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Ruling

Subject: Income Tax - deductibility of depreciating assets that are 'eligible work related items'

Question 1

Will you be entitled to an income tax deduction for a camera provided to you by your employer?

Answer

No.

Question 2

Will you be entitled to an income tax deduction for a flash to be used with the camera, provided to you by your employer?

Answer

No.

Question 3

Will you be entitled to an income tax deduction for a macro camera lens to be used with the camera, provided to you by your employer?

Answer

No

Question 4

Will you be entitled to an income tax deduction for a second macro camera lens to be used with the camera provided to you by your employer?

Answer

No

This ruling applies for the following periods:

1 July 2012 to 30 June 2013

1 July 2013 to 30 June 2014

The scheme commences on:

Not yet commenced

Relevant facts and circumstances

You intend to enter into an arrangement with your employer where your employer will purchase the following items ('the items') for you:

· a camera

· a flash unit

· a macro camera lens

· a second macro camera lens

Your employer will deduct the purchase price of these items from your salary via a salary sacrifice arrangement.

The items will be used primarily for work-related use

The provision of each item will be an exempt benefit as an eligible work related item under section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 8-5

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 section 40-30

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 40-45

Fringe Benefits Tax Assessment Act 1986 section 58X

Reasons for decision

Question 1

Will you be entitled to an income tax deduction for a DSLR camera, provided to you by your employer?

The Income Tax Assessment Act 1997 (ITAA 1997) stipulates in what circumstances an individual can claim an income tax deduction in their individual tax return for a relevant work related expense. The general rules about deductions are found in section 8-1 of the ITAA 1997 as follows:

SECTION 8-1 General deductions

8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income

Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

8-1(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) It is incurred in relation to gaining or producing your *exempt income or your *non assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it.

For a summary list of provisions about deductions, see section 12-5.

In summarising, to deduct an amount for a loss or outgoing under section 8-1 of the ITAA 1997 one of the following requirements must be met:

· the loss or outgoing must be incurred in gaining or producing assessable income, or

· the loss or outgoing must be necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income

In addition, section 8-1 prescribes that a deduction will not be allowed as a general deduction if any of the following exists:

· the expense is capital or capital in nature

· private or domestic in nature

· used to produce exempt income or non assessable non-exempt income

· prevented from being deducted by a provision of the ITAA 1997 or the Income Tax Assessment Act 1936

The expense incurred in obtaining the camera is considered to be capital in nature and therefore not allowable as a general deduction under section 8-1. Section 8-5 of the ITAA 1997 provides that expenses that are not deductible under section 8-1 may still be allowable under another provision of the Act. Section 8-5 states:

SECTION 8-5 Specific deductions

(1) You can also deduct from your assessable income an amount that a provision of this Act (outside this Division) allows you to deduct.

(2) Some provisions of this Act prevent you from deducting an amount that you could otherwise deduct, or limit the amount you can deduct.

(3) An amount that you can deduct under a provision of this Act (outside this Division) is called a specific deduction.

Division 40 of the ITAA 1997 allows a specific deduction for the decline in value of a depreciating asset.

Division 40 states:

SECTION 40-25 Deducting amounts for depreciating assets

You deduct the decline in value

40-25(1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a *depreciating asset that you *held for any time during the year.

Note 1: Sections 40-70, 40-72 and 40-75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsection 40-70(3), 40-72(3) and 40-75(7).

Note 2: Small business entities can choose to both deduct and work out the amount they can deduct under Division 328.

Note 3: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35.

In summarising, you can deduct an amount equal to the decline in value for an income year if you held a depreciating asset for any time during the year.

The term 'depreciating asset' is defined in the ITAA 1997 as follows:

Section 40-30 What a depreciating asset is

(1) 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, except:

(a) land; or

(b) an item of *trading stock; or

(c) an intangible asset, unless it is mentioned in subsection (2).

According to this definition, the camera is a depreciating asset for the purposes of the ITAA 1997.

ATO Interpretative Decision ATO ID 2004/559 Income Tax Capital Allowances: cost of depreciating asset obtained through salary sacrifice (ATO ID 2004/559), confirms that a depreciating asset obtained by an employee through a salary sacrifice arrangement will qualify as being 'held' by the employee for the purposes of section 40-25 and therefore, can be allowable as an income tax deduction for the employee. ATO ID 2004/559 states:

Where an employee receives a depreciating asset as a property benefit through a salary sacrifice arrangement, they become the legal owner of the asset, and therefore its holder, under item 10 of the table in section 40-40 of the ITAA 1997. They will therefore be entitled to deduct an amount for the decline value of that asset based on its cost under section 40-25 of the ITAA 1997, to the extent it is used for a taxable purpose.

However, the ITAA 1997 specifically disallows deductions for the decline in value of depreciating assets where the asset is an 'eligible work related item' according to section 58X of the FBTAA. This rule is set out in section 40-45 of the ITAA 1997 which states:

Section 40-45 Assets to which this Division does not apply

Eligible work related items

40-45(1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act).

The relevant section of the FBTAA, section 58X provides the exemption as follows:

58X(1) [Exempt benefits]

Any of the following benefits provided by an employer to an employee of the employer in respect of the employee's employment is an exempt benefit:

(a) an expense payment benefit where the recipients expenditure is in respect of an eligible work related item;

(b) a property benefit where the recipients property is an eligible work related item;

(c) a residual benefit where the recipients benefit consists of the making available of an eligible work related item.

Your employer intends to provide you with a camera, as a property benefit. Under the proposed arrangement the camera will be exempt from fringe benefits tax as an eligible work related item under section 58X of the FBTAA.

Therefore, in accordance with section 40-45 of the ITAA 1997 you will not be able to claim an income tax deduction for the camera in your individual income tax return.

Question 2

Will you be entitled to an income tax deduction for a flash to be used with a DSLR camera, provided to you by your employer?

By applying the reasoning discussed above, it can be concluded that as per section 40-45 of the ITAA 1997 you will not be allowed an income tax deduction for the flash in your individual income tax return.

Question 3

Will you be entitled to an income tax deduction for a macro camera lens to be used with a DSLR camera, provided to you by your employer?

By applying the reasoning discussed above, it can be concluded that as per section 40-45 of the ITAA 1997 you will not be allowed an income tax deduction for the lens in your individual income tax return

Question 4

Will you be entitled to an income tax deduction for a second macro camera lens to be used with a DSLR, provided to you by your employer?

By applying the reasoning discussed above, it can be concluded that as per section 40-45 of the ITAA 1997 you will not be allowed an income tax deduction for the lens in your individual income tax return

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