Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head. http://www.helpwithassignment.com/

1. Topic 5 –Allowable deductions
Two positive limbs-four negative
limbs
Chapter 10

2. GENERAL DEDUCTIONS
• Section 995-1 – definition of "deduction" means an
amount that you can deduct - circular definition -
unhelpful
• Therefore must rely on common law interpretations of
an allowable deduction.
• It is not always helpful to look at both sides of a
transaction:
– (a) recipient - builder - taxable - income from the
carrying on of a business of homebuilding
– (b) payer - home owner - not deductible - capital
expense incurred in respect of the acquisition of a
capital asset

3. General Deductions Section 8-1
• You may deduct from your assessable income
any loss or outgoing to the extent that:
– (a) it is incurred in gaining or producing your
assessable income (all taxpayers);
– or
– (b) it is necessarily incurred in carrying on a
business for the purpose of gaining or producing
your assessable income (business taxpayers only)
2 positive limbs apply where there is sufficient nexus
between the incurring of the expense and the
earning/production of assessable income

4. Section 8-1(2) - 4 Negative Limbs
• However you cannot deduct a loss or outgoing
under this section to the extent that:
– (a) it is a loss or outgoing of a capital nature; or
– (b) it is a loss or outgoing of a private or domestic
nature; or
– (c) it is incurred in relation to gaining or producing
your exempt income; or
– (d) a provision of this Act prevents you from deducting
it, e.g Fines or Penalties, s 26-5

5. Positive limbs
• There must be sufficient nexus between a loss
or outgoing and earning the assessable income
• Various tests applied by the courts
– (1) Incidental and relevant - the incurring of the
expense must be incidental and relevant to the
earning/production of income
– (2) Essential nature and character of the
expenditure - must be an income earning expense

6. Incidental and relevant
• Charles Moore v FCT
• The taxpayer claimed a deduction for the days trading
receipts stolen from an employee at gunpoint on the way
to the bank, he was not insured.
• Held – deductible, banking is a necessary and integral part
of business operations - The loss represented the kind of
misfortune, which was a natural or recognized incident
of the operations pursued by the taxpayer to earn its
income.
• Question - what if the taxpayer leaves takings in a
briefcase on a train, or in a car in the casino car park?

7. Incidental and relevant - cont
• Herald and Weekly Times Ltd v FCT
• A newspaper paid amounts to settle a defamation action
against it in respect of alleged libels published by it.
• Held – deductible, publishing a newspaper inevitably
exposes a publisher to the possibility of being sued for
libel. The expense of settling a defamation action was
incurred as a natural consequence of the inclusion of the
alleged defamatory material in the newspaper. The fact
that the income produced by the publication containing
defamatory matter arose in an earlier income year is
unimportant in the context of a continuing business

8. Inherent character of the expense
• Can the expense be seen as inherently an income earning
expense? Lunney v FCT
• Claim by an employee for a deduction for traveling
expenses in respect of traveling to work.
• Held - it not sufficient that an expense be incidental and
relevant to the derivation of income. Even if the expense is
a prerequisite to the earning of income, it must also have
the essential character of a business expense.
• The expense was characterized as a personal or living
expense - even if its purpose was to enable the taxpayer to
derive income, it was incurred because the taxpayer lived
in one place and worked in another.

9. Inherent character of the expense
Lodge v FCT
• The taxpayer worked at home, she needed a quiet
environment so she sent her children to a nursery school.
• Held - not deductible -essential character of the expense -
nursery fees - essentially personal or living expenses. Even
if the incurring of the nursery fees was a prerequisite for
the derivation of income and its purpose was to enable the
taxpayer to earn income, the expense did not have the
character of a business expense

10. Timing issue
• Loss or outgoing must be incurred in gaining or
producing the assessable income. It is not
necessary to match the loss or outgoing with the
income earned in the same income year - at least
where a continuing business is involved.
• Expense may be relevant to the income of:
– An earlier income year; or
– A later income year; or
– Be relevant to the reduction of future expenses

11. Timing- Amalgamated Zinc (de Bavay’s) v FCT
• A mining company discontinued its business but remained
liable to make annual worker's compensation payments.
After it discontinued its business it derived its income
solely from investments.
• Held - not deductible. Complete cessation of income
producing operations out of which the necessity to make
the outgoing arose - there was no longer a nexus between
the outgoing and the earning of assessable income. The
taxpayer continued to make worker's compensation
payments as a result of its liability under the relevant
legislation and not because they could produce income.

