Private ruling: Business advertising expenses
Date of advice: 10 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the cost incurred in purchasing custom made items with the company logo an allowable business deduction? | A1: No.

Relevant facts and circumstances: You operate a business. You are required to generate your own leads to create income for your business. You recently purchased two items which have been custom made with the business name tastefully advertised on them. Both items are for your personal use only. You are a member of a club and are a good at this sport, and try to play in competitions twice a week. You are always on the lookout for leads, however touting your business at your club is frowned upon. The customised items are a way for people you play sport with to talk to you about your business and they open the door for you to discuss how your business can help them. You have secured business from members at the club so you feel the items are working by raising your business profile at the club. You contend that you only purchased the items to promote your business and that if you had not found the company who makes these custom items, you would have continued using your existing items.

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

Reasons for decision: Summary: The general deduction provision 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 or are necessarily incurred in carrying on a business for the purpose of producing such income. You cannot deduct a loss or outgoing to the extent it is of a capital, private or domestic in nature. Generally, this item would be considered to be essentially personal and private in character, which would exclude it from deductibility. It would have to be shown that in your circumstances there is sufficient connection between the expenditure and the income earning activities to override this general principle. To be deductible the loss or outgoing must have the essential character of a business or income producing expense ( Lunney V FC of T (1958) 100 CLR 478; 11 ATD 404; Fletcher & ors v FC of T 92 ATC 2045). The expense does not lose the private nature just because it is said to be a form of advertising. The main purpose would need to be for advertising of the business for it to be considered as an allowable expense. In your case, the items are for your personal use only. You have stated that these items have increased your business profile at your club and you have secured business at the club because of this; however it is apparent that only the persons you are playing with and those in the immediate vicinity would be able to view this advertising. This greatly restricts any impact to the general public that advertising is usually expected to make. Based on the facts you have provided, it cannot be established that any considerable advertising impact has been achieved from displaying your business name on your items. Consequently, the advertising on your items does not change the essentially private and domestic nature of the items and therefore is not an allowable deduction under section 8-1 of the ITAA 1997.