Income tax : allowable deductions : expenditure voluntarily incurred by employee taxpayers
||Please note that the PDF version is the authorised version of this ruling.
FOI status: May be released
In a decision given on 10 July 1985, which is not to be reported, Taxation Board of Review No. 3 allowed to a school teacher income tax deductions for part of the depreciation on certain items of equipment used in carrying out his teaching duties, e.g., library, tape recorder, computer, etc., and for the cost of repairs to one of the items of equipment.
2. The taxpayer established in evidence before the Board that the items of equipment were used in varying degrees in connection with his teaching duties, i.e., writing up school notes, preparing material for students, etc.
3. In reaching its decision the Board had regard to the admitted private use of the items of equipment and apportioned the annual depreciation accordingly. The claim for repairs was allowed in full because, at the time the expenditure was incurred, section 53 of the Income Tax Assessment Act did not permit apportionment of the cost of repairs where the repaired property was used for private as well as income producing purposes.
4. The Board stated during the course of its decision that the fact that the taxpayer was not required under the terms of his employment to acquire the various items of equipment was not decisive of whether or not income tax deductions were allowable in respect of depreciation and repairs.
5. It is opportune to make it clear that this office
accepts the approach of the Board stated in the preceding paragraph to
be correct and it should be followed in all comparable situations. In
this regard the Board was doing no more than following decisions of the
High Court and Supreme Court.
6. In FCT v. Finn, (1961) 106 CLR 60, for example,
the High Court allowed to an employee architect an income tax deduction
for the cost of an overseas trip undertaken voluntarily by the architect
to study modern developments in architecture. The fact that the
expenditure was incurred voluntarily did not affect the taxpayer's right
to a deduction under sub-section 51(1).
7. Reference may also be made to FCT v. Faichney 72
ATC 4245 : 3 ATR 435. The decision involved an employee research
scientist's right to income tax deductions for certain expenses
attributable to a room in his home which he used as a study to carry out
activities associated with his employment, e.g., preparing papers,
compiling reports, reading scientific journals, etc. The taxpayer was
not required by the terms of his employment to work at home - there were
facilities at his place of employment to which he could have returned
each night to prepare papers etc. It was a matter of convenience to the
taxpayer that he chose to work at home. An initial point was taken on
behalf of the Commissioner that because the expenses arose out of the
taxpayer's convenience, they were essentially of a private nature. The
Court expressed the view that there was no relevance in this
8. The Faichney case also involved claims for
depreciation on furniture and furnishings in the study, i.e., desk,
bookshelves, carpets and curtains. On this question the Court said that
it is enough if a taxpayer could establish that the furniture and
furnishings were used for the purpose of producing assessable income.
The precise amount of depreciation allowable as an income tax deduction
will depend upon the extent to which it has been used for other purposes
and the resultant apportionment which section 61 authorises.
9. In the area of expenditure voluntarily incurred
by employee taxpayers the approach which should be followed is that,
while a requirement upon an employee in the terms of employment to incur
expenditure would establish a right to income tax deduction other than
for capital, private or domestic expenditure, the absence of such a
requirement does not mean that the expenditure does not qualify for
income tax deduction.
10. Where an employee taxpayer incurs expenditure
voluntarily in carrying out the duties of his employment and it is not
disqualified from deduction because it is of a capital, private or
domestic nature, what is decisive in determining claims for income tax
deductions under sections 51, 53 and 54 is whether the expenditure has
been incurred on the plant or articles or property used in gaining or
producing assessable income. The requirement for deduction will be
satisfied if the occasion of the expenditure or the use of the plant or
articles or property is within the scope of the particular duties of
employment, i.e., if it can be recognised as part and parcel of the
duties of employment. To put it another way, the requirement will be
satisfied if the subject of the claim for income tax deduction is
something that might ordinarily be expected to occur in carrying out the
duties of the employment.
11. Two categories of expenditure which do not arise
out of carrying out the duties of an employment, and are not, therefore,
allowable income tax deductions, come readily to mind. The first is
expenditure on ordinary clothing. The second is illustrated by the home
office cases, of which the Faichney case is an example. Interest on
money borrowed to acquire a home does not arise out of carrying out the
duties of an employment even though a room in the home may be used
exclusively for activities associated with the employment. The same may
be said of rent paid for a home, municipal rates and taxes and insurance
on a home. It arises out of the acquisition and use of the house as a
home and is of a capital, private or domestic nature.
12. The teaching profession may be used to
illustrate expenditures which might ordinarily occur in carrying out the
duties of an employment. Preparation for classes, correction and
grading of material handed in by students are undeniably incidents of
the duties of employment of a teacher. The use of plant or articles in
these activities, whether at school or at home, is a use for the purpose
of producing assessable income. Employment as a teacher also involves
the incurring of a variety of expenditures, e.g., notebooks, pens,
pencils, teaching aids, travelling expenses on inter-school activities,
etc. All of these expenditures are the sorts of expenditures which a
teacher may be called upon to incur - they are allowable as income tax
13. By way of contrast recent years have seen a
number of references to Taxation Boards of Review by teachers seeking
income tax deductions for overseas travelling expenses. Most of the
claims have been rejected by the Boards because the teachers have not
been able to establish a positive connection between the overseas travel
and the performance of their duties of employment as teachers. In the
ultimate the claims have been based on a general proposition that the
overseas travel has made the taxpayers better able to carry out their
duties which, of itself, is not sufficient to enable the expenditure to
be allowed as an income tax deduction.
14. Inevitably the application of the relevant
provisions of the income tax law in this area will depend upon the
circumstances of particular cases. It is reiterated that expenditure is
not debarred from income tax deduction because it is incurred
COMMISSIONER OF TAXATION
26 September 1985
EXPENDITURE VOLUNTARILY INCURRED BY EMPLOYEE TAXPAYERS
FCT v. Finn
(1961) 106 CLR 60
FCT v. Faichney
72 ATC 4245
3 ATR 435