Edited version of private advice

Authorisation Number: 1052172975323

Date of advice: 27 September 2023

Ruling

Subject: Work related expenses - non-digital wristwatch

Question

Am I entitled to a deduction for the cost of purchasing a non-digital wristwatch for the 20XX-20XX income year?

Answer

No

This ruling applies for the following period:

Year ended XX June 20XX

The scheme commenced on:

XX June 20XX

Relevant facts and circumstances

You commenced work in December 20XX with the Department of Defence, as an XXX.

You work across zoned security environments - most specifically Zone X, Zone X and Zone X.

You do not work in a lower classified environment.

Within these zones the Department of Defence prohibits the use of Portable electronic devices, such as mobile phones, laptops, Fitbit, smartwatches, iPads and tablets.

Physical attendance is required and there are no other options to achieve your work outcomes.

Your role requires effective time management.

Your role requires meticulous scheduling,andyou attend multiple meetings a day.

A non-digital watch is preferential to your role and allows you to access multiple time zones across Australia to manage meetings with multiple areas.

Daily you work from Sensitive Compartmented Information Facilities (SCIFs) where electronic devices including smart watches, standard digital watches and computers are prohibited to protect national security.

You manage a team of X people and X outsource functions and therefore you are booked into multiple places at once at allotted times.

You have purchased a standard non-digital wristwatch with special characteristics, which is only used during work hours.

You operate across multiple time zones concurrently for your work.

Outside of work you use a separate conventional watch.

Relevant legislative provisions

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act (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 when the outgoings are of a capital, private or domestic nature.

Generally, a deduction is not allowable for the cost of purchasing or repairing ordinary wrist watches, including waterproof watches, as it is considered to be of a private nature. There have been a number of instances where this issue has been the subject of an Appeal before the Boards of Review.

In Case S82 85 ATC 608; (1985) 28 CTBR (NS) (Case S82), a nursing sister was not allowed a deduction for the cost of a watch that was used in the course of her employment. The Board of Review's decision was that the watch was (ATC at 612; CTBR at 682):

an item of a private nature...[and]...The use of a watch...is important to most people in the community whether it be used...to ensure not commencing work too early or finishing too late, or to log time...

In Case P71 82 ATC 338; (1982) 26 CTBR (NS) Case 3, an ambulance officer was not allowed a deduction for a watch he claimed. It was decided that the expense was essentially of a private nature and not incurred in gaining assessable income:

The evidence does not provide any basis either for concluding that the taxpayer's employment would be threatened by his failure to own a watch and use it for official purposes, or that the level of income was improved by using it for that purpose...

In Case N84 81 ATC 451; (1981) 25 CTBR (NS) Case 43, a television cameraman was not allowed a deduction for the purchase of a watch which was used for work. The deduction was denied on the grounds that the watch did not possess any special attributes and although it was used for work, this fact did not change the essential character as private expenditure.

The Commissioner's view on the deductibility of wrist watches is contained in a number of occupational rulings, specifically:

•                     Taxation Ruling TR 95/13 - Police Officers

•                     Taxation Ruling TR 95/14 - Teachers

•                     Taxation Ruling TR 95/17 - Australian Defence Forces

•                     Taxation Ruling TR 98/14 - Employee Journalists

In Taxation Ruling 95/14, the Commissioner has expressed the view that a dedicated stopwatch is an item which can be directly related to the work-related activities of, for example, a physical education employee teacher. A deduction is allowable under section 8-1 of the ITAA 1997 for the cost of purchase, repairs, and batteries of these watches.

In Taxation Ruling 95/15, the Commissioner expressed the view thata deduction is allowable for the decline in value and maintenance of a nurse's fob watch to the extent of the work-related use of the watch. A deduction is not allowable for the cost and maintenance of a conventional wristwatch. The general principles outlined in these rulings in relation to the deductibility of wristwatch for employees can be applied in your case.

Taxation ruling (TR) 95/17 discusses the cost of purchasing and repairing ordinary wrist watches, including waterproof watches, is considered to be of a private nature and no deduction is allowed under subsection 51(1) of the Act.

270. In Case Q10 83 ATC 38; 26 CTBR (NS) Case 74, an army officer was not allowed a deduction for the cost of watch repairs. Dr G W Beck stated (83 ATC at 40; 26 CTBR (NS) at 521):

'...a wristwatch is essentially part of the personal equipment that individuals acquire to enable them to more easily function in their daily lives.'

Taxation Ruling (TR) 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 discusses when an employee can deduct losses or outgoings incurred in producing salary or wages.

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 casual connection between expenditure and the production of income. The expenditure must have sufficiently close connection to performance of the employment duties and activities through which the employee earns income.

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.

28. For example, an expense that is private in nature or only a prerequisite to the earning of income does not become deductible only because of an employer's requirements.

Taxation Ruling 2022/1 Income tax: effective life of depreciating assets discusses the methodology used by the Commissioner of Taxation to make a determination of the effective lift of depreciating assets under section 40-100 of the Income Tax Assessment Act 1997.

The effective life of a depreciating asset is used to work out the asset's decline in value for income tax purposes.

The Commissioner makes the effective life determination having regard to the period the depreciating asset can be used for a purpose specified in subsection 40-100(5) (a specified purpose), one of which is used for a taxable purpose. A deduction may be available under Division 40 for the depreciating asset's decline in value, to the extent that the asset is used for a taxable purpose (see section 40-25).

Your circumstances are comparable to the cases noted above, as the item you have purchased is basically a wristwatch. It is an instrument whose primary purpose is to show the time of day. We acknowledge you use the watch to arrive at your meetings on time and to adhere to your daily schedule. However, in Case S82 the taxpayer was disallowed a deduction for the cost of her wristwatch which was used for a variety of activities when carrying out her nursing duties, including the checking of a patient pulse. In addition, the use of a watch as noted above can be used in a variety of occupations for everyday work activities. However, this does not make it deductible as the expenditure is private in nature.

A taxpayer may be entitled to a deduction for decline in value of the cost of a watch with special characteristics used for work-related purposes. It appears from the information provided your wristwatch has no specialised features which you utilise in carrying out your duties and therefore it is considered to be an ordinary wristwatch. No deduction for the cost of the watch or decline in value is allowable under section 8-1 or Division 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) respectively

As the non-digital watch (wristwatch) you have purchased is not directly related to your income producing activities and your employer has not indicated that it is a requirement of your position a deduction is not allowed under section 8-1 or Division 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) respectively. A wristwatch is considered to be a private expense.