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Edited version of private ruling
Authorisation Number: 1011575496855
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Ruling
Subject: deductibility of airfares
Question:
Can you claim a deduction for the costs incurred for airfares to attend an international sporting event?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You are a professional sportsperson.
You have had an extensive career in your chosen sport.
You have participated in many international sporting events representing Australia as well as playing your chosen sport under contract to clubs in Australia and overseas for several years.
You have declared employment income from your club contracts and payments received from Australian sporting bodies in relation to your representative events for at least the last five years.
In 2009-10 you incurred expenses for airfares to attend an international sporting event.
The prize money on offer to the winner of the event was up to $20,000.
You did not win any prize money.
You did not earn any other income as a professional sportsperson in the 2009-10 income year.
You have since retired from professional sport and have begun working as a coach.
Reasons for decision
Taxation Ruling TR 1999/17 discusses how the tax law applies to some payments received by sportspeople in relation to their involvement in sport.
TR 1999/17 states (at paragraph 29) a business of participating in sport includes:
· the commercial exploitation of skills developed as a pastime or hobby; and
· the commercial exploitation of skills developed and used in the pursuit of sporting excellence.
Both situations above will result in sport becoming a taxpayer's vocation or calling and therefore a business. Typically, commercial exploitation will involve an individual utilising his or her skills in a systematic, regular and/or organised manner with a view to obtaining assessable income.
In your case, you have utilised your sporting skills in a systematic, regular and/or organised manner with a view to obtaining assessable income through your club contracts and various Australian sporting bodies. Therefore, you are considered to be in the business of participating in sport.
Necessarily incurred
Under paragraph 8-1(b) of the Income Tax Assessment Act 1997 (ITAA 1997) you can claim deductions for expenses to the extent they are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. No deduction is allowed for expenses to the extent to which they are of a capital, private or domestic nature or are incurred in gaining or producing exempt income.
The phrase 'necessarily incurred' does not mean that the expense was unavoidable or logically necessary. The expense must be clearly and appropriately adapted for the ends of the business.
Where the expense is voluntary, the controlling factor is whether the expense can objectively be seen to be appropriate to the business activity (Magna Alloys & Research v. FC of T 80 ATC 4542; (1980)11 ATR 276).
It may be necessary to examine the taxpayer's subjective purpose where there is no obvious commercial connection with the business activity or where the expense does not achieve its intended result (Taxation Ruling TR 95/33).
In your case, your activities as a professional sportsperson include participation in sporting events to compete for prize money. The expenses you incurred for airfares to compete in an international event, for a chance to win up to $20,000, have the necessary nexus with the production of your assessable income as a professional sportsperson and are, therefore, an allowable deduction under section 8-1 of the ITAA 1997.
This is the case even though you did not produce any assessable income as a result of competing in the event or as a professional sportsperson in the 2009-10 income year.
The non-commercial loss provisions in Division 35 of the ITAA have not been discussed as your activities as a professional sportsperson have passed the profits test (section 35-35 of the ITAA 1997) and do not apply. Therefore, you can claim a deduction for the airfare expenses against income earned from other activities.
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