Private ruling: Deductibility of expenses under section 8-1
Published: March 2014
Ruling period: 1 October 2013 - 30 September 2014 | 1 October 2014 - 30 September 2015 | 1 October 2015 - 30 September 2016
Date scheme commenced: 1 April 2014

Ruling: Q1: Will a non-recurrent payment be deductible in the year it is incurred pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Will the marketing and promotional expenditure be deductible in the income year it is incurred pursuant to section 8-1 of the ITAA 1997? | A2: Yes

Relevant facts and circumstances: 1. The taxpayer is a company. 2. A lump sum payment will be made by the company in relation to advertising expenses incurred as part of a brand awareness campaign. 3. Additional ongoing marketing and promotional expenses will also be incurred as part of the brand awareness campaign. 4. Research from previous brand campaigns, has shown that brand campaigns have a demonstrable and measurable impact on business outcomes. The taxpayer anticipates that the brand awareness campaign will have a positive impact on customer consideration and that this uplift should lead to a substantial increase in product sales.

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

Reasons for decision: Summary: Yes, the non-recurrent payment will be deductible under section 8-1 of the ITAA 1997 in the year it is incurred. | Detailed Reasoning - Reason for decision: Under section 8-1 of the ITAA 1997, a deduction is allowed for losses or outgoings to the extent that the loss or outgoing is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, a deduction is not allowed under section 8-1 of the ITAA 1997 where the loss or outgoing is of a capital, private or domestic nature, is incurred in producing exempt income, or where another provision of the ITAA 1997 prevents a deduction. Therefore, the deduction is allowed under section 8-1 of the ITAA 1997 for the lump sum payment as the expense is incurred in gaining or producing assessable income, thus satisfying the positive limb of section 8-1, whilst not being excluded from deduction under any of the negative limbs of that section. | Detailed Reasoning - Question 2: Will the marketing and promotional expenditure be deductible in the income year it is incurred pursuant to section 8-1 of the ITAA 1997? | Summary: Yes, the marketing and promotional expenditure will be deductible under section 8-1 of the ITAA in the year it is incurred. | Detailed Reasoning - Reason for decision: Under section 8-1 of the ITAA 1997, a deduction is allowed for losses or outgoings to the extent that the loss or outgoing is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, a deduction is not allowed under section 8-1 of the ITAA 1997 where the loss or outgoing is of a capital, private or domestic nature, is incurred in producing exempt income, or where another provision of the ITAA 1997 prevents a deduction. Therefore, the deduction is allowed under section 8-1 of the ITAA 1997 for the ongoing marketing and promotional expenses, as the expenses are incurred in gaining or producing assessable income, thus satisfying the positive limb of section 8-1 whilst not being excluded from deduction under any of the negative limbs of that section.