Private ruling: Deductibility for recurring payments
Date of advice: 16 December 2021
Published: March 2022
Ruling period: A number of income years
Date scheme commenced: During an income year

Ruling: Q1: Is the Taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the Recurring Payments made to a charitable foundation? | A1: Yes.

Relevant facts and circumstances: Background The Taxpayer is a company conducting a business. Recurring payments will be made by the company to a charitable foundation for the benefit of the community (the Recurring Payments). The payments are in accordance with the company strategy, promotes employee engagement and on par with its competitors.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 paragraph 8-1(1)(b) | Income Tax Assessment Act 1997 subsection 8-1(2)

Reasons for decision: Summary: Yes, the Taxpayer is entitled to claim a deduction under section 8-1 of the ITAA 1997 for the Recurring Payments made to a charitable foundation. | Detailed Reasoning - All legislative references are to the Income Tax Assessment Act 1997: Under the second positive limb of section 8-1, a deduction is allowed for losses or outgoings to the extent that the loss or outgoing is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The Recurring Payments satisfy the positive limb under paragraph 8-1(1)(b) because they are appropriate and adapted for the company's business ends. However, a deduction is not allowed under section 8-1 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 (as per subsection 8-1(2)). The Recurring Payments are not capital in nature because they have the essential character of a working expense charged on revenue account. The other negative limbs in subsection 8-1(2) are not relevant in this case. In conclusion, the Recurring Payments are deductible to the Taxpayer under section 8-1.

Question: Is the Taxpayer entitled to claim a deduction under section 8-1 of the ITAA 1997 for the Recurring Payments made to a charitable foundation?