kilometres, that is, kilometres the car travelled in the course of producing your assessable income or between workplaces. Once you have selected one of the methods to use, it must be the only method used for the vehicle in question for the entire income year.

You have elected to use the one-third of actual expenses method. This method can only be used when more than 5000 business kilometres have been travelled during the income year (or would have been travelled if the car had been used for the full income year). Once this requirement has been satisfied, the actual number of business kilometres or total kilometres travelled is not taken into account. Section 28-70 of the ITAA 1997 provides that one third of each allowable car expense can be deducted under this method.

You were required to travel extensively as part of your work. You used your own vehicle to undertake this travel and incurred a range of expenses. You also utilised your vehicle to travel from home to work to university and then back to home. The expense incurred in the work to university portion of this travel is the only part that would qualify as an allowable self-education deduction. Therefore, the allowable self-education kilometres travelled are included in the total business kilometres travelled.

You did travel more than 5000 business kilometres in each income year and are therefore entitled to use the one third of actual expenses method. You have incurred expenses for car washing and polishing, servicing, interest payments, insurance, registration and insurance excess. You have utilised your vehicle in your employment and therefore the expenses have the necessary connection to the derivation of your assessable income. As a result, these expenses qualify as allowable deductions under section 8-1 of the ITAA 1997.

Therefore, you can claim one third of the full cost of each of the expenses under the one-third of actual expenses method of calculation. You can also include one third of the calculated decline in value of the vehicle.

Note: If you do not use the one third of actual expense method to calculate your car expenses, the calculation of your allowable deduction will be different and the answers provided in this ruling may not be applicable.

Decline in value calculation

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Your vehicle is an example of a depreciating asset. Division 40 of the ITAA 1997 allows you to deduct the cost of a depreciating asset over a period that reflects the time for which the asset can be used.

You have a choice of two methods to work out the decline in value of your vehicle. You must choose to use either:

· The prime cost method or

· The diminishing value method.

The calculation details for each of these methods are outline in the Tax Office publication Guide to depreciating assets. This publication can be accessed on our website www.ato.gov.au .

Substantiation

You must substantiate your car expenses in accordance with Subdivision 900-C of the ITAA 1997. This requires that written evidence must be kept for all car expenses except petrol and oil expenses where a reasonable estimate is allowed. You may need to show how you worked out your business kilometres and any estimates you made.

Self-education expenses

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge (paragraph 13).

If the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer's income from their current income earning activities in the future, a deduction is allowable (paragraph 14).

In your case, in your position of employment, you possessed specific skills and knowledge and they were crucial to your income-earning activities. Your studies at university can be expected to have improved or maintained your skills and knowledge in your field of expertise.

Therefore, the self-education expenses you incurred for your university study while working in the same field may be an allowable deduction under section 8-1 of the ITAA 1997.

Car expenses

The car expenses incurred in self-education travel have been accounted for under the work-related car expenses above. The allowable self-education kilometres travelled are included in the total business kilometres travelled to determine eligibility to use the one third of actual expenses method. No further deduction is available under self-education expenses.

Travel expenses

Generally, a deduction is allowable for parking fees and tolls incurred while travelling in circumstances where the travel expenses are deductible.

In Taxation Ruling TR 95/9, paragraph 134 discusses the deductibility of parking fees and tolls. It states that a deduction is allowable for parking fees and tolls if the expenses are incurred while travelling to a place of education for self education purposes (if the self education expenses are an allowable deduction).

It has been previously established that the course you attended did have the necessary connection to your income producing activities. The travel to your place of education is therefore an allowable self-education deduction. Consequently, the cost of freeway tolls and car parking at the educational institution, while undertaking your course are an allowable deduction.

Computer

You used your personal computer for your university studies and also when you completed work reports at home. Your computer is a depreciating asset as it has a limited effective life and can be expected to decline in value over the time it is used. As a result, you may claim a deduction for the decline in value over the time it is used for your self-education and work purposes.

You will need to reduce the decline in value deduction by an amount that reasonably reflects the extent that the equipment was not used for income producing purposes. The calculated deduction can be included in either 'Work related self-education expenses' (D4) or 'Other work-related expenses' (D5) but not in both.

