Edited version of private ruling

Authorisation Number: 1011604659648

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Ruling

Subject: Work related expenses

1. Are you entitled to a deduction for expenses incurred in providing gifts to your fellow employees?

Yes.

2. Are you entitled to a deduction for expenses incurred in providing gifts to potential and current clients?

Yes.

3. Are you entitled to a deduction for expenses incurred in providing gifts to referral partners?

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are employed.

You receive a base salary and also earn commissions, you do not receive any allowances from your employer.

You provide gifts to your fellow employees who work in the office and carry out work for you. You give these gifts approximately once a month.

You are all employees of the same employer and are not related in any way.

You state that you could not complete you current workload without the assistance of your fellow employees.

You state that the efficiency of your fellow employees allows you to take on more work which increases you commission.

You provide gifts to potential and current clients as well as referral partners.

You do not have any written agreements in relation to the giving of rewards, however these may be developed in relation to referral partners pending the outcome of this ruling.

Relevant legislative provisions

Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The general deduction provisions can be found in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Section 8-1 of the ITAA 1997 states that a deduction is allowable for all losses and outgoings to the extent to which they:

· are incurred in gaining or producing assessable income, or

· are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

No deduction however, is allowed under section 8-1 of the ITAA 1997 for expenditure that is of a private or domestic nature.

Taxation Ruling TR 98/6 deals with work related deductions for employees in the real estate industry. You are a financial planner and do not work in the real estate industry however your income structure is similar to employees in the real estate industry in that you earn a salary and are entitled to earn commission.

As your income structure is similar to those dealt with in TR 98/6, the basic principles from the ruling can be applied to your situation.

Referral expense

TR 98/6 provides that a deduction is allowable for expenses incurred in rewarding a person who has referred successful business, or for rewarding a person for potential business. A deduction for such expenses is not allowable to employees who are not entitled to earn commission.

In either case, a deduction is not allowable if the expenditure results in the provision of entertainment provided by way of food or drink or recreation. A deduction is not allowable for rewards to friends, relatives or associates unless the connection between the outgoing and the production of income can be clearly established.

The ruling also provides the following example:

Angelique is a real estate salesperson who receives a fixed salary and also earns commission income. Angelique has offered to pay Gerald $50 when he referred a client and there was a resulting property sale. A deduction is allowable for the money paid by Angelique in rewarding Gerald. As Gerald has agreed to continue to refer clients to Angelique, she pays him $40 in three months time. Angelique can claim the $40 as a deduction.

Your employment relies on referrals to initiate potential client contact which leads to the earning of commission.

Therefore, expenditure incurred in the provision of gifts in to referral partners is an allowable deduction under section 8-1 of the ITAA 1997.

Gifts to fellow employees and clients

TR 98/6 states that a deduction is allowable for the cost of gifts bought for work related purposes by property managers or sales people who are entitled to earn commission.

The ruling states that although the expenditure will not immediately result in the derivation of assessable income, there is a prospect that it may produce a greater assessable income in later years of income.

The deductibility of such expenditure however is not allowable for gifts provided to friends, relatives or associates unless the connection between the outgoing and the production of income can be clearly established. Also, a deduction is not allowable for gifts that satisfy the definition of entertainment provided by way of food or drink or recreation.

You earn both a set salary and are entitled to earn commission. You like to reward and encourage your fellow employees as their level of productivity directly relates to the amount of commission you are able to earn. There is a direct relationship between the productivity of these fellow employees and your level of commission earned.

You also provide gifts to current and potential clients who either currently or potentially provide you with work which results in the earning of commissions.

Expenditure incurred in providing gifts to your clients, receptionist and paraplanner are deductible under section 8-1 of the ITAA 1997.

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