Private ruling: Deductions
Date of advice: 20 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for the expense incurred where you offer discounted fees? | A1: Yes.

Relevant facts and circumstances: You will recruit international students on behalf of colleges and universities. You will be paid a commission from the colleges and universities for recruiting international students. The market is very competitive. To give you a competitive advantage you will offer students discount fees. You will receive the agreed discount fee from the student to pay for their course. You will then pay the full fee to the college or university. Once the student is enrolled in the course, you will receive your commission. Part of this commission reimburses you for the difference in the full course fee and the discounted fee you received from the student.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent that they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. For an expense to be incurred in gaining or producing assessable income it must be directly relevant to the person's income earning activities and there must be a nexus between the expense and the assessable income so that the expense is incidental and relevant to the gaining of assessable income: Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; 8 ATD 431. Application to your circumstances Your ruling application requests whether the amount you pay to colleges and universities to cover the full payment of course fees is deductible. This discount that you will be providing students is incurred in producing your assessable income. It is considered that there is a nexus between the discount and your commission. You are entitled to a deduction for the expense incurred when you offer discount fees.