Private ruling: Work-related expenses
Published: July 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the cost of your pistol club membership fees? | A1: No. | Q2: Are you entitled to a decline in value deduction for the cost of a firearm? | A2: No. | Q3: Are you entitled to a deduction for expenses incurred on ammunition? | A3: No.

Relevant facts and circumstances: You are a member of the Australian Defence Force (ADF). You incurred membership fees to become a member of a local pistol club. You also incurred expenses for the purchase of a firearm and ammunition. You practice and expand on what you have been trained by doing extra courses in the ADF as well as at the pistol club. Your ultimate goal is to become pistol and firearm instructor in the ADF.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-45 | Income Tax Assessment Act 1997 section 40-25

Reasons for decision: Summary: You can deduct from your assessable income 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 or private in nature, or a provision of the Income Tax Assessment Acts prevent you from deducting it (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)). | Detailed Reasoning - Membership fees at a Pistol Club: Section 26-45 of the ITAA 1997 provides that you cannot deduct a loss of outgoing to the extent you incur it to obtain or maintain: (a) membership of a recreational club; or (b) rights to enjoy (otherwise than as a member) facilities provided by a recreational club for the use or benefit of its members. As the cost of membership of a recreational club is specifically denied under section 26-45 of the ITAA 1997 you are not entitled to a deduction for your pistol club membership fees. | Detailed Reasoning - Handgun and ammunition: The cost of ammunition falls for consideration under section 8-1 of the ITAA 1997. An outright deduction is not allowable under section 8-1 of the ITAA 1997 for the cost of a handgun as it is considered to be a capital expense. Section 40-25 of the ITAA 1997 allows a deduction for the decline in value of depreciating assets to the extent that they have been used to produce assessable income, or were installed ready for that purpose. A handgun is a depreciating asset. Taxation Ruling TR 95/17 Income tax: employee work-related deductions of employees of the Australian Defence Force (ADF) deals with deductions for work-related expenses generally claimed by ADF members. Rifles, ammunition and related equipment are normally supplied and replaced by the ADF as a matter of course. An expense incurred voluntarily for work-related purposes may still be allowed as a deduction if the expense has a direct connection with the income-earning activities. The voluntary purchase of additional and/or better or more sophisticated weapon-related equipment, is an allowable deduction to the extent that these items are used for income-earning purposes (paragraph 185 of TR 95/17). Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge. However, if the subject of the self-education is too general in terms of your income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. A deduction is also not allowable if self-education expenses are incurred to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. While some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour, any apparent connection between the self-education activity and the profession in which a person is employed is not sufficient to confer deductibility on the expenses. 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) • 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). In your case, you have incurred expenses for the cost of a firearm and ammunition that you use at a private pistol club. Although it is acknowledged that you may use some of the skills and knowledge utilised in your employment when using the firearm and ammunition at the pistol club, your use in these circumstances is not considered to be relevant and incidental to the earning of your assessable income. Also, there is no evidence to suggest that you use the firearm and ammunition at work, or while you are on duty. The required nexus between the expenses incurred and your employment does not exist and as such the expenses incurred are more properly characterised as private expenses. You are not entitled to a deduction for the cost of ammunition under section 8-1 of the ITAA 1997, or for the decline in value of the firearm under section 40-25 of the ITAA 1997.