12. AGC (Advances) Ltd v FCT
• Concerned the deductibility of an interest expense
and bad debts. ATO argued that those expenses
not deductible on the basis of De Bavay’s case.
• If there is a break in the carrying on of the
business that produced the assessable income then
the nature of the business that has recommenced
must be substantially the same as that carried on in
earlier period of time.
• Losses can be claimed as a deduction without the
company actively carrying on the same business

13. AGC (Advances) Ltd v FCT
• It was suggested that Amalgamated Zinc might
have been wrongly decided. It was stated that the
liability to make the workers’ compensation
payments was a liability incurred in the gaining of
assessable income - on a construction of the
section which allowed as deductions expenditures
which related to the gaining of assessable income
“generally”, the obligation to make the payments
was a business liability which sprang out of the
carrying on of the business which had yielded
assessable income.

14. Placer Pacific Management Pty Ltd v FCT
• The taxpayer, a manufacturer of conveyor belts
installed a conveyor belt for NWCC. In July 1981
it sold its business. In August 1981 NWCC sued
the taxpayer claiming that the conveyor belt was
defective. In 1989 the taxpayer settled the action
by paying NWCC $325,000 and claimed the
amount as a deduction in the year of income
ending 1989.

15. Placer Pacific Management Pty Ltd v FCT
• Held - deductible - followed AGC.
• Provided that the cause of the business outgoing is
found in the business operations directed towards
the gaining or producing assessable income
generally –
• the fact that the outgoing was incurred in a year
later than the year in which the income was
incurred; and
• the fact that in the meantime the business may
have ceased will not deny deductibility.

16. FCT v Jones
• Wife continued to make loan payments on a
loan taken out for a business. The husband
dies and the business was sold.
• Full Bench of the Federal Court held still
deductible even though the business had
ceased to operate. The taxpayer had no
alternative but to keep paying the loan.
Working as a nurse.

17. Expenditure to produce future income
• In a continuing business, it is not the practice to
inquire into the exact time that it is hoped that
expense will affect the production of assessable
income. Expenditure upon raw materials, repairs
to plant, advertising - designed to produce results
in future year - deductible.
• Continuity requires that the expense should be
attributable to the year against which it is actually
defrayed.

18. Expenditure to reduce future expenses
- W. Nevill and Co v FCT
• Money was paid to persuade one of the joint managing
directors of the company to resign, as the joint managing
directorship had proved unsatisfactory.
Held - deductible - the purpose of the expense was to:
• Reduce salary costs, and to
• End joint control and so increase efficiency of the company and to
increase its income producing capacity.
Not a capital expense -
• No capital asset was acquired by the expense
• It did not affect the structure of the business (page 737)

19. Expenditure related to income of a previous year
• Continuing business - deductible in a later assessment
year:
• Example - exchange loss -
• An exchange loss is the difference between
• an amount paid in a later year and
• the estimated amount debited in an earlier profit and
loss account - deductible
• What if a business person declines to pay debts incurred in
a previous income year?
• Creditors may not be prepared to continue supplying stock
or may take steps to wind up the taxpayer's business

20. Losses and outgoings "to the extent"
incurred in gaining or producing assessable
income
• It may be necessary to apportion an expense
between the income earning and non-
income activities.
Steele v FCT
• Mrs. Steele purchased land on which to build a
motel. Money was borrowed to pay for the land
and the interest expense was claimed as a
deduction.

21. Steele v FCT
• The motel was not built on the land and the land
was used to agist horses.
• Held - the expense was deductible because the
loan was taken out to acquire a capital asset that
was to be used for income producing purposes.
The fact that the expected income was not
generated did not preclude deductibility. Not
necessary to match the expense with the
assessable income.

22. Loss or outgoing must be "incurred"
• An expense may be incurred even if not yet paid.
Incurred - does not mean paid, defrayed, discharged. An
expense is incurred when the taxpayer is committed, or
completely subjected to the expense. The expense must
be more than impending, threatened or expected.
• For example - a taxpayer uses electricity to run a factory.
The taxpayer incurs an expense not when the electricity is
used, but prior to payment when the electricity authority
renders a bill. It is only at that moment that the taxpayer is
completely subjected to the expense. Until then the
electrical authority cannot sue for the debt.

