ATO Interpretative Decision

ATO ID 2004/614

Income Tax

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Issue

Is the taxpayer entitled to a deduction, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses they incurred in installing a portable global positioning system (GPS) in their employer provided motor vehicle?

Decision

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for the expenses they incurred in installing a portable GPS in their employer provided motor vehicle as the expenditure on the GPS is of a capital nature.

Facts

The taxpayer is employed as a sales representative.

The taxpayer's employment duties include travelling to new and existing clients located within their assigned area.

The taxpayer purchased and installed a portable GPS in their employer provided motor vehicle.

The GPS unit that the taxpayer installed in their employer provided motor vehicle enables them to more easily locate client addresses within their assigned area. The GPS is used only for work purposes.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

The courts have established that, for an expense to be an allowable deduction, there must be a sufficient connection between the outgoing and the assessable income such that the expenditure is incidental and relevant to the taxpayer's income producing activities (Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431, and it must have the essential character of an outgoing incurred in gaining assessable income (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; [1958] HCA 5; (1958) 7 AITR 166); (1958) 11 ATD 404).

The travel requirements of the taxpayer's employment provide a sufficient connection between the expenses they incurred on the GPS and their salary, such that the expenditure is incidental and relevant to the derivation of the assessable income from their employment.

The taxpayer only uses the GPS to locate client addresses (for work purposes). In these circumstances the essential character of the expenditure is not private or domestic in nature.

However, the expenditure the taxpayer incurred on the GPS is a one-off expense without any element of being a recurrent expenditure. It brought into existence an enduring asset used in the derivation of the taxpayer's assessable income. The GPS is to provide the taxpayer with a long-term benefit in their income earning activities. In these circumstances the taxpayer's expenditure on the GPS is of a capital nature rather than of a revenue nature.

As the expenditure the taxpayer incurred on the GPS is capital in nature, they are precluded from claiming a deduction for the GPS by paragraph 8-1(2)(a) of the ITAA 1997.

Amendment History

Year of income:  Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   paragraph 8-1(2)(a)

Case References:
Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation
   (1949) 78 CLR 47
   [1959] HCA 15
   (1949) 4 AITR 236
   (1949) 8 ATD 431

Related ATO Interpretative Decisions
ATO ID 2004/612
ATO ID 2004/613

Keywords
Car expenses
Motor vehicle expenses

Siebel/TDMS Reference Number:  4016837; 1-7YTB00F

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 July 2004

ISSN: 1445-2782