Private ruling: Deductibility of expenses
Published: February 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for a portion of the expenses incurred in purchasing equipment from the company you work for? | A1: No. | Q2: Are you entitled to a deduction for a portion of the travel expenses incurred in relation to undertaking recreational pursuits? | A2: No.

Relevant facts and circumstances: You work for a retail company that sells recreational equipment. Your role is to sell the equipment to retail stores and to train retail staff from the stores about the equipment and how to use it. You are required to fully understand the equipment and how it is used. Your employer provides you with training on the equipment in the form of written documents and electronic presentations and videos. You are provided with equipment samples, however they are, in most cases, to show the customer only and not for actual use. Your employer provides you with an allowance to purchase equipment (the company brand). To get a better understanding how the equipment performs, you purchase your own equipment and use it in real situations. You undertake travel to use the equipment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 states that 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. You cannot claim a deduction if the loss or outgoing is of a capital, private or domestic nature. The courts have considered the meaning of 'incurred in gaining or producing the assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that: For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income. In your case, you have purchased recreational equipment and incur expenses travelling to locations where you test the equipment. Expenditure relating to the purchasing and use of recreational equipment is inherently private in nature. In considering Case R113 84 ATC 750 ( Case R113 ) where the taxpayer was a sales manager for an airline, the Board of Review disallowed a deduction for costs associated with overseas travel. In making this decision Member P. M. Roach made the following comment: One can well understand the proposition that travel experience is of advantage to a salesman of tour and travel services, just as experience of drinking whiskey may be of advantage to a salesman of whisky. But it does not follow for the whisky vendor that all expenditure he incurs relating to his consumption of whisky lacks any private character. Product sampling in the course of employment cannot be the only explanation for such expenditure. Whilst we accept that knowledge acquired from the purchase and use of the equipment may assist you in carrying out your employment duties more efficiently, the expense is not necessarily incurred in order to earn that income. The purchase and use of the recreational equipment has the character of a private expense. The connection is too general or tenuous to allow a deduction for any portion of the costs. Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost incurred in purchasing and using the equipment. It is noted that your employer has paid you an allowance to purchase recreational equipment. However, the receipt of an allowance does not automatically entitle an employee to a deduction. The expense must still meet the requirements of section 8-1 of the ITAA 1997. Taxation Ruling TR 95/10 - Income tax: employee shop assistants-allowances, reimbursements and work-related deductions, states at paragraph 70: In certain men's and women's clothing stores the employer requires that staff wear clothing from their range. The fact that the shop assistant is required or encouraged to buy this clothing does not convert the expense into an allowable deduction. It is our view that expenditure in these circumstances is not incurred in gaining and producing assessable income and is of a private nature. Likewise in your case, whilst your employer may encourage you to purchase the recreational equipment, the expenses are not incurred in gaining and producing your assessable income and are private in nature. Therefore, these expenses are not deductible.