Edited version of private ruling

Authorisation Number: 1011583182435

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Ruling

Subject: Deductions

Question 1

Are you entitled to a deduction for furniture TV installation and subscription purchased while living away from home?

Answer:

No.

Question 2

Are you entitled to a deduction for the cost of hotels whilst on respite from the hostel where you are employed?

Answer:

No

Question 3

Are you entitled to a deduction for the decline in value of a PlayStation 2?

Answer:

Yes

Question 4

Are you entitled to a deduction for PlayStation 2 games, set top box and kitchen appliances used in the hostel where you work?

Answer:

Yes.

Relevant facts and circumstances

You are contracted for two years on a salary to be a live in hostel parent.

You moved from your home state to take up the position as house parent and left your furniture behind in Hobart.

You purchased the following items of furniture to go into the house parents section and office.

· queen bed

· television

· TV installation and subscription

· lounge suite

You also purchased the following items for the use of the teenagers you care for

· PlayStation 2

· Various PlayStation 2 games

· HDTV set top box

· Various kitchen appliances that assist you with making large meals.

Up to eight days per term is offered to you for respite away from the hostel. As you normally reside in another state, you do not have any other accommodation and so stay in hotels.

You do not pay for any utilities.

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 40-65,

Income Tax Assessment Act 1997 Section 40-70 and

Income Tax Assessment Act 1997 Section 40-75.

Reasons for decision

Summary

As the expenditure on furniture and TV installation and subscription and hotel accommodation is of a private nature no deduction is allowed. As the PlayStation 2, PlayStation 2 games, set top box and kitchen appliances are used to earn your assessable income you are entitled to a deduction for the decline in value of the PlayStation 2 and an outright deduction for the other purchases.

Detailed Reasoning

Furniture, TV installation and subscription and hotel accommodation

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.

In general, various court decisions have concluded expenses incurred while away from home are essentially 'living expenses' of a private or domestic nature and therefore not deductible. The place where the taxpayer stays whilst away from home is considered their usual place of residence for that period.

For example, in the Federal Court case of Federal Commissioner of Taxation v Toms (1989) 89 ATC 4373; (1989) 20 ATR 466 (Toms), the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home. On working days he would proceed by four-wheel drive vehicle from the base camp to predetermined logging areas within a radius of 20 kilometres. He would return home every weekend. The Federal Court ruled the only reason why the taxpayer had to incur expenses in providing temporary accommodation at the base camp was because he had chosen to reside at a place so far from where he was required to be to earn his income. As those expenses were dictated not by his work but by private considerations, they were not deductible.

In your case, your expense is as found in the legal case of Toms. You incurred expenses on purchasing furniture and staying in hotels because it was required of you to reside at a place where it was necessary for you to be in order to gain your income.  

As such, your expenses incurred on purchasing furniture for the house parents section and office and for hotel accommodation are of a private nature and are not deductible under section 8-1 of the ITAA 1997.

PlayStation 2

In your case you purchased a Playstation 2 gaming console for the use of the people you care for as part of your employment. The cost of a PlayStation 2 would ordinarily be considered a private expense; however, it is accepted an asset which is designed for private enjoyment may be used for work purposes in limited circumstances. Your use of the Playstation 2 gaming console assists you with your employment duties, and therefore, when used for this purpose, it is used for the purpose of producing assessable income.

As you use the PlayStation 2 gaming console for income producing purposes you are entitled to a deduction for its decline in value under section 40-25 of the ITAA 1997, to the extent that it is used to produce assessable income. You have a choice of two methods to work out the decline in value deduction for your PlayStation 2 gaming console (section 40-65 of the ITAA 1997). You may choose to use either:

· the diminishing value method (section 40-70 of the ITAA 1997), or

· the prime cost method (section 40-75 of the ITAA 1997).

Irrespective of the method you choose you will need to reduce your deduction for the decline in value to the extent that the PlayStation 2 is not used to produce your assessable income (for example, any use of the console by yourself or others for private enjoyment).

Please note that, as stated in IT 2685, an immediate deduction is available for depreciable assets acquired on or after 1 July 1991 either costing $300 or less or with an effective life of less than 3 years. Therefore if you paid less than $300 for the PlayStation 2 you can claim an outright deduction.

PlayStation 2 games and set top box

You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital or private in nature (section 8-1 of the ITAA 1997).

While the cost of PlayStation 2 games or a set top box would ordinarily be considered a private expense it is accepted that in some limited circumstances the cost (or some part thereof) may be characterised as an income producing expense and may be an allowable deduction.

While expenditure on PlayStation 2 games and set top box would ordinarily be considered to be of a private nature and not deductible, in this instance there is the necessary connection between the purchase of the games and the earning of your assessable income.  

Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of PlayStation 2 games and set top box to the extent that they are used by the teenagers you supervise.

Kitchen Appliances

As the cooking utensils are used to assist you to carry out your income earning activities you are entitled to a deduction for their cost.