23. FCT v James Flood P/L
• Under an industrial award an employee only became
entitled to receive holiday pay after 12 months
continuous service, until then - the employee was not
entitled to anything and even then could lose the
entitlement to holiday pay - through unauthorized strikes,
unauthorized absenteeism, death.
• At the end of the income year a number of employees had
completed less than 12 months continuous service but it
was obvious that many employees would be become
entitled during the next income year. The taxpayer
calculated the proportional amount to which each
employee was entitled as at the end of the income year and
claimed a deduction.

24. FCT v James Flood P/L
• Held - not deductible - the liability was not yet
incurred. The employee might fail to become
entitled to annual leave for a number of reasons.
The taxpayer simply faced a possibility that it
might have to incur a loss or outgoing in the future
- the taxpayer was not yet completely subjected
to the expense.

25. Nilsen Development Laboratories P/L v
FCT
• The taxpayer's employees were entitled to long
service leave and holiday leave - some employees
had completed the required service period. They
were entitled to payment for long service leave
pay and holiday pay - "when" they took leave -
none had actually taken leave or been paid - the
taxpayer claimed a deduction in respect of
provisions in its accounts representing estimates
of leave entitlements incurred at the end of the
income year.

26. Nilsen Development Laboratories P/L v
FCT
• Held - not deductible. Liability arises once the triggering
event has occurred, at the point in time when the
employee has:
• (1) served the required period and
• (2) upon the occurrence of an event, that is - going on
leave, termination of employment, death, etc.
• Until then - no presently existing liability had been
created. The commercial propriety of making provision for
an accruing liability has little bearing on whether there is a
loss or outgoing under section 8-1(1) (formerly s51(1))

27. Section 26-10, ITAA 97
• Section 26-10 confirms that a deduction for leave
(LSL, annual leave, sick leave) may only be
claimed in the year paid

28. Provisions
• Provisions such as in respect of bad debts, etc, are not
allowable deductions. Provisions are usually merely book
entries in respect of anticipated or possible future loss
contingencies. At the point of time of making the
provision, it is not yet possible to say that a loss or
outgoing has been "incurred," as the relevant "triggering"
event has not yet occurred. However, insurance companies
incur liabilities at the time that certain events occur (for
example, motor accidents) but which in fact the
insurance company may not become aware of until
some time later.

29. Provisions - continued
• It has been necessary for such companies to make
some estimate of such liability usually by
reference to historical experience.

30. RACV Insurances P/L v FCT
• The taxpayer set aside amounts to cover
unreported 3rd. party claims - These were
estimates of the amount of claims arising out of
accidents occurring before the end of the income
year but not yet reported.
• Held – deductible. Unlike Flood's case - there
was no real question of the absolute liability of the
insured as the 3rd. party might lose their
entitlement. In this case the only question was
the estimation of damages.

31. RACV Insurances P/L v FCT
- Continued
• The fact that the amount is estimated and that it
may have to be adjusted in light of later events
does not bar the deduction. Once the event had
occurred (the accident) out of which absolute
liability arose, section 8-1(1) applied, which was
not dependant on notice of the claim.

32. Commercial Union Assurance v FCT
• Same facts as RACV case except that its accident
policies contained a clause stating that if the
insured failed to give notice to the insurer of the
event within the specified time, the insurer would
be technically able to avoid the policy. But it was
the established policy and practice never to
refuse to pay merely because the time limit had
not been observed.

33. Commercial Union Assurance v FCT
• Held - deductible. The taxpayer was definitely committed
to the expense. As a matter of business expediency and
commercial certainty (though not as in RACV, legal
certainty), the taxpayer's obligation to pay was not
subject to any contingency and had therefore completely
subjected itself to the payments. Although the taxpayer's
eventual liability could not be quantified exactly, it was
sufficient if a reasonable estimate could be made.
Furthermore, increases in the initial estimate were
deductible since the increase in the estimate constitutes a
new loss or outgoing which is incurred for the first time in
the year when the revised estimate is made presumably in
the subsequent income year.

34. Provisions – Insurance
• In both James Flood and Nilsen Developments, the
actual provision for holiday pay and long service leave
would only be an estimate made at current rates whereas
the amount to be paid is always at the rate of pay the
employee is receiving at the time the employee takes leave
which may occur many years later.
• The RACV and Commercial Union cases were both
concerned with accident insurance companies that had
long had a practice of providing annual reserves in respect
of current risks. It appears that while their principles are
not limited to insurance contexts, the commissioner may
not accept that these principles apply in other contexts.

