Private ruling: Work related expenses
Date of advice: 5 December 2019
Published: February 2020
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Are the expenses you incurred for the specialised activities deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA1997)? | A1: Yes. | Q2: Can you claim a deduction for the decline in value of the specific equipment you purchased to use in your role under Division 40 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: You are an employee of the Government. In this role you are required to train for certain special tasks. This requires an extremely high level of skill and expertise that needs to be maintained and, if possible, improved on due to the nature of the task. Your employer does not have certain facilities and has limited access to other facilities, and as such you need to use facilities that are available for general use. In order to maintain your level of skill and expertise it is estimated that a certain amount of training is required. You use qualified instructors to improve your skills. You incur expenses for the activity. As the equipment you use cannot leave your place of work, you have purchased other equipment to use away from your place of work. Your employer does not reimburse these expenses that you incur. Your employer fully recognises all activities completed at these facilities and they are recorded accordingly. These activities are carried out in your own time and your employer has recognised that 100% of your time is for maintaining your current qualification or improving to a higher qualification. Your employer gives preference to leave applications to employees that are maintaining or improving a skill required to perform their role over personal leave. As a registered member of an association, the activities are monitored to maintain qualification level. These activities provide you with the ability to progress to a new level within your organisation, while failure to comply may result in you losing your qualification and skill level.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 section 40-25

Reasons for decision: Detailed Reasoning - Questions One: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a deduction is allowable for expenses incurred in gaining or producing assessable income, provided those expenses are not capital, private or domestic in nature. 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 ( Lunneys 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). The expenses you incurred for the specialised activities meet these conditions contained within section 8-1 of the ITAA 1997 and are therefore deductible. | Detailed Reasoning - Questions Two: A depreciating asset is an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used. The cost of purchasing an asset is generally of a capital nature and is therefore not immediately deductible as an expense under section 8-1 of the ITAA 1997. However, Division 40 of the ITAA 1997 may allow a capital allowance deduction for the decline in value of a depreciating asset used for income producing activities. Under section 40-25 of the ITAA 1997 you may claim a deduction equal to the decline in value of depreciating assets that you hold, to the extent to which you use the assets for a taxable purpose. The amount of your deduction is determined by the cost of the asset, its effective life and the percentage of taxable purpose the asset is used for. In your case you purchased some specific equipment. It is accepted that the use of these items will assist you to maintain your skills in your role. These items are reasonably expected to decline in value overtime and are therefore considered to be depreciating assets for the purposes of Division 40 of the ITAA 1997. Consequently you are entitled to claim a deduction for the decline in their value. You will need to apportion the deduction to exclude any private use.