Edited version of your written advice

Authorisation Number: 1012836835928

Date of advice: 23 July 2015

Ruling

Subject: Travel expenses

Question

Is entity A entitled to a deduction for airfare and accommodation expenses incurred in travelling to city B for meetings?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts

Entity A is a superannuation fund.

The trustee of entity A joined entity C investment group to help with detailed investment research. Entity C meet in city B once a month to discuss and narrow down long term investment in companies. The trustee travels to city B and spends one night in city B in order to attend the meetings. No entity C meetings are held locally.

Entity A has shares in various companies both for dividends and capital growth. The dividends are assessable income.

Approximately 30 members attend the entity C meetings. Sometimes a CEO of a company is invited to the meetings. Members include brokers, software specialists, business owners and investors.

Meetings go for the full day with lunch included.

Potential investments are discussed.

As a result of the investment research entity A has purchased shares.

Entity C is not a fund manager and does not give advice about particular shares or make recommendations. Entity C members manage their own accounts and make their own decisions.

The trustee in their own individual capacity owns and operates a company and sometimes takes advantage to see clients in the city B area. For these trips, the company pays for half the travel expenses.

Sometimes the trustee's spouse, who is also a trustee of the superfund, travels with them to city B.

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.

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 (Lunney's case)),

• 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).

Taxation Ruling TR 93/17 Income tax: income tax deductions available to superannuation funds discusses the tax deductions available to superannuation funds. The tax deductibility of expenditure incurred by a superfund is usually determined under section 8-1 of the ITAA 1997. Investment adviser fees incurred by a superannuation fund are generally deductible, however up-front fees incurred in investing money are of a capital nature and are not deductible.

Taxation Determination TD 95/60 Income tax: are fees paid for obtaining investment advice an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for taxpayers who are not carrying on an investment business? deals with the issue of whether initial fees and ongoing fees paid for investment advice are an allowable deduction.

TD 95/60 explains that a fee for drawing up a financial plan is not deductible because it is not expenditure incurred in the course of gaining or producing the assessable income from the investments. It is too early in time to be an expense that is part of the income producing process as it is an expense that is associated with putting the income earning investments in place. Therefore the expense has an insufficient connection with earning income from the investments, and is considered capital in nature.

TD 95/60 also states that where a taxpayer has existing investments and goes to an investment adviser to draw up an investment plan, the fee paid would be a capital outlay even if some or all of the pre-existing investments were maintained as part of the plan. The character of the outgoing is not altered because the existing investments fit in with the plan. It is still an outgoing of a capital nature.

On-going management fees are generally deductible if they relate directly to the management of income producing investments and thus have an intrinsically revenue character.

In your case, entity A is paying airfare and accommodation expenses to attend entity C meetings. The meetings discuss potential investments and analyse information on various companies. Entity C provides general product advice without taking into account the individual objectives, financial situation or needs of entity A. That is entity C is not a fund manager and does not give advice about particular shares or make recommendations. As such it is not considered that the cost of attending the meetings is an investment adviser fee.

Although entity A has purchased shares based on the information obtained from entity C, the cost of attending the meetings is not regarded as a management fee for the investments. The meetings and discussion forums with other investors are too general in nature to be sufficiently connected to the assessable income of entity A.

It is acknowledged that the meetings will provide the superfund's management with knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing entity A's assessable income. 

Entity C meetings do not specifically relate to the investments of entity A. The fact that the meetings may discuss companies that entity A has invested in or will invest in does not change the nature of your expenses into deductible expenses. While we acknowledge the benefits and the knowledge to be gained from these meetings, they are too general in nature for the expenses to be incurred in the course of gaining assessable income. There are many meetings and experiences which may help an investor however this does not automatically mean that the associated expenses are deductible. The meetings do not directly aim to maximise the dividend income of entity A. That is there is insufficient nexus between attending the meetings and the assessable income of entity A.

In view of the above, it is not considered that the cost of attending the monthly meetings is deductible for income tax purposes. This is because it is not expenditure incurred in the course of gaining or producing the assessable income. The meetings provide general advice only which may or may not be used by entity A. It is too early in time to be an expense that is part of the income producing process. It is an expense that is associated with putting possible future income earning investments in place.

The costs incurred for the monthly meetings are not deductible under section 8-1 of the ITAA 1997 as the connection between the expense and the assessable income of entity A is too remote.