Taxation Determination
TD 93/213
Income tax: Offshore Banking Units (OBU) - if an OBU earns fee income for completing an assignment (say advisory activities) on a success only basis, are expenses incurred on unsuccessful deals exclusive offshore banking (OB) deductions or general OB deductions?
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FOI status:
may be releasedFOI number: I 1216479| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). |
1. Expenses incurred on potential OB assignments should be classified as exclusive OB deductions where the expenses relate exclusively to OB activities, whether or not any OB income is derived from those particular activities. Similarly expenses incurred on potential non-OB assignments should be classified as exclusive non-OB deductions where the expenses relate exclusively to non-OB activities, whether or not any assessable income that is not assessable OB income is derived from those activities.
2. It is well established that as a general proposition, deductions are allowed or allowable under subsection 51(1) and other provisions of the Income Tax Assessment Act 1936 in respect of expenditure incurred for the purposes of producing assessable income although the expenditure in question does not produce assessable income in that year.
3. When read in that context, it is clear that the legislature intended section 121EF to operate in respect of allowable OB deductions notwithstanding that no amount of assessable OB income was derived by an OBU in a year of income.
Example
An OBU incurs salary, travel and other expenses on developing the following projects:
Project 1 tendering for an advisory role to the Malaysian government. Costs incurred $100 000
Project 2 researching the viability of advising Japanese institutions on investment in a Chinese infrastructure project. Costs involved $150 000.
The OBU is only successful with project 2 with a fee of $500 000 being derived.
The OBU is entitled to claim an exclusive OB deduction of $250 000.
Commissioner of Taxation
28/10/93
Previously issued as Draft TD 93/D208
References
ATO references:
NO NAT 93/3707-5
Subject References:
offshore banking,
advisory activity,
OBUs;
exclusive OB deductions;
general OB deductions
Legislative References:
ITAA 121EF
| Date: | Version: | Change: | |
| You are here | 28 October 1993 | Original ruling | |
| 13 October 2021 | Consolidated ruling | Addendum |