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Ruling

Subject: Self education

Question

Are you entitled to a deduction for the purchase of products?

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 manager of a company.

You purchase products which you taste to assess for perceived ingredients, components and processes in order to produce new recipes.

Your employer does not reimburse you for any purchases or pay you an allowance.

Your employment agreement does not state that you are required to test products or produce recipes.

You consume all the products at home or away from your work place.

You make products at home to test your recipes. The product is consumed by you outside the work place.

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.

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 products 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.

This was highlighted in Case P30 25 CTBR (NS); Case 94 82 ATC 139 when the Board of Review disallowed a claim for the purchase of newspapers by a real estate salesman. The real estate salesperson would gather information from the daily papers to assist him in selling real estate. The salesperson was however, unable to demonstrate that his income was affected by expenditure on the newspapers. The expense retained its private character and the deduction was not allowed.

You are not required to incur the expense by your employer and your employer does not assist you by either contributing products or paying you an allowance for the cost of products. Additionally, any product made at home to test out new recipes is done in your own time and the resulting product is consumed by you.

While knowledge acquired from the tasting may assist you to carry out employment duties more efficiently, the expense is not necessarily incurred in order to earn that income. The tasting of the products at your home has the character of a private expense. The connection is too general or tenuous to allow a deduction for any portion of the cost. Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost incurred in purchasing the products.