1012696994664 | Legal database

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Edited version of your written advice

Authorisation Number: 1012696994664

Ruling

Subject: deduction for business travel expenses and investments

Question 1

Are you entitled to claim a deduction for amounts which you paid for travel and accommodation in relation to travel on behalf of an entity in the 2013-14 financial year?

Answer

Question 2

Are you entitled to claim a capital loss for an amount spent on purchasing a capital item?

Answer

Question 3

Are you entitled to claim a deduction for a maintenance fee during the 2012-13 financial year?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2003

Year ended 30 June 2004

Year ended 30 June 2005

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2002

Relevant facts

The entity operates a business.

You travelled to a number of locations on behalf of the entity.

You personally spent an amount of money on flights, accommodation and other items.

You were not reimbursed for any of the above expenses by the entity.

You did not have a loan agreement in place with the entity in relation to any expenses you paid.

You and another party invested equally (50/50) in a capital product. You also incurred an amount for annual maintenance.

The entity in which you invested was placed into liquidation.

You received a letter from the Liquidator which asked creditors of the company to submit their claims.

You have not received any advice from the Liquidator which states what you are likely to receive as a result of the liquidation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Subsection 6-5(3)

Income Tax Assessment Act 1997 Subsection 6-10(5)

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

The Courts and Tribunals have consistently held that a deduction is not allowable for company expenses paid by directors as they have not been incurred in gaining or producing assessable income in the taxpayer's capacity as a director. The expenses were not incurred by the taxpayer in earning his assessable income but rather the income of the company (FC of T v Munro (1926) 38 CLR 153).

In Case U134 87 ATC 780, expenses incurred on behalf of a family company by a director of the company were not deductible. The expenses had not been incurred in gaining or producing his assessable income in his capacity as a director and there was not a sufficient connection between the expenses and dividend income he received as a shareholder, nor was there a sufficient connection between the expenses and his business of a shareholder holding shares in the family company.

In Case L86 (1961) 11 TBRD, the taxpayer, a public accountant, paid during the year of income amounts to a company, which he had formed and of which he was the managing director, for the purpose of enabling it to pay its debts. The taxpayer claimed that it was necessary for him to keep faith with his many business associates, who had assisted the company with credit, because of his reputation and that if he had not contributed money to the company to pay its creditors his reputation would have suffered and it would not have been practicable for him to continue in the practice of his profession. It was held that the deduction was not allowable.

In your case, you paid expenses whilst travelling on business for the entity. These expenses were paid on behalf of the entity and are not referable to your income-producing activities and as such, no deduction is allowable to you for those expenses.

Question 2

Subsection 100-20(1) of the ITAA 1997 states you can make a capital gain or loss only if a CGT event happens.

CGT event C2 occurs when there is a cancellation, surrender or similar ending.

In this case, you invested in a capital product. The investment entity has been placed into liquidation. Your ownership interest in the capital product has not ended as there hasn't been any formal notification from the liquidator to indicate whether you will receive any payment as a result of the liquidation, consequently there has not been a CGT event. As there has not been a CGT event you are not entitled to claim a CGT loss.

Question 3

Section 8-1 of the ITAA 1997 allows a deduction for all losses or 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.

In this case you paid an amount for an annual maintenance fee in the 2012-13 financial year. You had a reasonable expectation of receiving income you therefore incurred an outgoing with the expectation of producing assessable income. You are entitled to claim a deduction for the maintenance fee under section 8-1 of the ITAA 1997.

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