Private ruling: Work related expenses – accommodation – fitness expenses
Date of advice: 25 January 2019
Published: May 2019
Ruling period: Period ending 30 June 2017
Date scheme commenced: 1 June 2016

Ruling: Q1: Are the fitness expenses incurred an allowable deduction? | A1: No | Q2: Is the cost of accommodation in Country Y an allowable deduction? | A2: No

Relevant facts and circumstances: You are a firefighter and a specific crew member. You are employed under contract for a number of years, working seasonally. You are stood down in the “winter season” but you remain contracted on leave without pay. You travelled to Country Y to take part in a reciprocal programme. You were employed and paid by the relevant authority in Country Y. The programme is specifically developed to increase expertise in your area of work. The training involves relevant tasks and operations. As a result of your participation in the programme you received an increase in salary when you returned to Australia. Your role requires you to work in various situations and remote locations. You are required to undertake a variety of tasks including endurance walking, lifting, handling or movement of heavy and awkward objects. You are required to undertake work that needs a sustained physical effort and intense concentration in adverse conditions over extended periods of time. Your employment contract indicates that it is your responsibility to maintain peak fitness for fire and related duties throughout your employment. You must maintain a specified medical and fitness requirement each year prior to commencement of the fire season which is slightly different to other crews. The role requires a greater than average level of fitness and is reflected in the job requirements for the position.

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 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it. 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 ( Lunney’s case )), ● 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). Fitness You are entitled to deduct work-related expenses for costs that directly relate to your work. 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 considered to be of a private nature, unless strenuous physical activity is an essential and regular element of performing the employee’s duties. Taxation Determination TD 93/114 Income tax: is a police officer, who is required to maintain an adequate level of physical fitness in order to undertake police duties, entitled to claim a deduction for fitness related expenditure states that where police duties do not require an officer to undertake regular strenuous physical activity, expenses of keeping fit are not deductible. This type of expense does not have the essential character of being incurred in the course of gaining or producing assessable income. Whilst Police Regulations may require an officer to remain in a physically fit condition, this does not mean expenditure related to keeping fit is allowable as an income tax deduction. In your case, we acknowledge that your duties require you to maintain a certain level of fitness. However, the level of fitness required in your case is not at a level comparable to that of a physical training instructor or an officer in special combat or emergency squads. Although you are required to be fit, your level of fitness required cannot be considered to be at the highest level nor at a level which makes it an essential element of your employment. There is an insufficient connection between your fitness expenses and the derivation of your income. Whilst expenses may benefit you and help you keep fit, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income. Your fitness expenses are more private in nature and are not claimable as a deduction. Accommodation Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, provided they are not of a capital, private or domestic nature, or incurred in the gaining of exempt income. Generally, accommodation and meal expenses will not be deductible. Expenses of this nature have been found to be private, or incurred before or after the activity of earning assessable income. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility. In Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. It is considered that you were employed in Country Y by the relevant Country Y authority. You have incurred accommodation expenses as a result of being required to live near your workplace. These expenses were incurred in order to stay in proximity to your work location and be available to the work area. They are a prerequisite to the earning of assessable income and not an expense incurred in the course of gaining and producing that income. As you are not travelling in the course of carrying out employment duties, no deduction is available for accommodation expenses. Accordingly, they are seen to be of a private and domestic nature, and as such are not deductible under section 8-1 of ITAA 1997.