Private ruling: Business deductions
Published: November 2011
Ruling period: Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for expenses incurred for sporting equipment, lessons and practice for a specific sport? | A1: No

Relevant facts and circumstances: You are a qualified clinical hypnotherapist and a member of the Australian Hypnotherapists Association. To maintain your membership of the organisation you undertake supervision with a clinical supervisor as well as participating in ongoing professional development such as seminars and courses. Your clients come to you to be treated for a wide range of issues, such as weight management, smoking and depression/anxiety issues. You are branching out into the area of mental strength in sport. You have worked with sportspersons from different sports. Your business has incurred expenses on a specific sporting lessons, equipment and practice to improve your proficiency at a specific sport as you believe that you need to understand the physical side of this sport to be able to teach the mental side.

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 expenses to the extent they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. An expense is deductible under section 8-1 of the ITAA 1997 when it has the essential character of an income -producing expense. The essential character is to be determined by an objective analysis of all the surrounding circumstances. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income ( Ronpibon Tin N.L. Tongkah Compound N.L v Federal Commissioner of Taxation (1949) 78 CLR 47 at 56; (1949) 8 ATD 431; (1949) 4 AITR 236). In your case, you have said that you need to understand the physical side of this sport in order to teach the mental side. However, as a clinical hypnotherapist, it is not necessary to become proficient in the sport of each of your clients in order to assist them. You already have the necessary skills to carry out your work as a clinical hypnotherapist. Objectively, there is not a sufficient connection between the expense and the gaining of your assessable income for the expense to be deductible. You have stated that you see the money spent on lessons, equipment and practice to be the same as self education, that is, doing a course to enhance your skills. Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable for self education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge ( Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348). Similarly, if the study of a subject of self education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable. However, no deduction is allowable for self education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income ( Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, and 48 62 of TR 98/9). In your case, it is not necessary to have sporting skills to carry out your work as a hypnotherapist. If the enhancement of your sporting skills is to enable you to specialise in this area, this would be opening up a new income earning activity which is not allowable. | Detailed Reasoning - Conclusion: The sporting expenses do not have a sufficient connection to your income earning activity and are not necessarily incurred in carrying on a business for the purpose of producing assessable income. Additionally, the expenses cannot be considered self-education expenses. Therefore a deduction is not allowed.

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