AAT denies deductions for work-related expenses: Lambourne v Commissioner of Taxation [2020] AATA 4562

The Administrative Appeals Tribunal (AAT) recently agreed with the Commissioner in disallowing certain deductions for work-related expenses.

The AAT’s decision in Lambourne v Commissioner of Taxation [2020] AATA 4562 (Lambourne) re-enforces, among other things, the evidentiary burden taxpayer’s must overcome to substantiate deductions claimed under section 8-1 of the Income Tax Assessment Act 1997.

Facts

In Lambourne, Mr Lambourne (Taxpayer) was employed as an electronics technician and military fitness leader in the Australian Navy. In his 2017 income tax return, the Taxpayer claimed deductions for several work-related expenses, including:

• work clothing: Navy uniform and clothing items (Clothing); and

• other work-related expenses that were for use on-board a naval ship, such as:

  • a HDMI box-splitter and splitter hub for the ship’s entertainment system (Splitter Items);

  • gym equipment for use by the crew (Gym Equipment); and

  • polarised sunglasses for the Taxpayer’s own use whilst on bridge duty (Eyewear).  

The Commissioner denied each deduction, the Taxpayer unsuccessfully objected, and the matter went to the AAT for review.

Clothing

The AAT found that the Taxpayer had failed to provide adequate evidence in respect of the Clothing. The only evidence put forward was a customer transaction report that provided a general summary of the Taxpayer’s purchases throughout the year; it did not itemise any of the transactions.

The Taxpayer could not provide details in relation to the individual invoice amounts provided in the customer transaction report, nor could he provide details of what items were purchased or their relevant cost. Accordingly, in the absence of such information it was impossible to determine whether a nexus existed between the expenditure and the gaining or producing of the Taxpayer’s assessable income.

Splitter Items and Gym Equipment

The AAT found that the Taxpayer had purchased the Splitter Items and Gym Equipment at his own discretion and for the benefit of the Navy, but not in the derivation of his own assessable income. There was no nexus between the expenditure on the Splitter Items and Gym Equipment and the derivation of the Taxpayer’s assessable income as an electronics technician.

The AAT also considered that the Taxpayer would have continued in his capacity as Leading Seaman Electronics Technician and Military Fitness Leader had he not incurred the expenditure. For these reasons, the AAT concluded that the Taxpayer’s purchase of the Splitter Items and Gym Equipment was more akin to providing benefits for his crew mates rather than being incurred in the ordinary course of producing the Taxpayer’s assessable income.

Eyewear

The AAT found that any equipment required was provided by the Navy and as such, expenditure on the Eyewear was not incurred in the course of gaining or producing the Taxpayer’s assessable income pursuant to section 8-1.

The AAT agreed with the Commissioner that the protective sunglasses were not generally required to be worn by the Navy because no harm was to be occasioned to the Taxpayer on bridge duty and that it was the Taxpayer’s subjective opinion as to whether the sunglasses assisted.

This is despite the Taxpayer’s contention that the Eyewear was essential to ensure that he could see things in the water whilst on watch and were therefore necessary to ensure he could adequately carry out his duty. Here the taxpayer failed to show that the eyewear had the requisite “additional quality of protection.”

Conclusion

Lambourne serves as a reminder that the burden of proof rests with taxpayers in the context of a tax dispute. However, an interpretation of section 8-1 that appears to include a requirement of would the taxpayer continue to be paid if had they not incurred the relevant expenditure, may operate to deny a deduction for discretionary expenditure even though the expenditure was incurred in the course of (and for the benefit of) a taxpayer’s employment. Such an interpretation, and result, is questionable.  

It is not yet clear as to whether the Taxpayer will appeal this decision to the Federal Court or whether other cases concerning discretionary expenditure in an employment context come before the AAT or Federal Court.

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au

Edward Hennebry
Associate
T +61 3 9611 0113
E: ehennebry@sladen.com.au

Henri Sheridan
Lawyer
T +61 3 9611 0194
E hsheridan@sladen.com.au