Edited version of your written advice

Authorisation Number: 1012988815987

Date of advice: 23 March 2016

Ruling

Subject: Work related expenses

Question 1

Are you entitled to a deduction for your car expenses for travel between home and your normal places of work?

Answer

No.

Question 2

Are you entitled to a deduction for your car expenses for travel between home and alternative places of work?

Answer

Yes.

Question 3

Are you entitled to a deduction for your car expenses for travel directly between two places of work?

Answer

Yes.

Question 4

Are you entitled to a deduction for your work related telephone and internet expenses?

Answer

Yes.

Question 5

Are you entitled to a deduction for your work related postage and stationary expenses?

Answer

Yes.

Question 6

Are you entitled to a deduction for your office equipment, projector bulb, books and pamphlet expenses?

Answer

Yes.

Question 7

Are you entitled to a deduction for the cost of your printer cartridges used for work purposes?

Answer

Yes.

Question 8

Are you entitled to a deduction for the full cost of your camera?

Answer

No.

Question 9

Are you entitled to a deduction for the depreciation of your camera that relates to your work related use?

Answer

Yes.

Question 10

Are you entitled to a deduction for the cost of providing luncheons, dinners, finger food or feeding visitors?

Answer

No.

Question 11

Are you entitled to a deduction for the cost of a building at your home?

Answer

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts

You are an employee.

You work at place A and place B.

Your work roster averages two times a month at place A and two times per month at place B. You live in place C.

You also conduct seminars during the year. Finger food is generally provided at these seminars. Often others also contribute food on these occasions.

During the relevant financial year you presented a series held weekly for an hour. You presented these talks at both place A and place B. Another weekly series of talks was also held in place A. Another presentation and meal was also held in place A and place B. The presentations generally go for one to two hours.

Your organization has luncheons. You contribute food for these lunches.

The luncheons and dinners are used for the interaction between you and others. If luncheons did not occur, your work would not be as effective.

You also cater for a few community dinners during the year.

There is rarely any leftover food after these functions. If there is, left-over food is generally given to community members that are struggling financially. On occasions you have eaten left over food.

As a senior employee, when interstate guest speakers come for a conference, they often stay at your home for one or two nights. This is where you are able to plan, discuss challenging issues and have important one to one time with your seniors over work related issues. Your spouse caters for them.

You have records of your food expenses. You circle the food items purchased for work on your shopping receipts.

Your residence had a shed with a dirt floor when you purchased the property. You wish to construct a room to be used for work. You have done concreting and plasterboard walls and a carpeted floor over the concrete. The project is not completed as yet.

You use your car for work related travel. You and your spouse have two vehicles. 95% of the time you drive car 1. You also drive car 2 for work related travel.

Apart from your travel to place A work place and place B work place, you also travel to place D for compulsory monthly meetings. You also travel to other places for work purposes.

You also visit people in place C for work.

You use your home office to prepare work and for administration.

You use your telephone and internet for work.

You claimed 100% of your car insurance, registrations and maintenance costs.

You do not use your vehicles 100% for work related purposes.

Expenses incurred include:

Telephone and internet

Post office expenses

Stationary

Office equipment

Books

Printer cartridges

Work pamphlets

Luncheons

Camera

Projector Bulb

Building room at home to be used for work purposes.

15% of your internet use is for work related purposes.

The printer is used 99.5% for work related purposes.

The camera is used initially 90% for work purposes, now the work use is 70%.

The room is not yet finished and was not used for work purposes.

You have receipts for the expenses incurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 25-100.

Income Tax Assessment Act 1997 Section 28-12.

Income Tax Assessment Act 1997 Section 40-25.

Income Tax Assessment Act 1997 Division 32.

Income Tax Assessment Act 1997 Division 43.

Reasons for decision

Allowable deductions

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, 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, 

• 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).

A deduction is only allowable if an expense:

• is actually incurred,

• meets the deductibility tests, and

• satisfies the substantiation rules.

Taxation Ruling TR 95/14 Income tax: employee teachers - allowances, reimbursements and work-related deductions discusses work related deductions for employee teachers. The principles in this ruling are equally relevant in your circumstances.

Home to work travel expenses

Generally a deduction is not allowable for the cost of travel between home and a normal place of work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction (Lunney's case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). 

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543).

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person arrives at work it is not possible to derive income. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income (Case V111 88 ATC 712).

Section 25-100 of the ITAA 1997 allows a deduction for the cost of travelling directly between two workplaces. However, subsection 25-100(3) of the ITAA 1997 states that travel between two places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.

The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example if a person's employment is inherently of an itinerant nature. In your case, the degree of travel surrounding your work is not sufficient to make your work itinerant.

In your case, you work at the place A and place B. Each work place is regarded as your normal place of work. Therefore the travel between your home and place A work place and between your home and place B work place is not an allowable deduction.

Travel between two separate work places

A deduction is allowable for the cost of travelling directly between two separate work places.

Therefore where you travel directly between two places for work, or you travel from work place A to work place B, then the associated travel expenses are an allowable deduction.

Travel to an alternative work place

A deduction is generally allowable for the cost of travelling to and from an alternative workplace. For example, travel to and from place D for work related meetings is an allowable deduction. As highlighted in paragraph 34 of Miscellaneous Taxation Ruling MT 2027, an alternative destination is not a regular place of employment.