You have a choice of two methods to work out the decline in value of your computer. You must choose to use either:

· The prime cost method or

· The diminishing value method.

The calculation details for each of these methods are outline in the Tax Office publication Guide to depreciating assets. This publication can be accessed on our website www.ato.gov.au .

Computer upgrades

You upgraded the memory and hard drive of your personal computer. You also purchased a new, larger computer monitor. You used your computer extensively for work and study purposes. These items are depreciating assets and the cost of purchasing them is considered capital expenditure. Therefore, you are generally entitled to a decline in value deduction under Division 40 of the ITAA 1997 to the extent the assets are used for work purposes.

In some circumstances, however, an immediate deduction is available for the cost of a depreciating asset under subsection 40-80(2) of the ITAA 1997. To qualify for an immediate deduction the asset must:

· Be predominantly used for the purpose of producing assessable income that is not derived from carrying on a business

· Not be part of a set of assets you started to hold in the income year and that cost more than $300.

The memory upgrade cost approximately $100, the hard drive upgrade cost approximately $30 and the computer monitor cost approximately $250. These items are not a part of a set of assets and did not cost more than $300. These purchases were predominantly necessary because of your extensive work and study use of the computer. This use has sufficient connection to producing assessable income. Therefore, you are entitled to an immediate deduction for the total expenses incurred in their purchase.

Home office running expenses

As a general rule, expenses associated with a taxpayer's home or residence are of a private or domestic nature and do not qualify as deductions for taxation purposes.

Taxation Ruling TR 93/30 outlines an exception to this rule where part of the home is used for income producing activities, such as your working from home and study for a work related course. In this case, expenses that can be claimed with an area set aside as a home office or study will be running expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, depreciation, cost of repairs on items of furniture and furnishing in the office.

Practice Statement PS LA 2001/6 states that on all of these items a deduction is only allowable where additional running costs are incurred by a taxpayer because of income producing activities and a taxpayer must be able to show that the extra costs incurred relate to facilities provided exclusively for the taxpayer's benefit while working from home. For example, if a taxpayer undertakes a work activity in a room where other family members are watching television, there maybe no additional cost occasioned by that work activity. Also, the income producing use of the home office/study needs to be substantial and not merely incidental.

PS LA 2001/6 provides that individual taxpayers who claim deductions for work or business related home office running expenses comprising electricity, gas and depreciation on office furniture may claim either a deduction for the actual expenses incurred or a deduction calculated at the rate of 26 cents per hour. The Commissioner will accept a diary covering a four-week representative period as establishing an individual's pattern of use for the whole year.

In your case, you had a designated study or home office set up in your house. It was used predominantly for work and study purposes and you worked alone in this room. You are entitled to claim a deduction for running expenses for the periods you spent working alone in your home office on both work and study. You can choose to calculate the actual expenses incurred or utilise the rate of 26 cents per hour. The calculated deduction should be included under 'Other work-related expenses' (D5) on your income tax returns.

Internet and phone line usage

You utilised the internet at home for work and study purposes. You have the phone line solely connected in order to access the internet. You utilise your mobile phone only to make and receive calls. You incur expenses for both the internet access and phone line rental.

You can claim the work-related proportion of the expenses incurred because of the connection to the earning of your assessable income. You cannot claim a deduction for the private use of the internet and must apportion accordingly. The calculated deduction should be included under 'Other work-related expenses' (D5) on your income tax returns.

HECS fees

Section 26-20 of the ITAA 1997 provides that you cannot claim a deduction for loans you have under Higher Education Contribution Scheme (HECS) or Higher Education Loan Programme (HELP) or for repayments you make on a loan. Fees paid using FEE-HELP or OS-HELP may be deductible where there is sufficient connection between the course and your income earning activities.

Your university course fees were deferred under HECS (now referred to as HELP) and not FEE-HELP or OS-HELP. Therefore, you are not entitled to any deduction for your HECS fees.

Student union fees

You incurred student union fees during your time at university. This qualifies as a self-education expense and is therefore deductible under section 8-1 of the ITAA 1997.

Calculating your deduction

The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided in the TaxPack, which is available from our website www.ato.gov.au

You can also access the self-education expenses calculator at www.ato.gov.au /calculators to work out your claim.

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