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Edited version of your written advice
Authorisation Number: 1012852970106
Date of advice: 4 August 2015
Ruling
Subject: Cost of product testing by an employee
Question 1
Is a deduction allowable for the cost of alcohol purchased for the purpose of product knowledge in carrying out your duties as an employee of a liquor outlet?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2014;
Year ended 30 June 2015; and
Year ended 30 June 2016
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You are an employee of a franchise liquor store.
You purchase a single bottle from different distillers, wholesalers or retailers for the purpose of taste testing them either at home or at the retail outlet. Your employer does not provide alcohol for this purpose.
You prepare a written report on the products tested and give it to your employer. If your recommendation is positive your employer will often add that particular item to its retail stocks.
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) states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income and excludes losses or outgoings of a capital, private or domestic nature.
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.
This view was highlighted in Case P30 25 CTBR (NS) Case 94; 82 ATC 139 when a claim for the purchase of newspapers was made 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 therefore retained its private character and the deduction was not allowed.
In your case you purchase single bottles of alcohol so that an appreciation of the product can be formed to assist you in the performance of your duties. You are not required to incur the expense by your employer as a condition of your employment and your employer does not provide alcohol for this purpose.
While knowledge acquired from the taste testing of your employer's products may assist you to carry out your employment duties more efficiently, the expense is not necessarily incurred in order to earn your income. The tasting of the alcohol, whether at your home or your employer's premises, and with a personal consumption component present beyond the amount required for tasting purposes, has the character of a private expense. The connection is therefore too general or tenuous to allow a deduction for 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 alcohol.