Edited version of private advice

Authorisation Number: 1052133465662

Date of advice: 28 June 2023

Ruling

Subject: Security expenses

Question

Will the security expenses to protect private and confidential documents and expensive equipment be an allowable deduction?

Answer

No.

This ruling applies for the following period:

Period Ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You had a break in at your residence which you are using as your business office. The office contains private and confidential documents and expensive equipment.

You constructed a fence around the entire house.

You constructed the fencing to:

•         prevent further break ins as crime rates have been increasing recently; and

•         protect the confidential documents and expensive equipment kept in the premises.

Relevant legislative provisions

Income tax Assessment Act 1997 section 8-1

Income tax Assessment Act 1997 Division 40

Reasons for decision

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.

Taxation Ruling TR 95/13 Income tax: employee police officers - allowance, reimbursements and work-related deductions (TR 95/13) outlines allowable deductions for police officers. TR 95/13 states that a deduction is not allowable for the cost of installing a security system at a police officer's residence, as it is both a capital and a private expense. Although this ruling relates to police officers, the principles are relevant in the entity's circumstances.

Normally, expenses associated with a person's home are private or domestic in nature, and therefore do not qualify as an allowable deduction (Handley v. FC of T81 ATC 4165; (1981) 11 ATR 644; and FC of T v. Forsyth 81 ATC 4157; (1981) 11 ATR 657). However, where the home is used for income producing activities and has the character of a 'place of business', a deduction may be allowable for a portion of 'occupancy expenses' such as insurance and 'running expenses' such as electricity charges for lighting (Taxation Ruling TR 93/30 Income tax: deductions for home office expenses). If the home is used in connection with the taxpayer's 'income producing activities' but does not constitute a 'place of business', only a proportion of the running expenses are allowable.

Security systems installed in a commercial building are generally an allowable deduction. However, installation of such equipment at home is generally regarded as being installed to protect the property. As such the expense is not an allowable deduction. The fact that the private and confidential documents and expensive equipment stored in a room does not mean that the deduction is allowable. There is generally insufficient connection between such expenses and the earning of assessable income.

In Case T20, 86 ATC 211, the costs incurred by a Family Court judge in improving the security of his home on the advice of the Intelligence Service were held to be capital expenditure, and also expenditure of a private or domestic nature, and thus not deductible.

The predominant purpose of fencing a home is to increase home security and as such is considered private and domestic in nature. For this not to be the case there would have to be an overwhelming connection between the security expenses and the earning of assessable income. Although we appreciate that fencing the house increases the security of the confidential documents and expensive equipment, there is not a sufficient nexus between the earning of assessable income and fencing the house. Therefore the entity is not entitled to a deduction under section 8-1 of the ITAA 1997.

Division 40 of the ITAA 1997 allows a deduction for the decline in value of a depreciating asset to the extent that the asset is used for a taxable purpose. A taxable purpose is the purpose of producing assessable income. The installation of the fence around the whole house is regarded as a depreciating asset. However, as the installation at your residence is considered a private expense and not sufficiently relating to the derivation of assessable income a deduction for the decline in value is likewise not allowable.

It is acknowledged that the entity installed the fence to protect the confidential documents and expensive equipment, however, as outlined above, the legislation does not allow a deduction for the associated expenses. The fact that this room used by the entity may not be used for other purposes does not change the above.

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