Private ruling: Entitlement to a deduction for work related expense
Date of advice: 7 October 2016
Published: December 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer: | Are you entitled to a deduction for the expenses incurred in purchasing equipment used to derive your assessable income? | No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are employed as a professional. Your duties require you to conduct maintenance and perform pre and post maintenance inspections. In order to perform your duties you are required to possess specialized skills. Your employer provides you with all the equipment you require to perform your duties; however you do not like to rely on this equipment as you are unaware of its age, history or how it has been treated. Therefore you have elected to use your own equipment. You have incurred expenses purchasing this equipment. The equipment you have purchased is only used for employment purposes.

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. Where a taxpayer is required to purchase tools and equipment in order to derive their assessable income, they will be entitled to a deduction for the expenses incurred provided all the conditions under section 8-1 of the ITAA 1997 are satisfied. In Reany v's The Commissioner of Taxation [2016] AATA 672 (Reany ), the issue of personal choice was raised when considering whether an expense incurred by the taxpayer was deductible under section 8-1 of the ITAA 1997. In Reany , the taxpayer wished (amongst other expenses) to include as a deduction travel expenses that were incurred transporting his tools and equipment between his place of residence and place of employment. The taxpayer argued that while his employer provided some of the tools required to perform his employment duties, most of the tools were provided by the taxpayer. This was to ensure that they were decent quality items, which is not always the case with those provided by his employer. Further, as these tools were bulky in nature and he was unconvinced that the storage facilities provided by his employer at his place of employment were adequate they were required to be transported by vehicle between his place of residence and his place of employment on a daily basis. While the AAT found some inconsistency between the evidence of the taxpayer and that of the taxpayer's employer, the AAT found in favour of the Commissioner of Taxation and the taxpayer's deduction was denied. Significant in reaching this decision was that the AAT found that it was a personal choice excised by the taxpayer to use his own tools, as the majority of the tools were provided by the taxpayer's employer. Further it was once again a personal choice that the taxpayer exercised to transport his tools and equipment between his place of residence and his place of employment, as his employer provided sufficient facilities for his tools and equipment to be stored. As a result of the taxpayer exercising these personal choices, the expenses incurred were found to be private in nature, and therefore no deduction was allowable under section 8-1 of the ITAA 1997. Your situation is similar to the situation in Reany . It is acknowledge that the nature of your employment requires you to be confident in the equipment that you are required to use to carry out your employment duties. However, the issue of whether equipment provided by an employer is of sufficient quality for an employee to perform their income producing activities is required to be resolved between the employer and employee. In purchasing and using your own equipment you are exercising a personal choice not to use the equipment provided by your employer. Consistent with the principles established in Reany , the expenses that you have incurred were a personal choice that you have exercised and therefore are private in nature. Accordingly, you are not entitled to a deduction for expenses incurred in purchasing equipment as the expenses are private in nature and therefore not deductible under section 8-1 of the ITAA 1997.