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Ruling

Subject: Election expenses

Question

Will the Commissioner allow you to claim your election campaign expenses as a deduction on the basis that special circumstances existed?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You were a candidate in the local government elections.

You received donations towards your campaign.

You incurred advertising, promotion and other campaigning expenses. You have receipts for the expenses incurred.

You have provided a Main Business Schedule - Non-primary production 2012 which shows the donations as income and a business loss.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-55

Income Tax Assessment Act 1997 Paragraph 35-55(1)(a)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

Your activities as a candidate are not considered to constitute a business for tax purposes. You are not entitled to a deduction for the loss from your election related activities due to special circumstances as a deduction on this basis may only be claimed where your activity constitutes a business for tax purposes.

Detailed reasoning

Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to losses from certain business activities for the financial year ended 30 June 2001 and subsequent financial years. The provisions only apply to individuals who conduct a business activity as either a sole trader or a partner in a partnership and made a loss from that business activity.

The provisions allow a taxpayer who is in business for tax purposes to offset a loss from a business activity against their income from other sources where they pass one of four tests, an exception applies or the Commissioner exercises his discretion in the taxpayer's favour.

The Commissioner may exercise his discretion where special circumstances applied and it was those special circumstances which prevented the taxpayer from meeting one of the four tests.

Before we determine if the non-commercial loss provisions apply to your situation, we must first determine if your election activities as a candidate constitute a business for tax purposes.

Section 995-1 of the ITAA 1995 defines 'business' as including any profession, trade, employment, vocation or calling, but not occupation as an employee.

The question as to whether campaigning for Mayor was a business was addressed in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 (Evans case). In that case, the appellant expended money on items such as printing campaign material, hiring contractors and motor vehicle expenses, with the object of being elected Mayor. As Mayor, she would earn assessable income. In that instance, the taxpayer was found not to be carrying on a business as her activities failed to demonstrate any of the usual indicia of business and that her activities lacked the colour of a business.

In Evans case Hill J said at 4554-4555:

The question of whether a particular activity constitutes a business is often a difficult one involving as it does questions of fact and degree. Although both parties referred me to comments made in decided cases, each of the cases depends on its own facts and in the ultimate is unhelpful in the resolution of some other and different fact situation.

There is no one factor that is decisive of whether a particular activity constitutes a business ... profit, motive, scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on, repetition and a permanent character, continuity, and system are all indicia to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on.

Your situation is similar to that in Evans case. The actions you took to obtain a local government position are not considered to constitute a business for tax purposes. As such, the non-commercial loss provisions do not apply to your situation.

As you are not carrying on a business, the Commissioner is unable to use his discretion to allow you to offset your election related losses against your other income on the basis of special circumstances.