Edited version of private advice

Authorisation Number: 1052278254938

Date of advice: 23 July 2024

Ruling

Subject: Business deduction - travel

Question

Are the food, drink and travel expenses incurred as a video blogger that are shown in videos resulting in income from viewership of ads as well as sponsorships deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the relevant financial year?

Answer

No.

This ruling applies for the following period:

Year Ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a private company trading as Company A.

You provided the date you registered for an ABN.

Your director is Person A who operates a specific YouTube Channel.

Person B is Person A's spouse and is a shareholder of Company A, who does not beneficially own the shares. The shares are held on behalf of Trust A.

Person A and Person B are the beneficiaries of Trust A.

You provided the following:

•         The month and year the channel commenced.

•         Approximate number of subscribers at the date of your private ruling application.

•         The number of views received within a week of a video release.

•         The average amount you receive for a specific number of views on a video.

You receive monthly payments from YouTube after entering an agreement to set up Google AdSense account. As a result of the agreement, you receive payments for the ads shown on your videos.

You provided us with details on the average number of ads per video.

The amount you received for each video varies depending on the number of views each video receives and the number of ads each video shows.

The videos were originally a variety of life-style videos (including comedic videos).

Videos showcasing 'Australian lifestyle', travelling to different locations, and the making or eating of certain food significantly outperformed viewership over other types of videos.

A large quantity of views originates from a specific country, with viewers in a specific age bracket, who you believe enjoy watching videos about life in Australia and your travels.

Since the easing of travel restrictions, the channel has expanded to include overseas travel, and more recently has documented your journey into parenthood.

Given the inability to consistently upload videos relating to 'Australian lifestyle', food or travel because of the work and expenses required to create such videos; uploads also include general lifestyle and comedic videos.

The benefits of the increased subscriptions resulted in an increase in the average views of the general lifestyle videos, which has contributed to a sustained increase of monthly views compared to earlier videos.

You provided examples of your viewership numbers in a table. The table provided:

•         The date the video was uploaded.

•         The video topic.

•         Views as of date of private ruling application.

•         Ad revenue generated, and the currency of the revenue.

As a result of the increased viewership, payments received in relation to Google AdSense increased significantly. You provided a table that shows the increase in Ad revenue over a specific period for certain videos.

Travel and food related videos outperform the general lifestyle and comedic videos. You provided details of the video upload date, description of the video content and the ad revenue generated from the video.

To ensure that the YouTube continues to recommend your channel via the 'YouTube algorithm', you uploaded videos twice a week. Failing to do so may result in the channel losing viewership on the videos.

You provided the number of hours spent per week creating the video.

Videos are edited by Person A and Person B.

You provided us with links to various videos on your YouTube channel.

Family and friends sometimes accompany you when you travel or when you film content.

The channel must ensure that the videos follow the relevant YouTube guideline to ensure that the videos are not 'de-monetised'. Thought is put into ensuring the topics of the videos are curated to reduce the risk.

The videos are produced to show the taxpayer's reaction of the food and various places to an international audience.

Receipts are retained in relation to the expenses incurred.

Where content is created with family members or friends who are present, the expenses are apportioned on a reasonable basis. This may be on time spent or amount consumed.

In creating the content, you consider the interest of the viewership and providing content that is either:

•         In relation to Australian vlogs - uniquely Australian; or

•         In relation to travel to other locations - unique and not commonly reviewed.

•         In curating 'unique and not commonly reviewed' the following is considered:

To research what content to make, you:

•         Conduct Google searches to identify common things to do and see.

•         Review what is considered common and whether there are any alternative available that are less known.

•         Conduct additional searches using other search engines or a local equivalent search or aggregator website.

You have a company bank account. Income earned and expenses incurred that are substantially business related are made through the bank account.

Where expenses are partially business and private, Person A will incur the expense in their personal account and may request a reimbursement calculated on the proportionate basis.

You did not have any sponsorships in the relevant financial year. You were offered sponsorships late in the 20XX calendar year.

You provided substation of expenditure in the form of:

•         A word document with:

o   Travel dates

o   Name of city or country travelled to

o   Name of restaurants visited

•         Company Bank statements

•         Account Transactions for the relevant financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 900

Income Tax Assessment Act 1997 section 900-95

Income Tax Assessment Act 1997 section 900-150

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction from your assessable income for any loss or outgoing to the extent that:

•         it is incurred in gaining or producing your assessable income.

•         it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

A deduction is not allowable for outgoings of a capital, private, or domestic nature or those related to exempt income.

Paragraph 8-1(2)(d) of the ITAA 1997 also denies a deduction for an expense under section 8-1, to the extent that another section of the ITAA 1997 prevents you from deducting it.

