Private ruling: Work Related Expenses
Date of advice: 13 February 2018
Published: June 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 01 July 2017

Ruling: Q1: Are you entitled to an immediate deduction for the cost of your equipment? | A1: No | Q2: Are you entitled to a depreciation deduction for your equipment? | A2: Yes

Relevant facts and circumstances: You would like to purchase equipment. You use this equipment and this equipment is not available where you work. You have been trained to use this equipment. Obtaining this equipment is important to greatly improve your capacity to generate timely and quality data. You are expected to present the results in local and international conferences and publish the output your research in refereed local and international journals. This equipment will help you achieve your duties and responsibilities. Part of your work is also to extend the outcome to different stakeholders. To do this, you need to collaborate with the other people. Having this equipment will enable you to assist training; in return they can also help you. You will be the one to use the equipment as there are no other workers here who can do the work you are doing. If you are able to get students, you will let them use the equipment under your supervision. This equipment will be placed in a room is accessible only to registered users. Access to the room is very limited. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. The equipment is a capital asset and the purchase cost is capital in nature. Therefore no deduction is allowed under section 8-1 of the ITAA 1997 for the cost of your equipment. Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. A depreciating asset is defined in section 40-30 of the ITAA 1997 to be an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Your equipment is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. A deduction for its decline in value is an allowable deduction where it is used for income producing purposes. Deductions for the decline in value of depreciating assets are generally worked out using the effective life of the assets. For further details on how to calculate your allowable depreciation deduction, please see the Australian Tax Office’s Guide to depreciating assets which is available on the website www.ato.gov.au

Relevant legislative provisions: Division 40 of the ITAA 1997

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. The equipment is a capital asset and the purchase cost is capital in nature. Therefore no immediate deduction is allowed under section 8-1 of the ITAA 1997 for the cost of the equipment. Deductions for capital expenditure on assets used to produce assessable income will generally be available under either: (a) Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) for depreciating assets, or (b) Division 43 of the ITAA 1997 for capital works. A depreciating asset is an asset that has a limited effective life and can be expected to decline in value over the time it is used. Section 40-25 of the ITAA 1997 allows you a deduction equal to the decline in value of a depreciating asset to the extent to which it is used to produce assessable income or is installed ready for use for that purpose. The decline in value is calculated by spreading the cost of the asset over its effective life. You can use one of two methods, either the prime cost method or diminishing value method, to calculate the deduction. If the asset is only used for part of the year, any deduction should be apportioned on a pro-rata basis. Once you have made the choice on which method you are going to use for an asset you cannot change the method. An asset’s effective life is either self-assessed or determined by the Commissioner. Taxation Ruling TR 2017/2 lists the effective life of various assets as determined by the Commissioner. Depreciating assets include plant, articles, machinery, tools and rolling stock. Your equipment is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. A deduction for its decline in value is an allowable deduction where it is used for income producing purposes. For further details on how to calculate your allowable depreciation deduction, please see the Australian Tax Office’s Guide to depreciating assets which is available on the website www.ato.gov.au .

Reasons for Decision: These reasons for decision accompany the Notice of private ruling