One of the most useful elements of the recently finalised taxation ruling TR 2020/1 can be found in its “not legally binding” section, specifically “Appendix 1 – further guidance”. This section sets out supporting guidance that covers specific occupations and common situations for the principles outlined in the ruling itself.
This ruling therefore provides both foundation guidance on general deductibility principles and direction to the more specific guidance products that are of most relevance to particular issues or expense types. The ATO says these links will be updated as further rulings and guidance products are created, so practitioners can do themselves a favour and keep that section bookmarked for future reference. The impressive list of rulings, interpretative decisions, practice statements and various other guidance materials start at paragraph 68 of the ruling.
The ruling, “Employees: deductions for work expenses under section 8-1”, sets out the general deductibility principles for employee work expenses. It was released in draft form last year (TR 2019/D4), and the final form retains the above mentioned guidance through the appendix, which gives a list of work expense categories with links to relevant rulings, determinations and other material published by the ATO.
The founding principles mentioned state that an expense has to meet the requirements of a positive test and not miss the mark on some negative tests. The positive test is that the expense:
- must be incurred
- and done so in gaining or producing assessable income that
- involves consideration of all facts and circumstances
- means in the course of gaining or producing assessable income, and
- requires a proper understanding of the relevance of employer requirements
- is an amount only deductible to the extent incurred in gaining or producing assessable income.
The negative tests are met if:
- the expense is not a loss or outgoing of capital
- the expense is not private or domestic in nature
- the expense is not incurred in relation to gaining or producing exempt or non-assessable non-exempt income, and
- another provision of the tax law does not prevent deduction of the expense.
The ruling also covers the depreciation cost of assets used to produce salary and wages, and steps through substantiation requirements using various examples.