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Edited version of your private ruling
Authorisation Number: 1012383904318
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Ruling
Subject: Overseas travel expenses
Question
Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of travel to produce a non-income producing production?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
The company ('You') conduct(s) an events business.
Some years ago you produced a production.
You were encouraged to promote and market the production across Australia.
In 200X the company held numerous performances of the production, which featured associated persons.
The company has been directly involved with an overseas institution through an associated not for profit association.
In the year in question, the company directors led a group of volunteers to the overseas country to stage a production involving locals, through your associated not for profit association.
You did not receive any direct income from staging the production, however, you state that:
a) the profile and credibility of the company has increased in Australia because of the non income-producing work;
b) the recognition of the company's work in the overseas country has been a prominent factor in the winning of these contracts; and
c) the company's skills have been developed significantly through producing an event in a third world environment.
Because the directors' associates had performed the production in Australia many times, they were included in the staging of the overseas production and the company decided that the travel expenses would be covered by the company.
You have provided a list of the travel expenses you seek to claim.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred by an individual in 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.
A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997:
· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; (1958) 11 ATD 404)
· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431); and
· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147 (1956); 6 AITR 379; FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616; Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223; 93 ATC 4508; (1993) 26 ATR 76; Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).
You did not receive any payment for the production or to cover the associated expenses, as would be expected of a business activity. The expenditure incurred does not have the required nexus with the income of the company to qualify for a deduction.
The fact that the company may have increased its profile, credibility and skills as a result of the not-for-profit production is incidental. The essential character of the outgoings was not that of an income producing expense. The production was produced by you and your associates in your capacity as volunteers.
The expenditure was therefore not incurred in the course of gaining or producing your assessable income. Consequently, you will not be entitled to a deduction under section 8-1 of the ITAA 1997 for the travel expenses.
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