Edited version of private advice

Authorisation Number: 1051809685522

Date of advice: 25 February 2021

Ruling

Subject: Work related expenses

Question

Are you entitled to a deduction for the purchase of noise cancelling earphones in accordance with section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are employed.

Due to the nature of your work and because of the COVID 19 pandemic you have been working from home and are required to dial into a number of work related conferences everyday from Monday to Friday.

You were using a headset but by the end of the working day you experienced discomfort around your ears.

You attempted to use other headsets but these did not alleviate your discomfort as a result you purchased earphones with noise cancelling functionality.

You use the noise cancelling earphones solely for business purposes and do not use them for any personal use.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Work related expenses

Section 8-1 of the 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.

Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997.

Whether an expense is incurred in gaining or producing assessable income is discussed at paragraph 13, of TR 2020/1, which states:

13. The pivotal element of section 8-1 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'. The High Court majority in Payne 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.

And further, at paragraphs 22 and 23:

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.

23. Accordingly, in some cases, expenditure would be regarded as too remote from the income-earning activities or incurred only as a prerequisite to earning income, and not incurred in the course of producing that income.

TR 2020/1 also discusses the relevance of employer requirements, at paragraphs 26 and 27:

26. A common issue relating to the deductibility of employee expenses is the relevance of express or implied conditions of employment. In this regard, a question that frequently arises is whether an expense becomes deductible merely because an employer specifically requires the employee to incur the expense.

27. In these circumstances, the employer's requirements do not determine the question of deductibility. This question is always to be answered by reference to the statutory test which involves an objective determination of the connection between the expense and the employee's income-earning activities.

In your case, you have purchased noise cancelling earphones to allow you to reduce the discomfort that you experienced at the end of the day.

The costs incurred for the ear phones has a general link or casual connection to your income producing activities, the expenditure is too remote from your actual income producing activities and therefore not deductible under section 8-1 of the ITAA 1997.

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