Law Watch – Claiming Your Approved Tax Deductions

Just because it is a work related expense will not necessarily mean that the ATO will allow the deduction. It may be surprising and disappointing to a taxpayer what the ATO allows and dismisses for deductions.

The ATO has provided examples in its draft ruling of its analysis of why certain work related deductions would or would not be upheld. Let’s take a look at a few of these examples: Example 1-Anti-Glare Glasses UV filtered “aviation spectacles” are a popular purchase by pilots. These glasses alter the colour of control panel lights. If a pilot claimed a deduction for his glasses he would have to show that the glasses are not similar to conventional clothing or to eyewear intended to correct defective vision. In other words, the pilot must consider the glasses as a form of protective equipment and unnecessary in any of his other daily functions aside from flying the aircraft for his employer. So, at the end of a flight the glasses remain in the aircraft.

The ATO, however, considers the use of anti-glare glasses as conventional protection from the natural environment, not from the hazards of the equipment used while working. And the ATO has previously determined that sunglasses do not possess any special attributes to take them out of the category of private outlays. Therefore, the ATO will not allow a taxpay- er’s deduction for anti-glare glasses.

Example 2-Overnight Bags, Suitcases, Suitpacks The ATC has reviewed this type of deduction with an empha- sis on what type of job the taxpayer holds within the industry and who provides the items. For instance, if an employer provides its pilots, flight attendants and flight engineers with overnight bags, then the ATO will not permit a claim for a deduction.

As part of their job, flight attendants, pilots and flight engineers are required to travel. They often incur the cost of travel bags, such as suitpacks and suitcases, which their employer does not supply.

The ATO previously addressed this situation when a ministerial secretary who was required to travel during the course of his work sought to depreciate the cost of his suitcase. The ATO allowed the cost to be apportioned according to the minister’s business usage.

So the draft ruling indicates that flight attendants, pilots and flight engineers may deduct for luggage expenses, other than luggage their employer provides, which should be apportioned according to their business usage. This portion for business usage may then be depreciated according to depreciation tables provided by the ATO.

Ground engineers, however, are treated differently. The ATO will not allow a deduction for their luggage expenses. The ATO feels that a ground engineer travels for his employer so infrequently that even an apportioned depreciation deduction would not be allowable.

Example 3 – Depreciation of Tools Purchasing tools is a capital expenditure and their initial cost may not be deducted in only one year. This rule applies whether the tools are purchased by an apprentice ground engineer or by a licensed engineer. The tools must be depreciated progressively over their predetermined life according to depreciation tables the ATO publishes. However, an engineer may claim the full cost of similar tools if he purchases them on a replacement basis subject to value limits and the date purchased.

Example 4-Shoes The ATO has developed a series of tests to determine whether a taxpayer’s expenses for shoes may be deducted. If all the tests aresatisfied, then the expense is allowable. The four tests are: (a) whether the wearing of the shoes is an express or implied condition of employment; (b) whether the shoes are “distinctive or unique to the nature of the employment” and whether they could be worn by the general public; (c) the extent that the shoes are used solely for work; and, (d) the extent that the shoes are unsuitable for any activity other than work.

So, to use a practical example, flight attendants must wear a particular designated colour of shoes to match their uniforms. The shoes may also have to be of a certain style and height. And flight attendants may choose to wear a flat pair of shoes on the plane that are more comfortable for carrying out their duties. Based on the four tests analysis above, these shoes are not peculiar to the industry and therefore fail to satisfy the four tests. So, in this example, flight attendants’ shoes, including cabin shoes, possess neither protective features nor features which are distinctive or unique to the occupation and are not an allowable deduction.

Example 5-Stationery and Diaries Flying charts and updates are often a necessary expenditure by pilots if their employer does not supply them. Diaries are also a similar necessity for pilots in performing their daily duties. In the draft ruling, the ATO has determined that pilots’ claims for log books, charts, binders and diaries are an allowable deduction.

Flight attendants, flight engineers and ground engineers have a similar need to maintain a diary for their work. For them, this diary may record details of all flights undertaken, work time spent on ground and timetable entries. Normally an employer will not supply these diaries and the flight attendant or engineer purchases the diary for himself. The ATO’s draft ruling indicates that this is an expense necessarily incurred in earning assessable income and may be deducted. However, it should be noted that in the case of flight attendants, ground engineers and flight engineers, diaries are the only stationery item allowable.

Example 6 – Technical Journals and Periodicals For magazines and journals to be deductible, the taxpayer must show a sufficient nexus between the nature of the purchase and his or her employment.

This issue has been addressed by the ATO on a couple of occasions. In one case the ATO denied an air traffic controller’s deduction for the purchase of aviation magazines. The ATO felt his work did not require him to buy the papers and magazines. The ATO determined that there was too remote a connection between the cost of aviation magazines and the type of knowledge necessary to be maintained for holding a flying licence. In another example, the ATO allowed a public services’ accountant to deduct the cost of publications authored by a business and law publisher. The ATO felt that the taxpayer had established the nexus between the expense and the accountant’s occupation as the publications contained current technical information which related to his daily work.

So, unless you can demonstrate that a journal or periodical contains technical information relevant to your employment, expenses for journals and periodicals will not be allowed by the ATO.

Example 7-Uniforms and Uniform Maintenance An employer will provide appropriate uniforms to its flight attendants, pilots, flight engineers and ground engineers. These uniforms are certainly unique to the industry and to the job to be performed. Because airlines do not provide cleaning services for their employees, an employee’s deduction for the cost of cleaning and maintaining company uniforms is allowable. Example 8-Telephone Expenses Flight attendants, pilots and flight engineers are permitted to deduct the expenses incurred in business calls and partial rental cost for maintaining a telephone connection. However, written records (e. g. , diary entries) must be available to support the making of such calls. Installation costs of a telephone are considered a capital expense and may not be deducted. An exception to the permissible deduction of telephone expenses is ground engineers. The ATO believes that they are not required by their employer to use the telephone any more than other taxpayers and they may not deduct their telephone expenses.

And although the purchase and maintenance of a beeper or answering machine is a modern convenience, the ATO has indicated that it is a personal choice made by the employee. These items are private in nature and the ATO will not allow a deduction for their purchase and maintenance.

Example 9-Licence Renewal and Medical Exams Licences issued by a government regulatory body are necessary for the lawful performance of some jobs in the aviation industry and to maintain employment with a company. In its draft ruling, the ATO has stated that if a taxpayer must take an exam to retain a licence, the costs associated with the exam are an allowable deduction provided the taxpayer’s employer does not reimburse him.

However, the cost of a pilot’s medical examination is not an allowable deduction as the expense is of a private nature. The ATO has previously determined that the expenditure is neither relevant nor incidental to the taxpayer’s duties as an airline pilot. This is even though the holding of the pilot’s licence and the particular expenditure appear as essential prerequisites of the derivation of income.

Conclusion

Remember, the above examples were part of a Draft Taxation Ruling. The ATO’s thinking may change before the Final Ruling is issued. They offer some guidance, however, in reviewing your own claims for deductions.

In any event, always seek a qualified tax practitioner’s advice before claiming a deduction. That advice may save you a great deal of aggravation and expense later on. Kim Todt is an aviation law specialist.