Private ruling: Work related expense
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the expense incurred to lease artwork for your office? | A1: No.

Relevant facts and circumstances: You work in an office. You have an ongoing lease for a piece of artwork from a related party. You pay an annual rental fee. The artwork has been valued by a reputable art gallery director and the annual lease amount has been confirmed as being an amount on an arms length basis. Your employer does not provide what you consider to be suitable or sufficient artwork for your office.

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 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. 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), · 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). It is considered that the artwork does not have a sufficient nexus to your income earning activity. While it is appreciated that your employer does not provide what you consider to be suitable or sufficient artwork for your office, the artwork is not an item used in the physical performance of your employment duties. The essential character of the expense is not that of an income-producing expense. Therefore you are not entitled to a deduction for the expense incurred to lease artwork for your office.

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