Private ruling: work related expenses
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the expenses incurred in relation to testing? | A1: No.

Relevant facts and circumstances: You are an employee. Your employment requires a zero blood alcohol and drug reading. You are subject to random testing. You failed a random test. You were subsequently required to undertake psychiatric testing, have a management plan set up and undertake regular random testing. It is a condition of employment that these steps are undertaken otherwise you would not have been able to continue your employment.

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 losses and outgoings which are incurred in gaining or producing assessable income. However, no deduction is allowed where the losses or outgoings are capital, or are of a capital, private or domestic nature or another provision prevents the taxpayer from deducting it. The courts have considered the phrase 'incurred in gaining or producing assessable income' to mean in the course of gaining or producing such income. To be an allowable deduction there has to be a nexus between the outgoing and the income, and the expense must be incidental and relevant to the income-earning activity. Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities ( Lunney v. FC of T (1958) 100 CLR 478). The fact that an expense is incurred by an employee at the direction of their employer does not mean that a deduction is automatically allowable. The issue of expenses incurred as a condition of employment has been considered in numerous cases including Case L61 79 ATC 488; 23 CTBR (NS) Case 73 , where an army officer was denied a deduction for his haircuts. It was held that, although it was a condition of employment to be well groomed, the expense was private in nature. In Taxation Determination TD 93/112 Income tax: is a taxpayer who is required, as a condition of employment, to be within a specified weight to height ratio entitled to a deduction for a weight reduction program? , the Commissioner adopted the reasoning of Hill J in FC of T v Cooper (1990) 21 ATR 525; 90 ATC 4580, in that an employer's requirement that an employee incur expenditure which is not related to the income-producing activities of that employee, does not convert the expenditure into a deductible outgoing. In your case, you have incurred expenses to undertake psychiatric testing, have a management plan set up and undertake random drug and alcohol testing. Although it is a condition of your employment that these steps are undertaken, the expenses are not incurred in the performance of your work duties, but rather to put you in a position to perform your work duties. Therefore, you are not entitled to a deduction for the expenses incurred under section 8-1 of the ITAA 1997