Private ruling: Business deductions
Date of advice: 30 May 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Are you entitled to a deduction for sponsorship? | Yes.

Relevant facts and circumstances: The trust runs a business. The trust intends on sponsoring competitors. The competitors are beneficiaries of the trust. The sponsorship will include costs associated with licenses, event entry fees, fuel, maintenance and parts and accommodation. In return for the sponsorship you will receive advertising in the form of full vehicle decals, advertising on car to and from events, and parked in competition area and a signed gazebo to be set up at all events. If a podium finish is obtained your business must be mentioned. There are X events per year and this will provide wide exposure to your business.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1.

Reasons for decision: Summary: 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 NL and Tongkah Compound NL 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 & Willson's Case )). This was further supported in Magna Alloys & Research Pty Ltd v. Federal Commissioner of Taxation (1980) 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 your case, you intend to provide sponsorship in the belief that the exposure from that sponsorship will benefit your business in the form of advertising and will generate future income. As it is the taxpayer who determines the nature of the expenditure to be undertaken in the conduct of their business (Snowden & Willson's Case) the expenses associated with your sponsorship are deductible under section 8-1 of the ITAA 1997. They are in the nature of advertising expenses and are directed to enhance the income producing activities of your business and are not excluded on the basis of being capital or of a private or domestic nature.