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Ruling

Subject: deductibility of flying lessons for employees

Question

Are you entitled to claim a deduction for costs incurred for flying lessons for your employees?

Answer: Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

The company runs two farming properties.

The company owns two light aircraft as part of the farm plant and equipment.

The aircraft are used for mustering, obtaining parts and general business operations (the private use component of these aircraft is approximately X%)

The company is currently providing flying lessons for a full-time employee and a part-time employee (working approximately X% of the time of the full time employee).

The company considers that the cost of the flying lessons for the employees is far cheaper than the cost of hiring a commercial pilot to perform the duties as required.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is 'necessarily incurred' in carrying on a business for the purpose of gaining or producing your assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

The phrase 'necessarily incurred' does not mean that the expense was unavoidable or logically necessary. The expense must be clearly and appropriately adapted for the ends of the business.

Where the expense is voluntary, the controlling factor is whether the expense can objectively be seen to be appropriate to the business activity (Magna Alloys & Research v. FC of T 80 ATC 4542; (1980)11 ATR 276 (Magna Alloys)).

Taxation Ruling TR 95/33 indicates that if the outgoing produces no assessable income, or the amount of assessable income is less than the amount of outgoing, it may be necessary to examine all the circumstances surrounding the expenditure to determine whether the outgoing is wholly deductible. This may, depending on the circumstances of the particular case, include an examination of the taxpayer's subjective purpose, motive or intention in incurring the expenditure.

In the case of a company, the relevant purpose is the corporate purpose. This requires an examination of the purpose, motive or intention of the company's directors, officers and employees. However, the subjective purpose of any particular director, officer or employee will not by itself be determinative; see Magna Alloys per Deane and Fisher JJ 80 ATC 4542 at 4558; 11 ATR 276 at 294. (Paragraph 13 of TR 95/33).

In your case, the company has voluntarily incurred the cost of flying lessons for one full-time and one part-time employee in order to enable them to conduct mustering and general business operations utilising the company aircraft. You state that the cost of the flying lessons for the employees is far more cost effective than hiring a commercial pilot to conduct mustering as and when required.

We consider that your intention to reduce the costs incurred in conducting the business activity is relevant to the company's corporate purpose of successfully running farming properties. Therefore, the cost of the flying lessons for your employees are deductible under section 8-1 of the ITAA 1997 as they are considered to be 'necessarily incurred' in carrying on a business for the purpose of gaining or producing your assessable income.