Edited version of your private ruling

Authorisation Number: 1012500238644

Ruling

Subject: Business Deductions

Question 1

Can the taxpayer claim an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997(ITAA1997) for direct expenses incurred in sponsoring a fundraising event?

Answer

Yes

This ruling applies for the following period(s)

01/07/2012-30/06/2013

The scheme commences on

01/07/2012

Relevant facts and circumstances

The taxpayer is a company which formed a team, together with other partners to promote a fundraising activity. The team had Z members and 1 supporting person including the company's sole member and director.

The company has promoted the event in the following way:

1. Targeting profitable types of clients

2. Sending a number of individual personalised emails to its past, recent clients and friends

3. Sending updates to clients who donated money

4. Organising post event events to increase the business public awareness.

Results directly or indirectly from this activity include:

1. The sole shareholder and director of the company have successfully completed the task. A banner with the company's trading name and trading mark was shown at the end of the event

2. In the relevant year the company's turnover increased, Profitability also increased significantly.

3. The company built a working relationship with X new agencies.

4. The company rebuilt relationship with over Y large clients.

5. The event improved the company's image, which will help to increase the business turnover.

Additional facts

In the relevant year members of the team completed the task. The website shows photographs and material as well as a link promoting the taxpayers business name and trademark.

Relevant legislative provisions

Section 8-1 Income Tax Assessment Act 1997 (ITAA1997)

Reasons for decision

Question 1

Can the taxpayer claim an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997(ITAA1997) for direct expenses incurred in sponsoring a fundraising event?

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income.

Losses or outgoings are incurred in gaining or producing assessable income where they are 'incidental and relevant to that end' (Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236). Where a taxpayer is carrying on a business for the purpose of gaining or producing assessable income, the commercial and practical implications of the term 'necessarily incurred' imply that voluntary expenditure incurred for business needs may be deductible.

It is the taxpayer who decides whether the expenditure 'is dictated by the business ends to which it is directed' (Federal Commissioner of Taxation v. Snowden & Willson Pty Ltd (1958) 99 CLR 431; (1958) 11 ATD 463; (1958) 7 AITR 308 (Snowden's Case)) This was further supported in Magna Alloys & Research Pty Ltd v. FC of T 80 ATC 4542; (1980) 11 ATR 276, when the Court stated:

For practical purposes and within the limits of reasonable human conduct, it is for the man who is carrying on the business to be the judge of what outgoings are necessarily incurred.

In this case, the taxpayer has incurred the expenditure on promoting a charity event. The taxpayer has expended money on promotion of the event and established that they obtained a large amount of advertising from this sponsorship. In particular, the taxpayer advertised the venture by:

· Clearly branded fundraising event webpage;

· Branded emails

· Dedicated webpage and references throughout the website are in development at the moment;

· Use of event logo on our stationery;

· Branded badges on clothes & gear of event members;

· Photos with event;

· PowerPoint presentation.

The taxpayer has provided sponsorship in the belief that the exposure from that sponsorship in the form of advertising would benefit their business. The taxpayer has stated that their relevant financial year turnover has increased by around X%. The taxpayer credits much of this increase to the marketing of the fundraiser.

As it is the taxpayer who determines the nature of the expenditure to be undertaken in the conduct of their business (Snowden's Case) the expenses associated with the taxpayer's sponsorship of the event are deductible under section 8-1 of the ITAA 1997 to the extent claimed. They are in the nature of advertising expenses and are directed to enhance the income producing activities of the taxpayer's business and are not excluded on the basis of being capital or of a private or domestic nature.