Edited version of private advice

Authorisation Number: 1051976652833

Date of advice: 28 April 2022

Ruling

Subject: Other work-related expenses

Question

Will the expense incurred in purchasing certain products be an allowable deduction to you under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. The expense incurred is too remote from your actual income producing activities and is therefore not deductible under section 8-1 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a social media and marketing manager employed by Company A.

Company A sells essential oils.

You are responsible for all marketing content (website, social media etc.)

You worked remotely and not on your employer's property.

You purchased certain products from Company B.

Your employment contract stipulates that you were invited to become a Company B member.

You provided a letter from your employer confirming that it was expected that as part of your employment you would set up a Company B account and maintain monthly orders though the account to gain product and business experience.

You were not reimbursed or given an allowance.

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 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.

Whether an expense is incurred in gaining or producing assessable income is discussed in Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997. It states at paragraph 13:

13. The pivotal element of section 8-1 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'. The High Court majority in Payne said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

And further, at paragraphs 22 and 23:

22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.

23. Accordingly, in some cases, expenditure would be regarded as too remote from the income-earning activities or incurred only as a prerequisite to earning income, and not incurred in the course of producing that income.

TR 2020/1 also discusses the relevance of employer requirements, at paragraphs 26 and 27:

26. A common issue relating to the deductibility of employee expenses is the relevance of express or implied conditions of employment. In this regard, a question that frequently arises is whether an expense becomes deductible merely because an employer specifically requires the employee to incur the expense.

27. In these circumstances, the employer's requirements do not determine the question of deductibility. This question is always to be answered by reference to the statutory test which involves an objective determination of the connection between the expense and the employee's income-earning activities.

Application to your circumstances

In your case, while the expense incurred in purchasing certain products may have a general link or casual connection to your income producing activities, the expense is too remote from your actual income producing activities and is therefore not deductible under section 8-1 of the ITAA 1997.