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Ruling

Subject: Expenditure on the purchase of alcohol

Question

Are you entitled to a deduction for any costs incurred in purchasing a particular type of alcoholic beverage?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are employed as a hospitality employee.

Your employer provides you with an allowance to purchase a particular type of alcoholic beverage for the purpose of product knowledge and competitor sampling.

The expenses you incurred on purchasing that type of alcoholic beverage exceeded the amount of your allowance.

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.

The receipt of an allowance does not automatically entitle an employee to a deduction, for example where the expenses are capital or private in nature.

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.

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.

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.

In your case knowledge acquired from the purchase and tasting of the alcoholic beverage may assist you to carry out employment duties more efficiently. However, the expense is not necessarily incurred in order to earn that income. The purchase and tasting of alcohol 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 costs incurred in purchasing the alcoholic beverage.