Private ruling: Gifts to a tenant
Published: December 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to claim a deduction for gifts given to a tenant? | A1: No.

Relevant facts and circumstances: You own an investment property and wish to make gifts to the tenant to ensure that rent is paid on time, and to maintain the tenant in the property for a longer period. The gifts would include food baskets, hampers, wine and movie tickets, and would be given during the period of tenancy.

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 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature. You consider that providing gifts such as food, wine and movie tickets to the tenant will assist in ensuring prompt payment of rent and keep the tenant in your rental property for a long period. The Commissioner has considered whether the provision of gifts would be deductible under various circumstances including gifts given by real estate salespersons or property managers and gifts given by teachers to students. Where gifts are provided by real estate salespersons or property managers who are paid on a commission basis the Commissioner accepts that the provision of the gifts may lead to an increase in income (from increased commissions) and a deduction is allowable. However for those persons not entitled to earn commission no deduction is allowable. Similarly employee teachers may outlay their own money to supply items to students for their own individual needs (for example, books and uniforms); purchase gifts for students (for example, Christmas gifts); purchase food and drinks for special occasions (for example, student birthdays) and replace money lost by students (for example, money for bus fares and lunch). While employee teachers may feel a moral, personal or social obligation to outlay these expenses, there is no connection between the expenditure incurred by the employee teacher and the gaining or producing of assessable income and it is also considered to be of a private nature. Therefore, a deduction is not allowable for expenditure of this nature A deduction is not allowable if the expenditure results in the provision of entertainment. A deduction is also not allowable for cards or gifts provided to friends, relatives or associates unless the connection between the outgoing and the production of income can be clearly established. In order for a deduction to be allowable the expenses must have a sufficient connection to an increase in income. Where the connection of such expenditure to increased income is too remote no deduction is allowable. In your situation whilst you consider that the provision of gifts to your tenants may assist you to receive rent promptly or assist to keep your tenants on a long term basis the Commissioner considers that any increase in income is too remote and the gift expenses remain private or domestic in nature. Accordingly you are not entitled to a deduction for gifts made to a tenant.