Private ruling: Travel expenses
Date of advice: 18 November 2015
Published: January 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for the flights, registration, equipment and accommodation expenses incurred to participate in the endurance events? | A1: No.

Relevant facts and circumstances: Your business provides personal and small group training with an emphasis on endurance training. As part of its day to day running, you are actively training and competing in endurance events to improve the information that you provide clients, as well as promote the business. You will be attending an event overseas. As well as using the event for business promotion and research, you will also be using it to raise money and awareness for a charity. In the lead up to this event you will be participating in other events for preparation. You will incur the following expenses for flights, accommodation, equipment and entry fees.

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

Reasons for decision: Summary: 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 is 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. The phrase 'necessarily incurred' does not mean that the expense was unavoidable or logically necessary. The expense must be clearly and appropriately adapted for the ends of the business. Where the expense is voluntary, the controlling factor is whether the expense can objectively be seen to be appropriate to the business activity ( Magna Alloys & Research v. FC of T 80 ATC 4542; (1980)11 ATR 276). Taxation Ruling TR 95/33 discusses the relevance of the subjective purpose, motive or intention in determining the deductibility of an expense. The ruling states that an expense will generally be deductible if its essential character is that of expenditure sufficiently connected with the operations or activities which more directly gain or produce your assessable income. The essential character of an expense is a question of fact to be determined by reference to all the circumstances. It may be necessary to examine the taxpayer's subjective purpose where there is no obvious commercial connection with the business activity, or where the expense does not achieve its intended result. If an arrangement has an independent pursuit of some other objective, for example, to support a personal hobby, then the outgoing may not be deductible. A case with aspects similar to your situation where a predominately private activity is also used for business purposes is No 3 Board of Review Case H23 (Case H23) , 76 ATC 168, where the taxpayer was denied deductions for expenses incurred in maintaining and running his boat. The taxpayer claimed the boat was used solely for the entertainment of existing and prospective clients of his accounting business. However, the court determined at 76 ATC 168: the boat had not been acquired by the taxpayer for business purposes, but it had been used by him for such purposes as well as for private purposes. The court stated at 76 ATC 170: it seems that at the time when the boat was purchased, no consideration was given to the question of using it to entertain clients or prospective clients. At 76 ATC 170, N. Dempsey (Member) stated: It will be noted that primarily the taxpayer claims that he should be allowed the whole of the amounts claimed. To succeed in such a claim he must show that the boat was used solely in connection with his business and that it was not used at all for private purposes. Another case with similar aspects is Case U109 87 ATC 657. In this case, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible. In your case, you will travel to take part in an endurance event as well as participating in other events for preparation. Your stated purpose for participating in the events is to improve the information that you provide clients and to promote your business. However, these reasons for participating in the events are not enough to demonstrate a sufficient connection between your participation and your income producing activities. Your circumstances are considered similar to Case U109 and that your participation is recreational in character. While it is acknowledged that participating in these events may lead to improving the information you provide to clients and increasing your company's client base, the nature of the trip is considered to be too general in nature for the expenses to be incurred in the course of gaining your assessable income. On the balance, we consider that the expenses incurred are private in nature. Accordingly your participation in these events is not considered to have a sufficient connection to your employment duties, and you are not entitled to a deduction for expenses incurred.