35. Second Limb-s. 8-1(1)(b) - Business
deductions
• The deduction of a loss or outgoing necessarily
incurred in carrying on a business for the purpose
of gaining or producing assessable income. The
two limbs overlap to a considerable extent but the
2nd. Limb is confined to circumstances where a
business is carried on. It has been said that the
2nd. Limb in actual working adds little in
operation to the 1st. limb, which would appear to
apply to both business and non-business
circumstances.

36. FCT v Snowden and Willson P/L
• The taxpayer, a speculative builder, incurred expenses
attempting to counter by means of advertisements in the
press attacks made upon the conduct of its business in
Parliament and in legal costs appearing before a Royal
Commission to inquire into the charges.
• Held - deductible under 2nd. Limb and perhaps 1st. limb -
The expense was necessarily incurred because the nature
of the business demanded that it be incurred. The
expression "necessarily" in section 8-1(1)(b) does not
mean that an expense is compulsory or unavoidable.

37. FCT v Snowden and Willson P/L
• The word “necessarily” does not require legal or
logical necessity. It is sufficient if the expense is
appropriate, adapted for or dictated by business
ends or commercial necessity - that is, the
expense is based on reasonable commercial
judgment.
• A speculative builder inevitably confronts the
possibility of attacks upon its trading character.
• Therefore, it was commercially necessary to
expend such amounts.

38. Negative Limbs - Section 8-1(2)(a)
• Losses or outgoings of a "capital nature"
• Even if a loss or outgoing satisfies either limb of section
8-1(1), it is not deductible to the extent to which the
expense is of a capital nature. Note that this assumes that
a loss or outgoing incurred in gaining/producing the
assessable income (1st. limb), or necessarily incurred in
carrying on a business for that purpose (2nd. limb) may
still be of a capital nature.
• One judge has cynically stated in relation to numerous
borderline situations, that in many cases it is almost true
to say that a spin of a coin would decide the matter almost
as satisfactorily as an attempt to find reasons.

39. Tests for distinguishing between revenue
and capital - (1) Once and for all test
• Vallambrosa Rubber Co Ltd v FCT
• The taxpayer cultivated and sold rubber, claimed
deductions for annual weeding and superintending
immature trees.
• Held - deductible. Capital - "tends" to be spent once and
for all. Revenue - tends to recur every year, refers to
continuous demand. Not a conclusive test - a once and for
all payment may be of a revenue nature - For example - a
gratuity paid by employer to employee upon retirement or
payment to get rid of a director to facilitate the general
running of the business.

40. (2) The enduring benefit test
• If an expense creates an advantage of enduring benefit it
is generally capital but test this is not decisive. It means
that an asset or right acquired must have enough
durability to justify its being treated as a capital asset.
• Commissioner of Taxes v Nchanga Consolidated
Copper Ltd.
• 3 companies independently carried on copper mining but
had overlapping directorates/ common sales departments.
The world copper price fell by 10%.

41. Commissioner of Taxes v Nchanga
Consolidated Copper Ltd.
• The 3 companies agreed that:
• (1) B company would cease production for 1 year;
• (2) A and C companies would produce the amount of
copper that the 3 companies had formerly produced less
10%; and
• (3) A and C companies would pay B company
compensation.
• C company claimed that compensation paid was
deductible.

42. Commissioner of Taxes v Nchanga
Consolidated Copper Ltd.
• Held – deductible. The expense was not incurred
for the acquisition of a business or for the benefit
of a long term or enduring contract. The sole right
acquired was to have B Company out of
production for 1 year. It was not an accretion to
capital or the profit-earning structure, but an
incidental cost to the production and sale of
copper - an operating cost.

43. (3) Business entity test
Sun Newspapers Ltd & Assoc. Newspapers Ltd v
FCT
Taxpayer published the Sun Newspaper in
Sydney. It became aware that a rival company
intended to introduce a new paper and to sell it
more cheaply than The Sun. It agreed to pay the
rival company a large sum money by installments
in return for the rival company undertaking not to
produce a newspaper in Sydney for 3 years.
• Held - capital expense.

44. Sun Newspapers Ltd & Assoc. Newspapers
Ltd v FCT
• On both the “once and for all” test and the
“enduring benefit test” the expense bore the
hallmarks of a capital expense:
• the expense was of a non-recurring nature,
• The expense was incurred for the purpose of
securing freedom from threatened competition
and the resultant continuing benefit to
taxpayer's business.

