Edited version of your private ruling

Authorisation Number: 1012541225045

Ruling

Subject: work related expenses

Question

Can you claim, as a work related expense, a portion of the expenses incurred in relation to your business activity where those expenses were incurred for a dual purpose?

Answer: Yes.

This ruling applies for the following period(s)

Year ended 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on

1 July 2012

Relevant facts and circumstances

You are a professional artist and an arts educator.

Your income from these activities comes from two sources:

· As a professional artist, you produce, exhibit and sell artworks.

· You also teach art at an educational institution.

As part of your continued employment with the educational institution, you are required to provide details of your continual industry involvement as a professional artist on a monthly basis.

You conduct your professional artist activities as a sole trader.

You incur expenses in relation to the activities carried out as a sole trader and included in your continual industry involvement details provided to the educational institution.

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.

The courts have established that, for an expense to be an allowable deduction, there must be a sufficient connection between the outgoing and the assessable income such that the expenditure is incidental and relevant to the taxpayer's income producing activities (Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431), and it must have the essential character of an outgoing incurred in gaining assessable income (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; (1958) 11 ATD 404) (Lunney & Hayleys Case).

In your case, you derived income from the sale of art works as a professional artist and salary and wages as an art teacher at an educational institution.  Both the business activity and employment activity are similar as they both involve your pursuit of art.

A condition of your employment is that you regularly provide details of continual industry involvement as a professional artist. In this way, your arts business activity is used to satisfy the requirements of your employment providing a nexus between your activities as a professional artist and the income derived from teaching art. 

As a result, the deductibility of expenses incurred in relation to your activities can be classified as follows:

· expenses directly related to salary and wages which would be deductible against that income

· expenses directly related to your activities as a professional artist which would be deductible against income received in your sole trader business activity, and

· expenses incurred for a dual purpose where the expenditure is incurred partly to derive salary and wage income and partly for your business activities as a professional artist.

Expenses falling in to the third category will need to be apportioned between the dual activities.

When it is necessary to apportion a loss or outgoing, the appropriate method of apportionment in any particular case must be both 'fair and reasonable' in all the circumstances.