Private ruling: Deductions - zone tax offset and work related expenses
Date of advice: 4 September 2023
Published: 16 October 2023
Ruling period: Period ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Is the taxpayer entitled to a Zone A offset or Zone B Special Offset whilst working in a remote area for more than 183 per income year? | A1: No. | Q2: Is the taxpayer entitled to a deduction for the cost an esky for use while working away from home? | A2: No. | Q3: Is the taxpayer entitled to a deduction for the cost of 'hi viz' clothing and clothing used at work that is subject to excessive wear and tear? | A3: No.

Relevant facts and circumstances: You are employed as a XX with XXXX. You do not an employment contract with your employer. You reside in XXXX. You are required to travel from your home to your place of work in remote areas, including XXXX. Your total days at work in a remote area is more than 183 days per year. You purchased an esky to hold your lunch and keep it cool while at work. Due to the nature of your work, your clothing is subject to excessive wear and tear. You are not provided with any work wear, nor does your employer specify any required work clothing or protective clothing to be work while undertaking your work. You purchase your own work clothing that includes 'hi viz' clothing.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 8-5 | Income Tax Assessment Act 1997 section 12-5 | Income Tax Assessment Act 1997 section 34-20 | Income Tax Assessment Act 1936 section 79A

Reasons for decision: Summary: A zone tax offset is provided under subsection 79A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for individuals who are residents of certain areas which are subject to uncongenial climatic conditions, are isolated, or where the cost of living is high. These areas are comprised of Zone A and Zone B and 'Special Zone' areas. Zone A comprises those areas where the above factors are more pronounced whilst Zone B comprises the less badly affected areas. A location in Zone A or Zone B that is particularly remote may be considered to lie in a 'Special Zone' area. Special Zone areas attract a higher rate of zone tax offset than the 'ordinary' area of Zone A or Zone B. The eligibility for the zone tax offset changed on 1 July 2015. Under the new law, to be eligible for the Zone Tax Offset, a taxpayer's usual place of residence must be within a prescribed area (Zone). That is, individuals will be taken to be a resident of the area incorporating their usual place of residence rather than being considered a resident of the area incorporating their place of employment, should that area be located within a zone or a special area of a zone. For an individual to be eligible for a zone tax offset, they must satisfy one of the residency tests as outlined in subsection 79A(3B) of the ITAA 1936. These tests are: a) the taxpayer had their usual place of residence in the relevant area for more than one-half of the year of income b) the taxpayer died during the income year and at the date of death their usual place of residence in the relevant area c) in the circumstances stated in paragraph 79A(3B)(d) or 79A(3B)(e) of the ITAA 1936, he or she had their usual place of residence in the relevant area for more than 182 days in two consecutive years of income. Taxation Ruling 94/27 Income tax: zone rebate for residents of isolated areas (TR 94/27) provides factors to be considered by the Commissioner in determining whether a person resides in a zone area. Paragraph 8 of TR 94/27 outlines these factors which include, inter alia, the intended and actual length of stay in the area, the establishment of a home in the area, the existence of a residence outside the area and the durability of association with the relevant area. In your case, you travel from your usual place of residence in XXXX to XXXX for work as a XX. The Australian Taxation Office (ATO) Australian zone list does not include XXXX as a zone area that is eligible for a rebate for residents of isolated areas. Accordingly, you are not entitled to a zone rebate as you do not meet the residency test in paragraph 79A(3B) of the ITAA 1936. | Detailed Reasoning - Question 2 and 3: Section 8-1 of the Income Tax Assessment Act 1997 (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 where the losses or outgoings are of a capital, private or domestic nature. Section 8-5 of the ITAA 1997 deals with specific deductions and allows deductions where an amount can be deducted under a specific provision of the ITAA 1997. in considering whether you are entitled to a deduction for expenses it is necessary to consider whether the expenses were incurred in the course of producing your assessable income. To be deductible, expenditure on items and clothing, uniforms and footwear must satisfy the deductibility tests contained in section 8-1 of the ITAA 1997. You can deduct expenditure on an item you use if: • you incurred the expense; • there is a sufficient connection between the expenditure and earning your assessable income so that the outgoing is incidental and relevant to the gaining of assessable income; and • the expenditure has the essential character of an outgoing incurred in gaining your assessable income. You cannot claim a deduction for expenditure that is of a private or domestic nature. Such expenditure does not have the essential character of an outgoing incurred in gaining your assessable income, even if there is a connection between that expenditure and your income earning activities. This also applies particularly to conventional clothing. When you use conventional clothing to protect you while at work, your expenditure on the clothing in most cases will still be of a private or domestic nature because the essential character of the expenditure is that of meeting personal requirements of modesty, decency and warmth. The essential character of expenditure on heavy duty conventional clothing such as jeans, drill shirts and shorts, trousers and socks is of a private or domestic nature and therefore not deductible. Although heavy duty conventional clothing may be worn to help prevent injury at work, this does not change its character from being conventional in nature . The essential character of expenditure on this kind of clothing is to clothe you in the ordinary sense as part of daily life rather than to perform the duties of your position. Protective clothing is clothing of a kind that you mainly use to protect yourself, or someone else, from risk of: (a) death; or (b) disease (including the contraction, aggravation, acceleration or recurrence of a disease); or (c) injury (including the aggravation, acceleration or recurrence of an injury); or (d) damage to clothing; or (e) damage to an artificial limb or other artificial substitute, or to a medical, surgical or other similar aid or appliance. The following are examples of clothing worn to protect you from the risk of injury or illness in the course of carrying out your income earning activities. A deduction is allowable in these situations because there is a sufficient connection between the expenditure and income earning activities and because the expenditure is not of a private or domestic nature:- • fire-resistant woollen clothing for protection against intense heat and flying sparks of metal from a blast furnace and which were so soiled as to be unsuitable for use outside work; • waterproof jacket, woollen jumper and thick socks which were worn only when working outdoors during winter in an alpine area; • special cold room gear or thermal clothing for working in cold rooms; • sunhats for protection from the risk of injury or illness from exposure to the sun while carrying out income earning activities; • safety coloured shirts or vests (e.g., when used to direct vehicles in a road works area); • aprons and overalls worn to stop you coming into contact with harmful substances; and • lead aprons worn to prevent exposure to X-rays. In your case, an is esky generally used to keep meals and water that you take to work and therefore is considered private in nature. It is also noted that it is not a requirement by your employer but rather a personal choice. The clothing, including the 'hi viz' which you wear while performing work duties is considered conventional clothing and as such does not have the necessary connection with your employment. Therefore, a deduction under section 8-1 of the ITAA 1997 would not be allowed for the costs of the clothing, including the 'hi viz' clothing, and the esky as there is an insufficient nexus between the expenditure and earning your assessable income.