Edited version of your private ruling

Authorisation Number: 1012497061782

Ruling

Subject: Overseas travel expenses

Question

Are you entitled to a deduction for the conference and overseas travel expenses?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You were a professional and an employee prior to suffering from a health problem. You have been a professional for many years.

After exhaustive rehabilitation you have now returned to work. You work one to two days per week.

You are not paid a salary or wage.

Your income is in the form of a percentage of the work you bring to entity A.

During the relevant income year you earned less than $X from the firm.

In order to bring more work into entity A, you attended an overseas conference where you could engage your well established contacts and obtain work for entity A and hence provide an income.

You attend this conference each year as part of your professional requirement in order to retain your professional registration. Previously entity A reimbursed your expenses for attending the conference. Entity A did not reimburse you or pay for any of your expenses for the relevant year conference.

In the relevant year you were a speaker at the conference and gained bonus professional points.

You incurred airfare expenses.

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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478,

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47, and

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

A relevant occupational taxation ruling outlines allowable work related deductions for professionals. A deduction is allowable for the costs incurred in attending conferences to maintain or increase an employee's knowledge, ability or skills in the relevant field. There must be a relevant nexus with the current work activities of the employee.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employees. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In your case, you travelled overseas to attend a conference.

It is acknowledged that the conference is relevant to your profession however you are not currently employed as a professional. In the relevant income year your professional income was less than $X. This related to work you brought to entity A.

While we acknowledge the benefits gained by attending the conference, and it may lead to you bringing in more work, these benefits are not considered to be sufficiently connected to your current assessable income.

Although you have derived significant income in the past as a professional and may derive income as a professional in the future, the nexus between the conference expenses and your current assessable income is too remote. The fact that you have attended similar conferences in the past does not automatically mean that the associated expenses are deductible.

It is considered that there is not a sufficient connection between your conference and travel expenses and your income earning activities. Accordingly, the costs you incurred to travel to the conference are not deductible under section 8-1 of the ITAA 1997.