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Ruling

Subject: Fitness expenses

Question 1

Are you entitled to a deduction for your fitness related expenses?

Answer

No.

Question 2

Are you entitled to a deduction for the decline in value for your fitness equipment?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are an employee.

It is a requirement of your job to maintain a level of fitness.

In order to maintain your fitness you incorporate physical activity into your daily routine.

Your employer believes it is crucial that you participate in physical activity both internal and external to your employment.

You have purchased equipment to enable you to incorporate physical activity into your daily routine. You do not use the equipment whilst on duty and the equipment is not used for work related competitions.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Division 40.

Reasons for decision

Fitness expenses

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining

assessable income or, in other words, of an income-producing expense

(Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

· there must be a nexus between the outgoing and the assessable income so

that the outgoing is incidental and relevant to the gaining of assessable

income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

· it is necessary to determine the connection between the particular outgoing

and the operations or activities by which the taxpayer most directly gains or

produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

You are entitled to deduct work-related expenses for costs that directly relate to your work as an employee. The Commissioner generally takes the view that expenses incurred in keeping fit are inherently private in nature as it ultimately involves the person's own physical wellbeing. This position does not change even if the person is employed to undertake physical activity as part of their duties.

Taxation Ruling TR 95/17 discusses the deductibility of fitness related expenses for Australian Defence Force (ADF) members. TR 95/17 states that a deduction is not allowable for fitness expenses in maintaining a general standard of fitness expected of an ADF member as such expenses are generally private in nature. However a deduction is allowable for these costs if the ADF member can demonstrate that strenuous physical activity is an essential and regular element of his or her income earning activities and that these costs were incurred to maintain a level of fitness well above the ADF general standard.

An example provided in TR 95/17 refers to a member of the Special Air Services Regiment (SAS) who is paid to maintain the very highest level of fitness, and plainly differentiates between the level of fitness required of a SAS member and that of other ADF members. Physical training instructors may also be required to keep a very high level of fitness for their income earning activities.

The principle outlined in TR 95/17 is that unless a taxpayer's normal duties require an advanced (above and beyond normal) fitness level; deductibility of expenses will be denied.

In your case, we acknowledge that your duties require you to maintain a certain level of fitness and that there is potential for your duties to require strenuous physical activity. You need to be fit, healthy and skilled to effectively meet the demands of your role as required. A certain level of physical fitness will be important for you to adequately perform your duties.

However your employment duties are not considered to be similar to the SAS. Although you are required to be fit, your level of fitness required cannot be considered to be at the highest level nor at a level which makes it an essential element of your employment. Further, we do not consider that your duties require a higher degree of regular strenuous physical activity in comparison to a physical training instructor or soldiers attached to the SAS Regiment.

Additionally, whilst the equipment and activities may benefit you and help you keep fit, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income. Your fitness expenses are private in nature. Accordingly, the cost of your fitness related expenses are not deductible under section 8-1 of the ITAA 1997.

Depreciating assets

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. That is, a deduction for their decline in value is an allowable deduction where the assets are used for income producing purposes.

As outlined above, your fitness equipment is not being used for income producing purposes. Such equipment is more recreational and private in nature. Therefore no deduction is allowable under Division 40 of the ITAA 1997.

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