Private ruling: Work related expenses - Security system
Date of advice: 18 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim a deduction under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) for a security system installed at the residence of an employee? | A1: Yes. | Q2: Is the security system installed at the residence of an employee subject to the Fringe Benefits Tax legislation? | A2: Yes

Relevant facts and circumstances: Your company operates a business. Your company provides motor vehicles to employees of the company which are equipped with stock, equipment and tools. The motor vehicles are garaged overnight at the residences of the relevant employee. Your employees also collect payments from customers (including cash) which are stored overnight at the premises of the relevant employee. In the past, a motor vehicle garaged at the premises of an employee has twice been broken into, leading to the theft of stock and tools. You have installed security cameras at the premises of the relevant employee with the aim of protecting the assets of the company, namely the motor vehicle and the stock and tools contained within it. You have installed a number of security cameras. One camera faces the garage, one faces the motor vehicle, and the remaining cameras are on other entrances. The security cameras are portable and are considered a company asset. If the employee leaves the company, the cameras can be removed and used on another site.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act 1997 Division 40. | Fringe Benefits Tax Assessment Act 1986 section 40 | Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 section 52 | Fringe Benefits Tax Assessment Act 1986 section 58

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). Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. Security cameras are regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. In this case, the company has installed the security system in the home of an employee in order to protect the assets of the company. Security systems installed in a commercial building are generally an allowable deduction. The security cameras are portable and can be removed should the employee leave the company. As such, the security cameras are deemed to be an asset of the company and are utilised by the company in the production of their income. It is considered that the security cameras are being used for a taxable purpose for the business. The company is therefore entitled to claim a deduction for decline in value under section 40-25 of the ITAA 1997 for the security cameras. The employer has provided the employee with security cameras to be installed at their residence during the term of their employment. As the employer retains ownership of the security cameras the benefit being received by the employee is the use of a specific camera. This use of employer owned property is a residual benefit under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Section 45 of the FBTAA states a residual benefit is a benefit that is not defined otherwise in the Act. The taxable value is the arm's length market value of the employee leasing the security equipment. If the taxable value is less than $300 then the 'minor benefit' exemption under section 58P of the FBTAA would apply. If the taxable value is more than $300, the residual benefit will be subject to FBT. The taxable value can be reduced under the otherwise deductible rule in section 52 of the FBTAA. In other words, if the employee is entitled to a deduction under section 8-1 of the ITAA 1997 for leasing this security equipment, the taxable value would be reduced by the amount of this hypothetical deduction. Taxation Ruling TR95/13 paragraphs 115-117 considers that the expense of guard dogs and security systems for the protection of police officers and judges are not deductible, that the expense is private in nature. Based on this view an individual is not entitled to a deduction for security cameras installed in their own home and therefore the cost of the security cameras is not 'otherwise deductible' under section 52 of the FBTAA. Although the employer has stated they will retain ownership of the security cameras, if they did pass ownership to the employee then section 40 of the FBTAA would apply as the benefit would be a property benefit. In this case the taxable value would be the arm's length purchase value of the camera. If that value is less than $300 then section 58P of the FBTAA can apply. If it is over then the benefit will be taxable as the 'otherwise deductible' will not apply (for a property benefit the otherwise deductible rule is contained in section 44 rather than section 52 of the FBTAA).