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Edited version of your written advice
Authorisation Number: 1012874480110
Date of advice: 7 September 2015
Ruling
Subject: Deductibility of detection unit
Question
Are you entitled to a deduction for the cost of purchasing and maintaining a detection unit?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on
1 July 2014
Relevant facts
A requirement of your employment is that you maintain a zero blood alcohol (0.00) level whilst at work. Two breaches will result in dismissal from your employment.
You have purchased a detection instrument. You incur other expenses relating to the instrument as it is sent via post for calibrations every six months.
Assumptions
None
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 losses and outgoings which are incurred in gaining or producing assessable income. However, no deduction is allowed where the losses or outgoings are capital, or are of a capital, private or domestic nature or another provision prevents the taxpayer from deducting it.
The courts have considered the phrase 'incurred in gaining or producing assessable income' to mean in the course of gaining or producing such income. To be an allowable deduction there has to be a nexus between the outgoing and the income, and the expense must be incidental and relevant to the income-earning activity.
Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney v. FC of T (1958) 100 CLR 478 (Lunney's Case)).
In Lunney's Case the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. Williams, Kitto, and Taylor JJ stated (at pages 498 - 499):
It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.
The fact that an expense is incurred by an employee at the direction of their employer does not mean that a deduction is automatically allowable.
The issue of expenses incurred as a condition of employment has been considered in numerous cases including Case L61 79 ATC 488; 23 CTBR (NS) Case 73, where an army officer was denied a deduction for his haircuts. It was held that, although it was a condition of employment to be well groomed, the expense was private in nature.
In your case the expenditure on the purchase and maintenance of the detection unit was incurred to ensure that you arrive at work with a zero blood alcohol (0.00) limit. The detection unit is not used as part of the duties you perform, but is used to put you in a position to perform your work duties. The expenditure on the detection unit was incurred as a prerequisite to the earning of your income rather than incurred in the course of carrying out your duties which gained or produced your income.
Furthermore the expense is private in nature. Although it is a condition of your employment that you arrive to work with a zero blood alcohol (0.00) limit, this is a personal responsibility such as wearing a watch to ensure you arrive on time. These items retain the essential character of a private or domestic nature even if failure to comply may have adverse results. Therefore, you cannot claim a deduction for the detection unit, under section 8-1 of the ITAA 1997.