Who thought a tax ruling could stir up quite as much controversy as this one has but if any topic is going to do it, work-related expenditure is the one.  This new tax ruling has made a lot of people unhappy and as we would expect, have been questioning the ATO.  This isn’t anything new, the ATO are always questioned but with this new tax ruling they are being compared to the “mafia”…this is a lot of disagreement over a tax ruling.

There are many concerns on the new test introduced on work related expenses meaning an item needed to be necessarily incurred or acquired at the direction of an employer.  However, this test has not changed the view of Section 8-1(a) of the Income Tax Assessment Act 1997.  Section 8-1 (a) is the general deductions legislation for deducting from your assessable income any loss or outgoing to the extent that is incurred in producing your assessable income.

The test has come to light due to a tax case involving Cameron Lambourne, an Australian Navy sailor who was found to be not entitled to over $10,000 in work-related deductions.  The case revolved around a number of claims, including gym equipment which Mr Lambourne had purchased for the ship in his role as a military fitness leader.  The ATO argued the purchases were not a requirement by the Navy, and that “out of the generosity of his own heart, he purchased the equipment to the advantage of not only himself, but also the other crew members”.  The tribunal agreed, stating Mr Lambourne would have continued to be paid even if he had not purchased the items which in turned lead to the deductions being denied.

Many have a different view on what should have happened and why the tax legislation was interpreted a different way than expected.  Legislation can be interpreted many different ways and this is a major case which has shown that the basic deductions will always need to be clarified. Even ones you expect to have a easy deduction for.

The ATO are very firm in their view that the test does not change the fact that employer requirements do not determine deductibility.  In addition, expenses which have a sufficiently close connection do not become deductible simply because they are encouraged or required by the employer.  Employer requirements can be relevant, however to determine the proper scope of an employee’s income-producing activities, which is relevant to assess the true character of an outgoing.

The next time you think, “oh yeah my boss said I can claim it” think harder, talk to your accountant and question it because there are many items which you might think are deductible which turn out not be.  Here at Venta, we question our clients with so many questions and cases like these are the main reason why.  We always double check an opinion when proposed deductions over a certain amount.

If you ever have any questions please do not hesitate to contact us to discuss the issue.  We are familiar with issues surrounding complex expenses and can give you a true understanding of deductibility.


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