In your case travel to and from an alternative place for work is regarded as deductible work travel. Therefore where you travel to an alternative place for work either from home or from the work place, this travel is deductible. Similarly, the cost of the return trip either to home or on to the work place is also an allowable deduction.

Car expenses

Section 28-12 of the ITAA 1997 provides that a deduction for car expenses can be made using one of four methods if you owned a car.

The four methods of calculating deductions are:

• 'cents per kilometre' method

• '12% of original value' method

• 'one-third of actual expenses' method, and

• 'log book' method.

You are entitled to choose the method in calculating your allowable deductions.

As your home to work travel is not an allowable deduction, you will need to recalculate your allowable car expenses. You are not entitled to 100% of your car insurance, registration or maintenance costs. Please note, that any travel done by your spouse is not sufficiently connected to your income earning activities and the associated car expenses are not an allowable deduction.

Telephone and internet costs

A deduction is allowable for the cost of work related telephone calls. Generally, work-related calls may be identified from an itemised telephone account. If such an account is not provided, a reasonable estimate of call costs, based on diary entries of calls made over four weeks with relevant accounts, is accepted by the Commissioner. Where the telephone or mobile phone is also used for private purposes, it is necessary to apportion the expenses.

In your case you use your phone for work related purposes and make several calls each day. 15% of your internet use is for work related purposes.

You are entitled to claim as a deduction the work-related percentage of your telephone accounts and internet service fees.

Please ensure you keep a diary or some other record to show the work related portion of your phone and internet usage.

Stationery, postage, office equipment, data projector bulb, books, pamphlets and printer cartridges

A deduction is allowable under section 8-1 of the ITAA 1997 for the purchase of stationery and other aids used for work-related purposes. If an item or article is used for both work-related and other purposes, then the cost must be apportioned and a deduction claimed only for that portion which is work-related.

You have incurred expenses for various stationary items, postage, shelving, batteries, books, projector bulb, printer cartridges and pamphlets which were purchased for use for your work. As the items have been used for work-related purposes, a deduction is allowed.

Depreciating assets - camera

The camera is regarded as a capital item and therefore a deduction under section 8-1 of the ITAA 1997 is not allowed.

However, section 40-25 of the ITAA 1997 allows a deduction for the decline in value of a depreciating asset held for the purpose of producing assessable income during the year. Only the income producing portion of the decline in value is deductible.

The decline in value of certain depreciating assets costing $300 or less is their cost. That is, you get an immediate deduction for the cost of the asset to the extent that you used it for a taxable purpose during the income year.

However, as your camera cost more than $300, it needs to be depreciated over its effective life.

A deduction is allowable for depreciation on the cost of the camera to the extent that it is used for work related activities. That is, where assets are used for private purposes as well as work related purposes, it is necessary to apportion the expenses to determine the work related use. A deduction is only allowable for the depreciation of the work related use of these assets.

For more information on calculating your allowable deduction for depreciation please refer to Guide to depreciating assets 2014 which is available on the Australian Taxation Office website www.ato.gov.au.

Luncheons

Division 32 of the ITAA 1997 disallows a deduction for the cost of providing entertainment. Section 32-5 of the ITAA 1997 provides a general prohibition on the deductibility of entertainment expenses under section 8-1 of the ITAA 1997.

Entertainment is defined in section 32-10 of the ITAA 1997 and means entertainment by way of food, drink or recreation; or accommodation or travel to do with providing entertainment by way of food, drink or recreation.

Section 32-5 of the ITAA 1997 does not stop you deducting certain losses or outgoings incurred by employers such as providing food or drink to your employees in an in-house dining facility. However this or the other exceptions outlined in section 32-30 of the ITAA 1997 do not apply to you.

Section 32-35 of the ITAA 1997 does not stop you deducting a loss or outgoing for food to an individual that is reasonably incidental to the individual attending a seminar that goes for at least 4 hours. However where a seminar or conference goes for less than 4 hours, no deduction is allowed for finger food or other food items provided.

Section 32-50 of the ITAA 1997 does not stop you deducting a loss or outgoing for providing food free to members of the public who are sick, disabled, poor or otherwise disadvantaged.

Therefore in your circumstances, the provision of food for luncheons or dinners or feeding visitors or providing finger food is not allowable under Division 32 of the ITAA 1997.

Even where a person may feel a moral, personal or social obligation to outlay expenses for lunches or meals or food, there is no connection between the expenditure incurred and the gaining or producing of assessable income. The expenditure is not an allowable deduction.

Capital works

Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes.

Subsection 43-25(1) of the ITAA 1997 provides that the rate of deduction for capital works which began after 26 February 1992 for a residential rental property is 2.5%. However, a deduction cannot be made prior to the completion of the capital works (section 43-30 of the ITAA 1997).

In your case, the project at home is regarded as capital works. As the room is capital in nature, no deduction is allowed under section 8-1 of the ITAA 1997. Furthermore, as the room is not completed, no portion of the expenses can be claimed as a deduction under Division 43 of the ITAA 1997.

Please note, that capital works deduction is only allowed where a property is used for income producing purposes. A person's home is not generally regarded as a property used for income producing purposes. Your place of residence is not regarded as a place of business as per the guidelines in Taxation Ruling TR 93/30. Therefore when your room is complete, the construction costs or other associated capital works are not an allowable deduction. However, the running costs such as electricity that is used for income producing activities is an allowable deduction.

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