ATO Interpretative Decision
ATO ID 2003/564 (Withdrawn)
Income Tax
Deductions: long term promotional display expensesFOI status: may be released
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This ATO ID is a restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 9 April 2010
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a deduction allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses incurred in the purchase and fitting of long term promotional displays in a business premises?
Decision
No. A deduction is not allowable under section 8-1 of the ITAA 1997 for the expenses incurred in the purchase and fitting of long term promotional displays in a business premises as the expenses are of a capital nature.
Facts
The taxpayer is carrying on a business.
The taxpayer purchased items to decorate their business premises in a manner which promoted their business activities.
The taxpayer paid another person to put those items together in a promotional display and fit the items, and thus incurred labour costs.
The promotional display was to be a permanent feature of the taxpayer's business premises.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent that they are necessarily incurred in carrying on a business for the purpose of 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.
In the case Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 87; (1938) 1 AITR 403, Dixon J considered that the difference between capital and revenue expenditure corresponds to the difference between the business structure and the business operations. His Honour when on to say that in relation to making the distinction between capital and revenue:
There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.
His Honour, in providing these characteristics of the capital or revenue nature of expenditure, also considered the judgement of Viscount Cave in British Insulated and Helsby Cable Ltd v. Atherton [1926] AC 205. At page 213 of this case Viscount Cave stated that expenditure was capital in nature when:
...an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.
The expenditure for the display items and the labour costs incurred were a once off expense without any element of recurrent expenditure. It brought into existence the enduring assets used in the promotional display. The promotional display was to provide long term benefits to the taxpayer's business. In these circumstances it was expenditure of a capital nature rather than of a revenue nature.
Accordingly, no deduction will be allowable under section 8-1 of the ITAA 1997 for the expenditure on the long term display items and the associated labour costs.
Note: A deduction is available under section 40-25 of the ITAA 1997 for the decline in value of the long term promotional display items and the associated labour costs.
Date of decision: 13 June 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 8-1
section 40-25
Case References:
Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation
(1938) 61 CLR 337
(1938) 5 ATD 87
[1926] AC 205
Keywords
Advertising & promotion expenses
Capital expenditure
Deductions & expenses
Depreciation
Depreciation expenses
ISSN: 1445-2782
| Date: | Version: | |
| 13 June 2003 | Original statement | |
| You are here → | 9 April 2010 | Archived |