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Ruling

Subject: Deduction for alcohol

Question

Are you entitled to a deduction either as a work related expense or as self education for the cost of alcohol?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are a stock manager in the retail liquor industry.

You purchase alcohol to sample the different styles of beer, wine and spirits.

It is a requirement of your job that you have a strong product knowledge.

It is against your employer's policy to consume any of the alcohol during work time and you are not allowed to take any home for sampling.

You buy the product once only for tasting.

You are required to pay full store price for your own supplies.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

In establishing a connection, it must be shown that the outgoing is relevant and incidental to the gaining of assessable income.

In most circumstances the purchasing of alcohol for tasting purposes would be considered a private expense. In some limited circumstances this expense may be characterised as an income producing expense and may be an allowable deduction. However there is an onus on the taxpayer to prove that such an outlay should be an allowable deduction.

In considering Case R113 84 ATC 750, where the taxpayer was a sales manager for an airline, the Board of Review disallowed a deduction for costs associated with overseas travel. In making this decision Member P. M. Roach made the following comment:

One can well understand the proposition that travel experience is of advantage to a salesman of tour and travel services, just as experience of drinking whiskey may be of advantage to a salesman of whisky. But it does not follow for the whisky vendor that all expenditure he incurs relating to his consumption of whisky lacks any private character. Product sampling in the course of employment cannot be the only explanation for such expenditure.

In your case you have purchased alcohol to sample the different styles of beer, wine and spirits. However, while you are required to possess a strong product knowledge, it is evident that you are not required by your employer to incur these expenses as your employer's policy strictly forbids both the sampling at work and a reduction in the price of any alcohol purchased for your own consumption. As such the expenses are not necessarily incurred in earning assessable income and likewise, are not considered to be self education expenses.

Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997 for expenditure incurred in purchasing alcohol.