ATO releases tax determinations clarifying the availability of business-related deductions
In Taxation Determination TD 2016/15, which will apply to income years both before and after its date of issue, the ATO says that an employer is entitled to a deduction under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997) for annual fees incurred on an airport lounge membership for use by its employees. This expense is deductible where it is provided as part of the employment relationship, and in this respect it can be considered incidental and relevant to the taxpayer’s business.
The ATO clarified that the deduction will not be allowable if the annual fees were incurred in relation to the gaining or producing of exempt income or non-assessable non-exempt income, or if section 26-45 of the ITAA 1997 (recreational club expenses) or section 32-5 of the ITAA 1997 (entertainment expenses) applies.
Further, the ATO stated that the deduction will still be allowable where there is a substantial private use of the lounge membership, so long as the link to employment is satisfied. To the extent that the airport lounge membership fee could be considered an expense payment benefit or a property benefit under the Fringe Benefits Tax Assessment Act 1986, it is exempt from fringe benefits tax.
In Taxation Determination TD 2016/14, the ATO says that a taxpayer may claim a deduction for a gift made to a former or current client, where the gift is made for the purpose of producing future assessable income, regardless of whether it actually does produce assessable income. For the same reason as above, this expense is deductible on the basis that it can be considered incidental and relevant to the taxpayer’s business.
The expense is not deductible, however, where it is of a capital nature, relates to producing exempt or non-assessable non-exempt income or, more importantly, is of a private or domestic nature.
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