Private ruling: WRE-Alcohol Specialist
Date of advice: 22 November 2016
Published: February 2017
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for the cost of purchasing alcohol and associated storage? | A1: No | Q2: Are you entitled to a deduction for expenses incurred in travelling to wine tastings and interstate competitions? | A2: No

Relevant facts and circumstances: You are a beverage specialist and run the alcohol department. You work on average xx hours a week managing several thousand bottles of alcohol and a specialist team. You are also studying for your relevant Master exam. You have purchased approximately $xx in alcohol and associated storage. You have incurred expenses in travelling interstate to specific tastings and competing in contests. You are travelling overseas to undertake an exam.

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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In establishing a connection, it must be shown that the outgoing is relevant and incidental to the gaining of assessable income. In most circumstances the purchasing of alcohol for tasting purposes would be considered a private expense. In some limited circumstances this expense may be characterised as an income producing expense and may be an allowable deduction. However there is an onus on the taxpayer to prove that such an outlay should be an allowable deduction. ATO Interpretive Decision ATO ID 2002/319 denied a deduction for expenditure incurred in purchasing wine for tasting by a beverage analyst whose main role was compiling new wine lists for restaurants. It was determined that while the knowledge acquired from the purchase and tasting of wine may have assisted the taxpayer to carry out their employment duties more efficiently, the expense was not necessarily incurred in earning that income. The tasting of wines at home has the character of a private expense. Application to your circumstances In your case, the connection between the expenditure incurred for alcohol and your income earning activities is too general or tenuous to allow a deduction for any portion of the costs you incurred. It follows that your purchase of alcohol storage is not used for the purpose of producing assessable income, but is used for private purposes. Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the costs incurred in purchasing the storage facility. TR 98/9 provides guidance on the deductibility of travel expenses. Whilst the ruling discusses self-education expenses the principles contained in it can be applied to your situation. TR 98/9 explains that travel expenses incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution are deductible if the necessary connection with a person's income-producing activity exists. TR 98/9 provides that: n if the main purpose of the travel is the gaining/production of income, the existence of an incidental private purpose does not prevent the expenses from being fully deductible n if the travel was mainly devoted to a private purpose, such as a holiday, and the gaining/producing of income was merely incidental to the private purpose, only those expenses directly related to the income-earning purpose will be deductible n if the travel was undertaken equally for income-earning purposes and for private purposes the expenses would be apportioned equally. In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible. Application to your circumstances Your situation can be compared to the above decision. While we acknowledge that you may gain some experience by attending relevant tastings and entering competitions, there is insufficient nexus between the travel expenses incurred and the earning of your assessable income. These expenses are essentially private in nature. Accordingly the costs associated with your travel are not deductible. Further, the successful completion of the Master exam will give you a title. You already possess the necessary skills and knowledge required to perform your duties. This exam is not designed to improve your current knowledge and skill but rather you require this understanding of alcohol to pass the exam. While successful completion of the exam may open up new income earning opportunities in the future, the costs incurred in undertaking the exam are not deductible.