Edited version of private advice

Authorisation Number: 1052231363141

Date of advice: 16 April 2024

Ruling

Subject: Work related expenses

Employment income

Question 1

Are the amounts you receive under the contract included in your assessable income?

Answer

Yes. The receipts are ordinary employment income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Work related expenses

Question 1

Are you entitled to claim a deduction for the cost of fitness expenses, such as gym membership and massage therapy?

Answer

No. These amounts are not deductible under section 8-1 of the ITAA 1997.

Question 2

Are you entitled to claim a deduction for the cost of shoes and clothing expenses used for training?

Answer

No. These amounts are not deductible under section 8-1 of theITAA 1997.

This ruling applies for the following period:

XX XX 20XX to XX XX 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You are contracted by entity A to officiate as a Position 1.

Clause XX of the entity A contract provides that you are contracted for the period XX XX 20XX to XX XX 20XX.

Clause XX of the entity A contract provides that it is a "Casual employment contract".

Clause XX of the entity A contract terms prevents you taking on additional employment to the extent that it "conflicts with or detracts from the performance of your obligation".

Clause XX of the entity A contract provides that you have various legal obligations under the contract governing performance, standards, conduct and behaviour.

Clause XX of the entity contract provides that entity A supply all accommodation, meals, and air travel to and from Position 1 in which you are due to officiate.

Clause XX of the entity A contract provides that you have various fitness obligations under the contract.

You are responsible for undertaking the required training in your own time.

Entity A doesn't provide funding for the gym membership, footwear, training clothes, physiotherapy, and massage therapy.

You also provide your services to entity B. Entity B makes offers only to elite Position 1 persons who are trained, experienced, and qualified to officiate.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Employment income

Summary

The receipts are ordinary employment income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Subsection 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts, which is called ordinary income.

Subsection 6-5(2) of the ITAA 1997 states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year.

Ordinary income has generally been held to include three categories: namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

(a) are earned;

(b) are expected;

(c) are relied upon; and

(d) have an element of periodicity, recurrence, or regularity.

If the income has characteristics of the four listed above, then it can be considered as ordinary income under section 6-5 of the ITAA 1997.

In your circumstances, the amounts you received under the entity A contract are included in your assessable income.

Work related expenses

Summary

Section 8-1 of theITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital, private or domestic in nature, or relate to the earning of exempt income.

You are not entitled to claim a deduction for the expenses incurred in acquiring conventional clothing.

Generally, fitness expenses such as the cost of a gym membership and massage therapy are private in nature and are therefore not deductible.

Detailed reasoning

Gym membership

Section 8-1 of theITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital, private or domestic in nature, or relate to the earning of exempt income.

The Commissioner generally takes the view that expenses incurred in keeping fit are inherently private in nature as it ultimately involves the person's own physical wellbeing. This position does not change even if the person is employed to undertake physical activity as part of their duties.

Taxation Ruling TR 95/17 Income tax: employee work-related deductions of employees of the Australian Defence Force discusses the deductibility of fitness related expenses for Australian Defence Force (ADF) members.

TR 95/17 states that a deduction is not allowable for fitness expenses in maintaining a general standard of fitness expected of an ADF member. As such, expenses are generally private in nature. However, a deduction is allowable for these costs if the ADF member can demonstrate that strenuous physical activity is an essential and regular element of his or her income earning activities and that these costs were incurred to maintain a level of fitness well above the ADF general standard.

An example provided in TR 95/17 refers to a member of the Special Air Services Regiment (SAS) who is paid to maintain the very highest level of fitness, and plainly differentiates between the level of fitness required of a SAS member and that of other ADF members.

The principle outlined in TR 95/17 is that unless a taxpayer's normal duties require an advanced (above and beyond normal) fitness level, deductibility of expenses will be denied. That is, expenses incurred in keeping fit (for example, gym memberships) are generally private in nature, unless strenuous physical activity is an essential and regular element of performing the employee's duties.

In your case, we acknowledge that your duties as a Position 1 require you to maintain a certain level of fitness. You need to be fit, healthy and skilled to effectively meet the demands of your role under the entity A contract. A certain level of physical fitness will be important for you to adequately perform your duties.

However, your level of fitness required is not an advanced fitness level. Further, we do not consider that your duties require a regular strenuous physical activity.

As such, your gym membership fees are private in nature.

Therefore, you are not entitled to a deduction for the gym membership fees incurred under section 8-1 of the ITAA 1997.

Massage therapy

As with the gym membership, massage therapy is part of the program to maintain your strength and flexibility which is to maintain a general standard of fitness. Expenditure to maintain a general standard of fitness is expenditure that is private or domestic in nature and is therefore not an allowable deduction under section 8-1 of the ITAA 1997.

As your employment as a Position 1 does not require as advanced level of fitness, your massage therapy expenses are private in nature and not deductible.

Shoes and clothing expenses

Section 8-1 of theITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

Taxation Ruling TR 97/12 Income tax and fringe benefits tax: work related expenses: deductibility of expenses on clothing, uniform and footwear, discusses our view on the deductibility of work-related clothing, uniform and footwear expenses.

TR 97/12 provides that the cost of buying clothing will in most circumstances, be regarded as an expense of a private nature. Clothing is necessary for protection of the body from the elements and to meet societal norms of modesty, fashion, or similar conditions.

For expenditure to be deductible, the expenditure must have the essential character of an outgoing incurred in gaining assessable income. It is not sufficient that the expenditure is a prerequisite to the derivation of assessable income; it must contribute to the derivation of that income.

The circumstances where expenditure for clothing is deductible are:

•         occupation specific clothing

•         a compulsory uniform/wardrobe

•         a non-compulsory uniform/wardrobe

•         protective clothing and footwear.

TR 97/12 also considers the deductibility of conventional clothing. Conventional clothing is 'everyday' clothing that would ordinarily be worn, or which could reasonably be worn, by a person irrespective of whether that person is working or not, for example, a pair of jeans or a shirt.

While there is no universal rule that conventional clothing can never be deductible, in most cases expenditure on conventional clothing will not be deductible. TR 97/12 provides that expenditure on conventional clothing is often not an allowable deduction as there is not usually a sufficient connection between the expenditure and the income earning activities of a taxpayer.

Therefore, you are not entitled to a deduction for the cost of purchasing clothing for training purposes under section 8-1 of the ITAA 1997.