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Ruling

Subject: Deductibility of fishing licence expense

Question

Can you claim the cost of an annual licence fee although you have not earned any income via the licence in a particular income tax year?

Answer

No.

This ruling applies for the following period

Years ended 30 June 2010 to 2012

The scheme commenced on

1 July 2009

Relevant facts

You are the holder of a commercial licence and have been for some time. There is an annual licence fee you have to pay to maintain this licence.

This is a licence that is personal to you. It cannot be sold or leased to any one else. It allows you to undertake an action for commercial purposes. This licence can be used in conjunction with your industry tickets.

If you do not pay the annual licence fee the licence will be cancelled. If it is cancelled you would have to undertake a course at a significant cost to be able to get a licence.

You currently work in another industry and do not earn income through the use of this licence. The licence gives you an employment option should you find yourself unemployed in your current industry. In an earlier year you were offered a position relevant to your licence because you hold the commercial licence and other tickets. You did not accept the position.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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.

Generally the annual fee to maintain your commercial licence would be a deductible expense, if you were deriving income because you were the holder of this licence.

You have not derived any income from holding this licence during the year or for a number of years. Your income has been derived in another industry. There is no connection between incurring of this expense and the deriving of your assessable income.

You have stated that, if you don't pay the annual amount your licence will be cancelled and you will have to pay a substantial amount to get a new licence. The expense is to maintain the option of possibly using the licence sometime in the future. This does not mean that the expense is incurred in deriving your assessable income in a particular tax year. You are making a payment so that you maintain the enduring benefit of your initial course to obtain the licence. You will have to consider how your income is earned each year to determine whether the fee is deductible.

Accordingly, based on the facts you have provided, the expense is not considered to be an expense incurred in deriving your assessable income and therefore not allowable under section 8-1 of the ITAA 1997.