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Edited version of your private ruling
Authorisation Number: 1012517484983
Ruling
Subject: Internet expenses
Question
Are you entitled to a deduction for work related internet expenses incurred when no record showing your work related use is kept?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2011
Relevant facts
You are a professional.
You use the internet for work related purposes.
You currently subscribe for a bundle which includes phone line rental, all phone calls and internet downloads. You pay the same monthly fee regardless of the use.
The internet is also used for private purposes.
You have receipts for your monthly bill. You have not kept a diary or records to show your work related use.
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, or a provision of the ITAA 1997 prevents it.
A number of significant court decisions have determined that for an expense to be an allowable deduction:
§ it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478,
§ there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and
§ it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).
A deduction is only allowable if an expense:
§ is actually incurred,
§ meets the deductibility tests, and
§ satisfies the substantiation rules.
A deduction is allowable for the cost of work related internet use where the relevant substantiation requirements have been met. Where the internet is also used for private purposes, it is necessary to apportion the expenses to determine the work related use. Generally, work-related use can be determined from a diary showing the hours the internet was used for work related purposes and the hours used for personal use.
As your bundle relates to your line rental, phone calls and internet, you will need to apportion the expenses using a reasonable basis. Apportionment is a question of fact and involves a determination of the proportion of the expenditure that is attributable to deductible purposes. The Commissioner believes that the method of apportionment must be fair and reasonable in all the circumstances.
Generally, line rental costs for a home have a private or domestic character and not an allowable deduction under section 8-1 of the ITAA 1997. The use of the internet for work related purposes does not incur any additional rental costs that can be classified as work related. There is not a sufficient connection between your income earning activities and the expenses incurred for your line rental. Therefore no deduction is allowable for the costs associated with your line rental.
Your costs are not broken up into the relevant parts, therefore you will need to calculate the deductible portion. One way to apportion your expenses is to allocate 1/3 of your expenses to each purpose, that is, 1/3 of your bill relates to line rental, 1/3 to phone and 1/3 to internet. Records are then required to show what if any of your monthly internet expense is work related.
As your professional work is not regular you need to keep records showing any work related internet use and total internet use so that an accurate work related portion can be determined.
Although you have your monthly bills, you have not kept a record of your work related internet use. Without such a record to show any work related use, your work related internet use cannot be determined. As the necessary substantiation requirements have not been met, no deduction is allowable.