Under section 32-5 of the ITAA 1997, a deduction is not allowable under section 8-1 of the ITAA 1997 to the extent that you incur a loss or outgoing in respect of providing entertainment, unless it's one of the exceptions as set out in Subdivision 32-B of the ITAA 1997.

Subsection 32-10(1) of the ITAA 1997 defines 'entertainment' as:

a) entertainment by way of food, drink or recreation, or

b) accommodation or travel to do with providing entertainment by way of food, drink or recreation.

'Recreation' is defined under subsection 995-1(1) of the ITAA 1997 as including amusement, sport, or similar leisure time pursuits.

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food and drink provides guidance on whether the provision of food and drink constitutes entertainment.

To determine whether the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. Paragraph 23 of TR 97/17 provides the following relevant factors:

(a) Why is the food or drink being provided? This test is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

(b) What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

(c) When is the food or drink being provided? Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d) Where is the food or drink being provided? Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

Paragraph 24 of TR 97/17 provides that no one factor will be determinative however, paragraphs (a) and (b) carry greater importance.

In FC of T v. Cooper 91 ATC 4396; 21 ATR 1616, Lockhart J stated that there is a clear nexus between expenditure and derivation of income for a person that is in the business of publication of a food guide, where it comes to buying and tasting food in the course of conducting their business.

For a loss or outgoing to be 'for the purpose of gaining or producing your assessable income', it is necessary to establish a link or nexus between the loss or outgoing and the carrying on of a business for the purpose of producing assessable income.

This means there must be a close connection between the expenditure and what it is that you do to produce assessable income, or if none is produced, would be expected to produce your assessable income.

It is not enough to show only that there is some perceived connection, general link or casual connection between the expenditure and the production of your income.

Substantiation

Division 900 of the ITAA 1997 outlines the substantiation rules for claiming deductions. Subsection 900-95(1) provides a business travel expense is a travel expense, so far as you incur it in producing your assessable income other than salary or wages.

To deduct a work expense, it must qualify as a deduction under some provision of the Act, and you need to substantiate it by getting written evidence. For travel expenses, a travel record may be provided to substantiate the claim.

Section 900-145 outlines the purpose of a travel record is to show which of your actives were undertaken in the course of producing your assessable income, so that your losses or outgoings, or portions of them can be attributed to income-producing purposes.

Subsection 900-150(1) provides that you record an activity by specifying in a diary or similar documents:

(a)         The nature of the activity

(b)         The day and approximate time when it began

(c)         How long it lasted.

(d)         Where you engaged in it

Relatives Travel

Section 26-30(1) of the ITAA 1997 denies a deduction for travel expenses incurred by the taxpayer to the extent those expenses are attributable to a relative who accompanies the taxpayer.

Application to your circumstances

In your circumstances, director, and shareholder Person A operates a YouTube channel that uploads comedic videos, Australian Lifestyle videos and travel vlogs. In the relevant financial year, the income was earned through a Google AdSense account activated on the channel. The amount received depended on the number of views on the videos, and the number of ads each video contained. As more views were received on travel and "Australian lifestyle" vlogs, Person A started creating more of these videos, incurring food, drink, and travel expenses.

When claiming a business expense for food, drinks or travel, detailed substantiation is expected to illustrate the time and money spent on business activities and to provide a link or nexus between the loss or outgoing and the carrying on of a business for the purpose of producing assessable income.

To substantiate your food, drink, and travel expenses, you submitted the following:

•         A word document providing:

o   Dates of travel

o   Country or city travelled to

o   Restaurant names

•         Bank statements

•         Company account transactions for the relevant financial year.

Considering the material provided, there are no detailed records kept on the expenditure incurred, no clear apportionment of private or business expenses, and no evidence to support research, planning, or budgeting linking the loss or outgoing and the carrying on of a business for the purpose of producing assessable income.

It would be expected that a business incurring food, drink and travel expenses for business activities would keep comprehensive documentation as outlined in Subsection 900-150(1) such as:

•         Pre-planning, research, budgets, and quotes

•         Detailed travel diary including:

o   the nature of the activity

o   approximate dates and times of activities

o   costs of activities

o   how long the activity lasted.

o   who was engaged in the activity

o   how the expense is apportioned as private and business.

Consequently, due to the lack of comprehensive travel records in line with Section 900-145 of the ITAA 1997, the food, drink and travel expenses do not substantiate which activities are undertaken in the course of producing your assessable income so that the expenses, or portions of them can be attributed to income producing purposes.

Conclusion

The Commissioner considers the food, drink, and travel expenses you incurred in the relevant financial year is for the benefit of the shareholders, and that documents submitted do not substantiate that activities are undertaken in the carrying on of a business for the purpose of producing assessable income. Therefore, the expenses are not a business expense deductible under section 8-1 of the ITAA 1997.

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