Edited version of private advice

Authorisation Number: 1051881127276

Date of advice: 09 August 2021

Ruling

Subject: Local government election expenses

Question 1

Does section 25-65 of the Income Tax Assessment Act 1997 which limits the amount you can claim as local government election expenses apply to you?

Answer 1

Yes.

Question 2

Are the election expenses you incurred classified as work-related expenses?

Answer 2

No

This ruling applies for the following period periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an elected Councillor of the XXXX Council.

You were elected as Councillor for a Division of the XXXX Council at the local government quadrennial elections held on XX XXX 20XX.

You incurred expenses relating to your election campaign.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-65

Reasons for decision

Statutory limit on local government election expenses

Subsection 25-65(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you 'can deduct expenditure you incur in contesting an election for membership of a local governing body, but you cannot deduct more than $1,000 per election. You deduct the expenditure for the income year in which you incur it.' However, subsection 25-65(2) of the ITAA1997 states that youcan deduct more than the $1,000 limit if:

•                 you have received an amount as recoupment of the expenditure; and

•                 some or all of that amount is included in your assessable income for an income year.

An example of how subsection 25-65(2) of the ITAA1997 operates would be where you incur expenses of $2,000 when standing as a candidate in a local election and you claim the maximum of $1,000 as election expenses. If you then receive $100 as a reimbursement, it is considered an assessable recoupment which you include as income in the year you receive it and include a corresponding deduction for the same amount. This has the effect of disregarding $100 from the $1,000 limit, so you can then include a further $100 as election expenses in that income year to reach the $1,000 statutory limit. The remaining $900 of the original expenditure of $2,000 cannot be claimed as a deduction unless you receive further assessable recoupments.

In your case, you incurred expenses when you stood as a candidate in a local government election. Because section 25-65 of the ITAA 1997 applies to your circumstances, the maximum you can claim as election expenses is $1,000, unless you receive an assessable recoupment in which subsection 25-65(2) of the ITAA1997 would apply.

Tax Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments (TR 1999/10) explains which expenses local government members may be able to claim as deductions. Paragraph 4 of the Notice of Withdrawal for Tax Ruling IT 2258 Income tax: election expenses: deductibility of expenditure incurred and effect of public funding of elections (IT 2258/10) explains that Councillors can rely on TR 1999/10 for guidance on election expenses as the principles for parliamentary election expense deductibility are equally applicable to council election expenses.

Are election expenses work-related expenses?

Subsection 8-1 of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. The High Court in Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15, interpreted the phrase 'incurred in' to mean 'in the course of' gaining or producing income. This requires there to be more than a mere casual connection between the expense and the income earned.

The activities of an individual contesting an election does not amount to the carrying on of business; nor is a political candidate remunerated for the activities they undertake in contesting an election. Because no assessable income was earned, it follows that election expenses cannot be incurred in the course of gaining or producing assessable income. Therefore, the expenses incurred to contest an election are not deductible under section 8-1 of the ITAA 1997.