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Ruling

Subject: overseas travel

Question 1

Will all expenses associated with the overseas tour that includes a product manufacturer's facilities and attendance at a commercial exhibition be deductible?

Answer

No.

Question 2

Will the direct expenses associated with your attendance at a product manufacturer's facilities and your attendance at a commercial exhibition be deductible?

Answer

Yes.

Relevant facts and circumstances

You are employed as a product manager by a firm, specialising in the sale of a particular major manufacturer's product.

You will take part in an overseas tour that is being organised by the manufacturer and a travel agency. You will be accompanied on the trip by your spouse plus a few of your customers and their spouses.

Your employer did not ask you to take part in the tour and will not contribute to your costs; however you will not be taking any leave in order to attend the tour.

You have provided an itinerary of the tour prepared by the travel agency.

The activities which have some connection with your employment account for about X% of the period you will be away.

Reasons for decision

Question 1

An expense is deductible under section 8-1 of the Income Tax Assessment Act 1997 when the essential character is that of an income producing expense. The essential character is to be determined by an objective analysis of all the surrounding circumstances (see Fletcher & Ors v. FC of T (1991) 173 CLR 1 at 17; 91 ATC 4950 at 4957 and 4958; (1991) 22 ATR 613 at 622).

If the purpose of a study tour or attendance at a work-related conference or seminar is the gaining or producing of income, the existence of an incidental private purpose does not affect the characterisation of the related expenses as wholly incurred in gaining assessable income.

Both Ronpibon Tin NL v. FC of T (78 CLR at 59; 8 ATD at 437) and Fletcher & Ors v. FC of T (173 CLR at 16; 91 ATC at 4957; 22 ATR at 621) recognise there are at least two kinds of expenditure that require apportionment under section 8-1. The first is expenditure in respect of a matter where distinct and severable parts are devoted to gaining income and other parts are devoted to some other end. If a study tour or work-related conference or seminar was mainly devoted to a private purpose, such as having a holiday, and the gaining or producing of income was merely incidental to the private purpose, only those expenses directly attributable to the income earning purpose would be allowable.

The second kind of apportionable expenditure is a single outlay that serves both an income earning purpose and some other purpose indifferently. While the High Court recognised that there can be no precise arithmetical division in such cases, it said there must be some fair and reasonable division on the facts of each case. For example, if a study tour or work-related conference or seminar is undertaken equally for income-earning purposes and private purposes, it would be appropriate to apportion the expenses equally between the purposes.

In your case, the tour is predominantly private in nature with few activities having anymore than a peripheral relationship to your employment duties or income producing activities. These work related activities will account for a minor part of the itinerary and are considered to be merely incidental to the essentially private nature of the trip. This is evidenced by the nature of the itinerary and the fact that you will be accompanied by your spouse, your clients and their spouses. Also your employer contributes nothing towards the cost of the trip.

The total cost of the trip incurred by you including, fares, accommodation and meals is therefore not deductible.

Question 2

Since some of the activities noted in the itinerary have an incidental connection to the derivation of your assessable income, the expenses directly attributable to your attendance at those activities are allowable as a deduction. The allowable expenses would include the cost of any entry fee to the venue, meals taken at the venue and fares between your accommodation and the venue.

In these circumstances it is not appropriate to apportion any part of the actual cost of the trip since the trip is essentially private in nature.