Edited version of private advice

Authorisation Number: 1012629792907

Ruling

Subject: Travel and child care expenses for children

Question 1

Are travel expenses you incur for your children, when you take them with you to demonstrate your business product, considered an allowable deduction?

Answer

No.

Question 2

Are childcare expenses you incur when you take your children with you to demonstrate your business product, considered an allowable deduction?

Answer

No.

Question 3

Are expenses incurred when visiting retail stores to research competitors' products, prior to the commencement of your business, considered an allowable deduction?

Answer

No.

This ruling applies for the following periods:

• Year ended 30 June 2015

• Year ended 30 June 2016

• Year ended 30 June 2017

• Year ended 30 June 2018

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You have created a business which will be Australia's exclusive distributor for a product.

The parent company is providing you with support and assistance in starting up the business.

As the business is in its infancy you have only recently placed your first order of the product. When it is received you will travel to the major retail distributors (your clients) to market it for placement in their stores.

It is necessary that you demonstrate to your clients how to correctly use the product.

Your children feature in the marketing material for the product and are the perfect age for demonstrating it. You prefer to demonstrate on children rather than a doll or mannequin, as a real child wriggles and squirms which make demonstrating it more difficult.

You plan to bring your children with you to demonstrate the product to clients and at expos.

When the children join you on the demonstrations, you may require a child carer to look after them while you are in discussions with clients.

Where a family member is unable to care for them, you may need to hire a professional child carer or have a carer travel with you, whichever is more affordable.

Prior to the commencement of your business you have been researching competitors' products and their placement in retail stores. This will enable you to better promote your product in subsequent meetings with retail executives. Your children have not accompanied you on these occasions.

The children are not employees of the business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1, and

Income Tax Assessment Act 1997 Section 26-30.

Reasons for decision

Children's travel expenses

Section 26-30 of the Income Tax Assessment Act 1997 (ITAA 1997) prevents a deduction for expenses attributable to the travel of a relative where the relative simply accompanies you while you travel.

However, if the relative accompanying you performs substantial duties as your employer's employee, or as your employee, and it is reasonable to conclude that your relative would still accompany you even if he or she does not have a personal relationship with you, then the expenses will be deductible.

In your case your children are not employees of your business. Further, the duties they would be performing are not considered substantial for the purpose of this section, and it is not reasonable to conclude that your children would still accompany you even if they did not have a personal relationship with you.

Therefore travel expenses you may incur if your children accompany you to client meetings are not a deductible expense in accordance with section 26-30 of the ITAA 1997.

Child care expenses

Section 8-1 of the ITAA 1997 generally allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income, except where the outgoings are of a private, capital or domestic nature, or to produce exempt income.

On numerous occasions courts and tribunals have ruled that parents are not entitled to a deduction for child care expenses.

The deductibility of childcare expenses was considered in Lodge v. FC of T (1972) 128 CLR 171; 3 ATR 254; (1972) 46 ALJR 575; 72 ATC 4174 where a single mother claimed a deduction for payment of nursery fees to enable her to work at home and in a solicitors office. The High Court held that childcare expenditure was neither relevant nor incidental to the taxpayer gaining or producing assessable income and therefore was not an allowable deduction. The expenditure was deemed to be private and domestic in nature. This principle was affirmed in Jayatilake v FC of T (1991) 101 ALR 11; (1991) 22 ATC 125; 22 ATR 125; 91 ATC 4516.

Further, a deduction for childcare expenses is not allowable even if it is a prerequisite for an employee to obtain and pay for child care so that she/he can go to work and earn income (Taxation Ruling TR 95/10).

In your case when you will travel for meetings with clients and no family member is available to care for your children, you may be required to engage a child carer for your children.

We acknowledge the difficulties experienced by parents without extended family support when required to travel for work. However the expense incurred in engaging a child carer for your children is considered private in nature, and you are not entitled to a deduction for the expense under section 8-1 of the ITAA 1997.

Product placement research expenses

Expenses associated with the establishment of a business are generally incurred at a point too soon to be regarded as being incurred in carrying on the business. Preliminary expenses on feasibility studies and tests in connection with establishing a paper production mill were held not to be deductible in Softwood Pulp and Paper Ltd v FC of T (1976) 7 ATR101.

Similarly in FCT v Maddalena 71 ATC 4161 expenses incurred by an employee in getting a job or in changing jobs were held not deductible because the expenses came at a point in time too early to be regarded as being incurred in gaining assessable income.

As you have not yet commenced the income earning activity the expenses you incur researching your competitor's product placement are considered preliminary and incurred at a point too soon to be regarded as being incurred in carrying on the business. As such they are not deductible under section 8-1 of the ITAA 1997 and are considered capital in nature.

The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.