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Ruling

Subject: Travel expenses

Question

Are you entitled to a deduction for the travel expenses incurred in attending a sporting club's training camp?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are co-owner and sole director of a company.

You travelled with a sporting team on their pre-season camp.

The trip involved you being treated as one of the players and being included in their activities.

The purpose of the travel was to develop relationships with the club's management, players and sponsors for the purpose of fostering work contacts.

The itinerary indicates that the trip predominately focuses on fitness

Your expenses were not reimbursed and you paid for the trip using personal funds.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The benefits that you gained from your trip to the training camp are not considered to have a sufficient connection to your income earning activities. Accordingly, you are not entitled to a deduction for the expenses incurred.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred 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.

There must be a sufficient connection between the outgoing and the activities directed at gaining or producing assessable income. The decision in Ronpibon Tin v. FCT (1949) 78 CLR 47; (1949) 8 ATD 431, confirms that for an outgoing to be deductible under section 8-1 of the ITAA 1997, there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income.

What is involved is a process of identifying the essential character of the expenditure to determine whether it is in reality an outgoing incurred in gaining or producing assessable income.

Where travel expenses are part of the necessary cost of your work related activities they are deductible expenses. However, a sufficient connection between the cost of the travel and your income producing activities must firstly be established.

The Taxation Boards of Review have considered a number of teachers seeking income tax deductions for overseas travel expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers.

One particular case is Case U109 87 ATC 657. In this case, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

In your case, you travelled to attend a sporting club's pre-season camp. The predominant purpose of the camp was to provide training for players and to offer guests the opportunity to train, eat and sleep like one of the players and be included in all team meetings, strategy sessions and social activities.

Your stated purpose for attending the camp was to create and nurture business relationships with various players, managers and sponsors with a view to securing preparation and promotional material, provide support to their media and communications departments and obtain consultancy work with the club.

However, these reasons for the trip are not enough to demonstrate a sufficient connection between the trip and your income producing activities. Your circumstances are considered similar to Case U109. This is highlighted by the fact that the predominant purpose of the camp for guests was fundraising for the club and an opportunity to train with the players.

While it is acknowledged that the trip may lead to increasing your company's client base, the nature of the trip is considered to be too general in nature for the expenses to be incurred in the course of gaining your assessable income.

Accordingly the trip to the camp is not considered to have a sufficient connection to your employment duties, and you are not entitled to a deduction for expenses incurred.

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