Private ruling: Income tax – deductions - work related expenses – other expenses
Date of advice: 18 January 2018
Published: May 2018
Ruling period: 1 July 2016 to 30 June 2017 | 1 July 2017 to 30 June 2018 | 1 July 2018 to 30 June 2019 | 1 July 2019 to 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for games and DVD movies under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: You work as a designer of a specific type of clothing for a particular industry. You do research to keep abreast of your industry. You purchase games and movies specific to certain activities that people in that industry may engage in.

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

Reasons for decision: Detailed Reasoning - Deductibility of expenses: An expense is deductible under section 8-1 of the ITAA 1997 to the extent it is incurred in gaining or producing your assessable income. However you cannot claim a deduction for an expense that is of a capital, private or domestic nature. To be deductible a loss or outgoing must have a sufficient connection with the derivation of the taxpayer's assessable income. The sufficiency of the connection is determined on the facts of the case. In establishing a connection, it must be shown that the outgoing is relevant and incidental to the gaining of assessable income. Taxation Ruling TR 95/14 is about deductions that employee teachers can claim. The principles in this ruling also apply to other occupations. Paragraph 207 of TR 95/14 explains that a deduction is not allowable for games unless they are used in the everyday duties of an employee and the production of the employee’s assessable income can be clearly established. A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of ITAA 1997: (a) 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) (b) 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) (c) 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). A deduction under this general deduction provision is only allowable if the expense has the relevant connection with income. This was highlighted in Case P30 25 CTBR (NS); Case 94 82 ATC 139 when the Board of review disallowed a claim for the purchase of newspapers by a real estate salesman. The real estate salesperson would gather information from the daily papers to assist him in selling real estate. The salesperson was however, unable to demonstrate that his income was affected by expenditure on the newspapers. The expense retained its private character and the deduction was not allowed. In Case P26 82 ATC 110; (1982) 25 CTBR (NS) Case 90 , a university lecturer was allowed a claim for depreciation on legal books but denied a deduction for depreciation on general reading and fiction books. The Board of Review stated (ATC at 116; CTBR at 666): No doubt the illustrations and anecdotes which he was able to use did serve as useful teaching aids but in my view these activities were not plant or articles within the meaning of section 54 of the Act, as they were not used or installed ready for use for the purposes of producing assessable income. | Detailed Reasoning - Games and movies: The costs associated with the purchase of games and movies are not generally an allowable deduction under section 8-1 of the ITAA 1997 as they are not usually incurred in producing your assessable income and can constitute a private or capital expense. While we acknowledge that the playing of games and watching movies may assist you to carry out your employment duties, the connection is too general or tenuous for the purchase of the games and the movies to be considered to be for a taxable purpose. You would still be able to carry out your duties as a designer of the clothing without them. This use of the games and movies has the character of being for private purposes. There is not a sufficient or direct connection between the expense and your assessable income for the income years. The expense is not allowed as a deduction to you as an employee.