ATO Interpretative Decision
ATO ID 2005/362 (Withdrawn)
Deduction for patron expenses
FOI status: may be released
||This ATO ID is withdrawn. Guidance on the deductibility of the expense is included in TR 1999/10.
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 25 August 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the taxpayer, who is the mayor of a local council, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for patron expenses?
Yes. The taxpayer who is the mayor of a local council, is entitled to a deduction under section 8-1 of the ITAA 1997 for patron expenses.
The taxpayer is the mayor of a local council and receives an assessable allowance from the local council.
Following the taxpayer's election as mayor of a local council, the taxpayer was appointed the patron of several local organisations. The taxpayer intends to act as patron for these organisations only whilst in the position of mayor.
Donations to the local organisations were made by the taxpayer as a goodwill gesture. None of the organisations were deductible gift recipients under Division 30 of the ITAA 1997.
The taxpayer does not hold any other interest in these organisations and no private benefits were received from making the donations.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for that purpose. However where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income they will not be deductible. In addition, losses or outgoings will not be deductible under section 8-1 of the ITAA 1997 where another provision prevents it.
The courts have established that for a loss or outgoing to be deductible under section 8-1 of the ITAA 1997:
- it must have the essential character of a loss or outgoing incurred in gaining assessable income or, in other words, of an income producing expense ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166)
- there must be a nexus between the loss or outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 7 AITR 236 (the Ronpibon Case ), and
- it is necessary to determine the connection between the particular loss or outgoing and the operations or activities by which the taxpayer more directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379; Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).
According to Taxation Ruling TR 1999/10, patron expenses are allowable under section 8-1 of the ITAA 1997 where there is a direct connection between the position of a Member of Parliament as a patron and their income earning activities. Where a Member of Parliament acts as patron for personal reasons any expenses incurred in relation to that position are not allowable deductions because they are private or domestic in nature.
In this case the taxpayer intends to be a patron only whilst in the position of council mayor and has made donations to the local organisations as a goodwill gesture.
Becoming a patron of community organisations is incidental and relevant to the taxpayer's mayoral responsibilities which include supporting community organisations and activities (the Ronpibon Case ).
There is a direct connection between the patron expenses incurred by the taxpayer and the assessable income derived from the mayoral position. As a result, the principle in TR 1999/10 of allowing a deduction under certain circumstances for patron expenses incurred by a Member of Parliament can be extended to the taxpayer in this case.
Therefore the taxpayer, who is the mayor of a local council, is entitled to a deduction under section 8-1 of the ITAA 1997 for patron expenses.
Date of decision: 23 July 2004
|Year of income:||Year ended 30 June 2003|
Income Tax Assessment Act 1997
Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation
(1956) 95 CLR 344
(1956) 11 ATD 147
(1956) 6 AITR 379
Lunney & Hayley v. Federal Commissioner of Taxation
(1958) 100 CLR 478
(1958) 11 ATD 404
(1958) 7 AITR 166
Ronpibon Tin N.L. and Tongkah Compound N.L. v. Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 8 ATD 431
(1949)7 AITR 236
Federal Commissioner of Taxation v. Hatchett
(1971) 125 CLR 494
71 ATC 4184
(1971) 2 ATR 557
Related Public Rulings (including Determinations)
Taxation Ruling TR 1999/10
Deductions & expenses
Gifts & donations
Gifts to organisations
Local government officials & employees
Siebel/TDMS Reference Number: 4045997
Business Line: Small Business/Individual Taxpayers
Date of publication: 23 December 2005