Edited version of private advice

Authorisation Number: 1051617563546

Date of advice: 5 December 2019

Ruling

Subject: Work related expenses

Question 1:

Are the expenses you incurred for the specialised activities deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA1997)?

Answer 1:

Yes.

Question 2:

Can you claim a deduction for the decline in value of the specific equipment you purchased to use in your role under Division 40 of the ITAA 1997?

Answer 2:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are an employee of the Government.

You are a specialist in a field within your organisation.

As part of this role you must maintain an extremely high skill level, knowledge and accuracy using a wide range of equipment.

It is a requirement that you have an extensive knowledge of what equipment is to be used in a certain situation, depending on a range of things.

This knowledge is essential in performing your role to the high standard expected by your employer.

Equipment that is provided by your employer is not allowed to be taken away from the workplace. In order to maintain the high level of skill, accuracy and knowledge that is required to fulfil your role, many hours of practice outside of work hours with the equipment is required.

You incur these costs and are not reimbursed by your employer.

This practice takes place at various locations.

The equipment you purchased is also occasionally used at your workplace during the time you are earning an income in that role.

You are responsible for this equipment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 section 40-25

Reasons for decision

Questions One

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a deduction is allowable for expenses incurred in gaining or producing assessable income, provided those expenses are not capital, private or domestic in nature.

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 (Lunneys case)),

·        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).

The expenses you incurred for the specialised activities meet these conditions contained within section 8-1 of the ITAA 1997 and are therefore deductible.

Questions Two

A depreciating asset is an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used.

The cost of purchasing an asset is generally of a capital nature and is therefore not immediately deductible as an expense under section 8-1 of the ITAA 1997. However, Division 40 of the ITAA 1997 may allow a capital allowance deduction for the decline in value of a depreciating asset used for income producing activities.

Under section 40-25 of the ITAA 1997 you may claim a deduction equal to the decline in value of depreciating assets that you hold, to the extent to which you use the assets for a taxable purpose. The amount of your deduction is determined by the cost of the asset, its effective life and the percentage of taxable purpose the asset is used for.

In your case you purchased some specific equipment. It is accepted that the use of these items will assist you to maintain your skills in your role. These items are reasonably expected to decline in value overtime and are therefore considered to be depreciating assets for the purposes of Division 40 of the ITAA 1997.

Consequently you are entitled to claim a deduction for the decline in their value. You will need to apportion the deduction to exclude any private use.