Edited version of your written advice

Authorisation Number: 1013140309807

Date of advice: 16 December 2016

Ruling

Subject: Work related expenses

Are you entitled to a deduction for the costs (tickets) of attending theatre performances?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20YY

Year ended 30 June 20ZZ

The scheme commences on:

1 July 20WW

Relevant facts and circumstances

You are employed as a general manager of an entertainment business.

You are responsible for all season programming of the business for the community.

You are required to take inspiration from internal and external influences to form new ideas, approaches, better processes and practices.

You are required to manage and drive growth of the centre.

You are required to develop, implement and evaluate visionary and innovative programs.

You are required to ensure high level of community and professional industry networking to ensure that the business operates at, or above, industry standard, in all areas of operation.

You are required to maintain high level community and professional industry networking to ensure both facilities and its services are operating at or above industry standard, in all areas of operation.

You are required to implement a market strategy to identify potential opportunities for the business that is based on research of the competitive market and industry practice.

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 outgoing are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling TR 95/20 Income tax: employee performing artists- allowances, reimbursements and work-related expenses discusses deductions for work related expenses incurred by employee performing artists. TR 95/20 states that a deduction is allowable for the cost of theatre and film tickets if the show is directly relevant to the income earning activities of the performing artist. The ruling states that deduction is allowable for the cost of attendance at theatre performances if the performances have a content specifically related to the employee performing artist's current work. Costs associated with attendance at performances for general interest or entertainment or other private purposes are not an allowable deduction.

In consideration to the guidelines in TR 95/20, you, as a manager, are not a performing artist. Paragraph 3 of TR 95/20 states:

The Ruling does not cover the expenses of journalists, including radio and television presenters, radio and television journalists, nor the expenses of directors, producers, script writers, composers, choreographers and support personnel.

We therefore need to consider, how your experience of being a paying member of an audience would hold relevant to your income earning activities as manager and how those expenses would contribute to you gaining or producing your assessable income. Whilst the examples of TR 95/20 are relevant in general principle, the degree to which they apply to a manager will vary from that of a performing artist.

The purchase of a ticket to attend a performance is inherently private in nature. The point at which it becomes a deduction is when it is identified as a work related expense.

The deductibility test

Under subsection 8-1(1)(a) of the ITAA 1997, a deduction is only allowable if it is incurred in gaining or producing your assessable income.

A number of significant court decisions have determined that, for an expense to satisfy the deductibility test:

(a)  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 ; Hayley v. FC of T (1958) 100 CLR 478; [1958] ALR 225; 11 ATD 404 ( Lunney's case)).

(b)  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; 8 ATD 431);

(c)  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 and Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; 11 ATD 147; 6 AITR 379; FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 ( Cooper's case); Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 273; (1971) 125 FCR 494; 93 ATC 4508; (1993) 26 ATR 76; FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; 2 ATR 557 ( Hatchett's case)).

Character

The Commissioner needs to understand the nexus between the expense incurred by you from an audience experience and your management activities from which you derive your income in order to determine that your deduction is not too general in nature and has the essential character of an outgoing. In this respect, the expense must be relevant to the nature of the work you do as distinct from a production that would be purely for your personal entertainment. Any personal expenses need to be distinguished from work-related ones.

Nexus

From your facts, you need to learn about new plays and styles of theatre so that you can manage and drive growth at the business. Being a member of an audience is incidental and relevant to your role because you can take inspiration from the performances to form new ideas, approaches, better processes and practices for the business.

Connection

A requisite connection is not shown by demonstrating only that there is some causal connection between the expenditure and derivation of the income, nor by demonstrating that the expenditure was incurred 'in connection with' the derivation of assessable income or 'for the purpose of' deriving assessable income. What must be shown is a closer and more immediate connection. The expenditure must be incurred 'in the course of' gaining or producing the assessable income. In Coopers Case , Lockhart J stated:

'The question whether additional expenditure of the taxpayer is deductible cannot be answered simply be a process of reasoning that, because expenditure of this type is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the assessable income.'

Viewing performances allows you to maintain knowledge of industry practice and standards. This in turn allows you to identify potential opportunities for the business. It also allows you to compare all areas of operations of the business to those in the industry to ascertain whether the business is meeting or surpassing industry standards. The inspiration drawn from watching performances can be applied to your management of the annual Season as well. As such, the expenditure can be said to be incurred in the or in the course of gaining assessable income.

You are entitled to claim a deduction for the cost of tickets as a work related expense.