ATO Interpretative Decision

ATO ID 2003/324 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the basis of the decision in this ATO ID can be found in the Guide for rental property owners (NAT 1729).
  This document has changed over time. View its history.

Issue

Is the taxpayer, who derives income from rental properties, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in attending a property investment seminar?

Decision

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for expenses incurred in attending a property investment seminar but only to the extent that the expenses relate to the gaining or producing of assessable income from their existing rental properties.

Facts

The taxpayer owns several residential properties which have been rented out for a number of years.

The taxpayer is not carrying on a business of letting properties.

In each of the years the properties were rented the taxpayer has included rent in assessable income and claimed expenses against that income.

The taxpayer incurred expenses, including airfares, accommodation and fees in attending a property investment seminar and workshop. The taxpayer's sole purpose in travelling was to attend the seminar and workshop.

The seminar focussed on investment strategies and techniques in relation to both commercial and residential properties. The seminar included such topics as developing investment business plans, strategies for dealing with financiers, developers and real estate agents, maximising opportunities for increasing investment property ownership and maximising the return on current investment properties.

The seminar was conducted over two days with approximately 20% of the time spent in providing information about the management of rental properties and maximizing rental income.

The taxpayer intends to use the information gained about management of rental properties to reduce expenses incurred in relation to their investment properties.

The taxpayer has not acquired any further investment properties since attending the investment seminar.

Reasons for Decision

Subsection 8-1(1) of the ITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of producing assessable income. Subsection 8-1(2) of the ITAA 1997 however, excludes a loss or outgoing of a capital, private or domestic nature, or where the loss or outgoing is incurred in gaining or producing exempt income.

For a deduction to be allowed under the first limb of subsection 8-1(1) of the ITAA 1997, the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. There must be a sufficient connection between the expense and the operations or activities which gain or produce the assessable income. Refer the judgement of Lockhart J in Federal Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616.

In this case, a significant proportion of the content of the seminar related to future property investment. As such the primary purpose of the seminar was to give the taxpayer the required knowledge to establish a strategy or structure for investing in rental properties.

The proportion of the cost of the seminar that relates to this primary purpose is incurred at a point too soon to be incidental and relevant to the taxpayer's income earning activities from any future investment properties (Federal Commissioner of Taxation v. Maddalena 71 ATC 4161; (1971) 2 ATR 541). There is insufficient connection between this expense and the earning of rental income from current investment properties.

This expenditure does not have the essential character of expenditure incurred in gaining or producing assessable income. Accordingly, as this expenditure is not incurred in gaining or producing assessable income no deduction is allowable under subsection 8-1(1) of the ITAA 1997.

The proportion of the cost of the seminar that dealt with the management of current rental properties and maximizing the income from those investments is incidental and relevant to the taxpayer's current income earning activities and therefore is deductible under section 8-1 of the ITAA 1997. In establishing this connection the taxpayer was able to point to how they intend to reduce their rental expenses as a result of the information they gained from the seminar.

There must be a reasonable basis for the apportionment of the total cost between deductible and non-deductible components. An apportionment based upon the time spent in the seminar relating to deductible (that is 20%) and non-deductible expenditure (that is 80%), is a reasonable basis for apportionment. Accordingly a deduction for 20% of the total cost in attending the seminar is allowable under subsection 8-1(1) of the ITAA 1997.

Amendment History

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   subsection 8-1(1)

Case References:
Federal Commissioner of Taxation v. Cooper
   (1991) 29 FCR 177
   (1991) 21 ATR 1616
   91 ATC 4396

Related Public Rulings (including Determinations)
TD 95/60

Keywords
Deductions & expenses
Real estate related expenses
Rental expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 May 2003

ISSN: 1445-2782