45. Sun Newspapers Ltd & Assoc. Newspapers
Ltd v FCT
• Business entity test -
• The difference between expenditure and outgoings
on the revenue account and on capital account
corresponds with the difference between the....
– "business entity, structure or organization set up for the
earning of profit", and the....
– “the process by which such an organization operates to
obtain regular returns by means of regular outlays”, per
Dixon J (p 359, CLR)

46. Business entity test – Sun Newspapers case
• Profit yielding structure - On the one hand, in a
trade or pursuit where little or no plant is required,
the business structure may be represented by
nothing more than the intangible element of
goodwill.
• On the other hand, the business structure may
consist of the great aggregate of buildings,
machinery, plant and intangible elements -
restraint of trade agreements, etc.

47. Business entity test – Sun Newspapers case
• Under the Business entity test the court
held - the expense was of capital nature.
The purchase of the restraint of trade was an
addition to the newspaper's business or
profit-yielding structure rather than a
regular outlay for the purpose of yielding a
regular return.

48. Business entity test – Sun Newspapers case
• Dixon J established 3 tests to be considered:
– 1. The character of the advantage sought, and in this its
lasting qualities may play a part
– 2. The manner in which it is to be used, relied upon or
enjoyed….recurrence may play its part
– 3. The means adopted to attain it; that is, by providing a
periodical reward or outlay to cover its use or
enjoyment for periods commensurate with the payment
or by making a final provision or payment so as to
secure future use or enjoyment (page 766)

49. Hallstrom Pty Ltd v FCT
• The taxpayer wished to manufacture improved
refrigerators based on a patent owned by
Electrolux, which was about to expire. Electrolux
applied for a 10-year extension of their patent.
Hallstroms incurred legal costs in successfully
opposing the Electrolux application which meant
that the Electrolux process became generally
available for exploitation. The taxpayer sought a
deduction

50. Hallstrom Pty Ltd v FCT
• Majority held - deductible. The expense was not made to
acquire an asset (enduring benefit test) or to add to the
profit-yielding structure, but to enable them to carry on the
same business unfettered by a particular difficulty -
Electrolux’s patent. When Electrolux's patent expired,
Hallstroms had the same right as every other person to
manufacture refrigerators based upon the patent - a right
enjoyed in common with all persons is not a capital asset
of any single person - it did not acquire an asset.

51. Hallstrom Pty Ltd v FCT
• Minority held - although no enduring asset - capital - not
deductible. Applying the business entity test, saw the
purpose of the expense as being to enable Hallstroms to
complete and carry into effect its plans to re-organize
its manufacturing and selling business for the production
and sale of an entirely different refrigerator. The
expense was directed to ensuring that there should be no
renewal of the restriction which would prevent the re-
organization occurring - this went to the character and
organization of the profit-earning business as the
expenditure had a special and lasting importance to the
taxpayer’s profit-earning business and was not an incident
in the operations by which it carried on.

52. John Fairfax and Son Pty Ltd v FCT
• F and C companies had been rivals in an attempt
to gain control of A company. F company
expended legal costs in defending the issue of
shares to it which enabled it to gain control of A
company.
• Held - capital expense. Expenses incurred to
acquire a new asset - the shares and control of A
company - were concerned with the structure of
the profit-earning enterprise of F company.

53. Negative Limbs - Section 8-1(2)(b)
Losses or outgoings of a ‘private or
domestic nature’
• Not deductible though to some extent it is
arguable that they satisfy the primary requirement
of section 8-1(1) in that they are incurred as a
prerequisite to the earning of assessable income -
but the expense -
• (1) has insufficient nexus to the earning of
assessable income, and
• (2) is inherently of a private or domestic nature.

54. Private or domestic - Traveling to work
expenses
• Generally seen as a private expense, a living expense - a
cost of not living at or near work. Although traveling to
work is a prerequisite to earning assessable income, the
expense of doing so is not necessarily incurred in the
course of gaining or producing assessable income.
• FCT v Payne – travel between two places of employment.
Qantas pilot and farmer. No deduction. However,
Government introduced s 25-100 which allows the
deduction for travelling expenses between two places of
employment provided no break.

