Private ruling: Business - deductions
Published: September 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: On or after 1 January 2013

Ruling: Q1: Can the Company claim a deduction for the cost a therapeutic product purchased for the director to consume when work load is excessive? | A1: No.

Relevant facts and circumstances: The Company commenced business on the a specific date. The company's sole shareholder is X. X is also the director of the company. X is a professional. The company purchases a therapeutic product for X to use when high level work is requested by clients. X does not consume the product as a part of his/her ordinary diet.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) you can claim a deduction for expenses to the extent to which they are incurred in gaining or producing your assessable income, or they are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. No deduction is allowed for expenses to the extent to which they are of a capital, private or domestic nature or they are incurred in gaining or producing exempt income. To be deductible under section 8-1 of the ITAA 1997 a loss or outgoing must have a sufficient connection with the derivation of the taxpayer's assessable income. Taxation Ruling IT 2217 states that claims for income tax deductions in respect of medical appliances have been considered by Taxation Boards of Review on a number of occasions. In Case Ql7 83 ATC 62, a farmer was denied the cost of a hearing aid which he claimed was an essential tool in carrying on his business. The Board found that the sole purpose of the hearing aid was to aid the taxpayer in overcoming his personal disability in order that he could earn his assessable income. The Board concluded that, although the taxpayer might be unable to earn his assessable income without the aid of the relevant appliance, the outlay on the appliance was not incurred in gaining assessable income or carrying on a business for that purpose, but rather was incurred to help overcome an unfortunate disability suffered by the taxpayer. In the company's case, the company purchases a therapeutic product to be used by the director to enable him/her to endure long hours and complete complex work. While we accept that the product was consumed to enhance the director's performance, the expense incurred on the product was not incurred in gaining or producing assessable income. Therefore, a deduction is not allowed under section 8-1 of the ITAA 1997.