Private ruling: Work related expenses - expenses incurred for a dual purpose
Date of advice: 27 July 2018
Published: September 2018
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim, as a work related expense, a portion of the expenses incurred in relation to your business activity where those expenses were incurred for a dual purpose? | A1: Yes

Relevant facts and circumstances: You are a professional artist and an educator. Your income from these activities comes from two sources: ● As a professional artist, you produce, exhibit and sell artworks. ● You also teach art at an educational institution. As part of your continued employment with the educational institution, you are required to provide details of your continual industry involvement as a professional artist on a monthly basis. You conduct your professional artist activities as a sole trader. You incur expenses in relation to the activities carried out as a sole trader and included in your continual industry involvement details provided to the educational institution.

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. The courts have established that, for an expense to be an allowable deduction, there must be a sufficient connection between the outgoing and the assessable income such that the expenditure is incidental and relevant to the taxpayer's income producing activities ( Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431), and it must have the essential character of an outgoing incurred in gaining assessable income ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; (1958) 11 ATD 404) ( Lunney & Hayleys Case ). In your case, you derived income from the sale of art works as a professional artist and salary and wages as a teacher at an educational institution. Both the business activity and employment activity are similar as they both involve your pursuit of art. A condition of your employment is that you regularly provide details of continual industry involvement as a professional artist. In this way, your arts business activity is used to satisfy the requirements of your employment providing a nexus between your activities as a professional artist and the income derived from teaching art. As a result, the deductibility of expenses incurred in relation to your activities can be classified as follows: ● expenses directly related to salary and wages which would be deductible against that income ● expenses directly related to your activities as a professional artist which would be deductible against income received in your sole trader business activity, and ● expenses incurred for a dual purpose where the expenditure is incurred partly to derive salary and wage income and partly for your business activities as a professional artist. Expenses falling in to the third category will need to be apportioned between the dual activities. When it is necessary to apportion a loss or outgoing, the appropriate method of apportionment in any particular case must be both 'fair and reasonable' in all the circumstances.