Edited version of private advice

Authorisation Number: 1051778721753

Date of advice: 11 May 2021

Ruling

Subject: Fitness expenses

Question 1

Are you allowed a deduction for the fitness expenses incurred under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are you allowed a deduction for the recovery expenses incurred under section 8-1 of the ITAA 1997?

Answer

No.

Question 3

Are you allowed a deduction for the decline in value of your personal paddle craft used to maintain paddling competency and fitness for Swiftwater Flood Rescue under section 40-25 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

You are a specialist Rescue Technician (your specialist role).

Your specialist role includes ongoing regional and state-based training and response to Swiftwater Flood Rescue incidents, urban search and rescue, trench rescue, confined space rescue, vertical rescue and remote rescue.

Your specialist role is above and beyond the normal operational requirements of your profession.

You have purchased and utilise two personal paddle craft to maintain and enhance both competency and physical fitness to perform swiftwater flood rescue tasks in the two types of rescue craft used. You use a surf ski and a stand-up paddle board as your personal paddle craft to undertake this training.

You have incurred expenses for instructor-led functional strength and conditioning sessions at a gym. To assist in recovery from performing remote and other rescue tasks you have purchased remedial massage sessions, physiotherapy treatment and Chiropractic treatment.

Massages are required to treat tight, spasmed and overloaded muscle groups caused by carrying heavy backpacks with rescue equipment up and down mountains in demanding specialist training and incidents. You have massages once per month.

Chiropractic treatment and physiotherapy is required to treat mechanical injuries caused by lifting heavy loads, including bodies and equipment in awkward location and positions, wearing heavy backpacks, carrying people on stretchers over difficult terrain, and carrying bulky equipment such as motors, rafts and hydraulic tools.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 40-30.

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for expenses to the extent 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.

A deduction will not be allowed under section 8-1 of the ITAA 1997 for expenses which are of a capital, private or domestic nature, where they lack sufficient nexus to income production, or if they are incurred in gaining or producing exempt income or where a provision of the tax law prevents it.

The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income (Commissioner of Taxation v Day [2008] HCA 53).

The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NLv Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that^:

... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...

Taxation Ruling TR 2020/1 notes in part:

16. For expenses incurred by employees, the fundamental question is whether an expense is incurred in the course of earning employment income. This involves considering the proper scope of the particular taxpayer's work activities to determine if the circumstances of the expense have a sufficiently close connection to earning the employment income.

19. More difficult are cases where an expense ordinarily bears the characteristics of an everyday personal expense. Although generally not deductible, a deduction may be allowed if the particular employment context creates a close connection between the expenditure and the production of assessable income through work activities; that is to say, 'the occasion of the expenditure is to be found in the income-earning activity itself'

22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.

Even if the positive test of section 8-1 is satisfied, employees cannot claim deductions for outgoings that are private in nature. The term 'private' is not defined in the Act but has its ordinary meanings of 'personal'.

Fitness and recovery expenses

Generally, expenses incurred in the maintenance of physical fitness and wellbeing are not deductible as they are dependent on the employee's personal circumstances, to enable them to be sufficiently healthy to undertake both private and work activities. These expenses are in the nature of everyday personal expenses and are not deductible. Similarly, an expense that restores standard health, comfort and mobility after performing work activities does not have the requisite connection to producing income and is of a private character. Fitness related expenses can be deductible where a taxpayer is required to maintain a very high level of fitness as a necessary aspect of their work activities, well above the profession's general standard.

Expenditure incurred to maintain a taxpayer's health and wellbeing are incurred to overcome an illness or injury sustained by the taxpayer or to maintain a taxpayer's good health. Such expenses are not incurred in the course of gaining or producing a taxpayer's assessable income. They are private in nature and are not deductible.

In Kemp v. Federal Commissioner of Taxation (1992) 110 ALR 375; (1992) 24 ATR 75; 92 ATC 4542, Justice Hill noted that in Sun Newspapers Ltd v FC of T (1938) 5 ATD 87 expenses were distinguished between those of a recurring nature that are a working expense, and are deductible, and recurrent expenses on maintaining the asset or income earning apparatus, which are capital in nature. An example provided of deductible recurrent expenditure was training expenses for a professional footballer. Applying this principle to fitness and recovery expenses, training expenses to have the body at the relevant standard of physical fitness would be regarded as a working expense and deductible. Recovery expenses involve maintaining the asset (that is, the body) and are considered capital in nature.

Depreciating assets - personal paddle craft

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.

Section 40-30 of the ITAA 1997 provides a definition of depreciating assets. They are assets that have a limited effective life and can reasonably be expected to decline in value over the time it is used.

The personal paddle craft you acquired are depreciating assets for tax purposes as they have a limited effective life and can be expected to decline in value over the time they are used. Accordingly, section 40-25 is potentially applicable.

A condition for the deduction is use of the depreciating asset 'for the purpose of producing assessable income'.

Application to your circumstances

In your case, your role requires you to maintain a fitness level well above the normal firefighting standard. To ensure you maintain the fitness level required to carry out your duties, you are required to successfully complete an Arduous Pack Test and various swim proficiency tests. Therefore, you are allowed a deduction for the fitness expenses incurred being gym membership and swimming instructor sessions.

The expenses you incurred for massage, physiotherapy and chiropractic treatment are recovery expenses and relate to your general health and wellbeing. They cannot be described as fitness related expenses sufficiently connected to the maintenance of a superior level of fitness. The occasion of the outgoing is to rectify ailments affecting various parts of your body that impair a standard level of fitness. Therefore, they are not incurred in gaining or producing your assessable income and are private in nature and no deduction is allowable for the expenditure you incur on remedial massage, chiropractic treatment and physiotherapy.

Although an employer's requirement that an employee incur an expense does not determine the deductibility, it is not irrelevant and, in particular, will generally assist in ascertaining the proper scope of an employee's income-earning activities to determine whether an expense has been incurred in the course of earning assessable income.

Whilst using personal paddle craft may add to your general level of fitness or maintaining general water skills proficiency, according to the documents detailing the assessments you need to pass each year in order to be able to carry out your duties, they don't necessarily provide you with the higher level of strength and fitness you require for your role. There is not a sufficient connection between the personal paddle craft and your income producing activities. Therefore, no deduction is allowed under section 40-25 of the ITAA 1997 for the decline in value for the personal paddle craft.

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