55. Home office expenses - Swinford v
FCT
• Self employed script writer working from home.
Separate room to do the writing in except for a
wardrobe in the room. She claimed deduction in
respect of rent in the proportion to which the room
represented part of the house.
• Held, deductible, no alternative place to work,
distinguished Handley and Forsyth cases.
• ATO – TR 93/30 and Practice statement PS
2001/6

56. Private or domestic - Handley v FCT
• Held - not deductible - a private or domestic expense. The
home was not his business premises; it was not his work
base. The essential character of the expense was domestic;
the study remained an integral part of the whole house
despite its predominant professional use. The study was
not distinctive, and it was not physically exclusive. It was
capable of domestic use and was in fact used domestically.
The taxpayer found it convenient to work at home, but was
not compelled to do so. He used the home study mainly for
research and reading. He did not require a secretary and
rarely saw clients at home.

57. Overseas and education expenses
• Expenses incurred in keeping up to date or to better enable
oneself to discharge one's existing duties or to earn one's
present income may be deductible. Costs incurred in
gaining an initial or other qualification by a person not at
the time engaged in any occupation or employment, or not
occupied or employed in an area which makes that course
of study necessary or desirable, would seem to be non-
deductible because there would not be the relevant
connection (sufficient connection) with the income-earning
activity. No deduction is allowable for self-education
expenses where the course of study is designed to enable
the taxpayer to obtain employment or to obtain new
employment,

58. Overseas and education expenses
• For example - the costs of an MBA course was
not deductible for a mining engineer who had been
retrenched.
FCT v Highfield
• A dentist in general practice that performed some
periodontal work wished to specialize in that field
so he spent 1 year in UK doing a post-graduate
degree. He successfully claimed as deductions the
cost of airfares, university fees and meals and
accommodation.

59. FCT v Highfield
• The success of his claim resulted from the acceptance of
his evidence that he had undertaken the specialist degree
so that he could expand that aspect of his work in his
general practice - as distinct from actually becoming a
specialist periodontist. The acquisition of the additional
knowledge would enable him to charge higher fees in his
general practice. Furthermore, the taxpayer was treated as
still carrying on business as a general practitioner even
though he had leased his business to another dentist while
he was away.

60. Clothing and Employment
• FCT v Edwards – cost of clothing
deductible. Secretary to the wife of the
governor of QLD.
• Needed an extensive range of clothing for
the position. Conventional clothing and not
a special uniform.
• Division 34, ITAA 97 – deductibility of
uniforms with registered design

61. Madad v FCT
• Taxpayer company incurred a penalty for
breach of the Trade Practices Act.
• Wanted to claim a deduction, Held no.
• Fines and penalties not deductible on public
policy grounds.
• Section 26-5, ITAA 97 introduced to deny a
deduction for fines and penalties.

62. Section 8-1(2)(c) – exempt income or
NANE
• If income is not assessable, then cannot deduct
losses or outgoings incurred in earning that
income.
• Example: part-time military service – exempt
income. The cost of travel or uniform expenses
not deductible. Dividends from shares in a Pooled
Development Fund – not assessable. Cannot claim
interest expense incurred in buying the shares as a
deduction
• GST input tax credit – amount not deductible

63. Specific non-deductions - section 8-
1(2)(d)
• A loss or outgoing cannot be deducted if a provision of the
Act prevents its deduction.
• Section 26-10 - cannot claim a deduction for LSL, annual
leave, sick leave, etc, unless paid (rather than incurred).
• Section 26-5 provides that no deduction is allowable for
an amount payable by way of penalty under a law. Before
its introduction, it was clear that such outgoings were not
deductible on the basis, that they were grounded in public
policy considerations that a penalty is imposed as a
punishment.

64. Examples
• Section 26-45 - social or sporting club membership
expenses are non-deductible regardless of the business
use made of the club by the member.
• Division 32 - entertainment is non-deductible although
there are a number of exceptions:
– In-house dining facilities,
– The expenses of a taxpayer whose business is providing
entertainment,
– Eligible seminars,
– Entertainment for the purpose of advertising or promotion,
– Where entertainment is provided to an employee as a fringe
benefit.

65. Examples
• Section 26-30 - the cost of accompanying spouses
on business trips is not deductible. These non-
deductible benefits become deductible where
provided to an employee and qualify as fringe
benefits under the FBTAA. Such expenses will
remain non-deductible where provided by a
taxpayer on his or her own behalf.

66. Examples - continued
• As a consequence of division 32, a self-employed
person cannot claim a section 8-1(1) deduction
for the cost of his or her entertainment nor that of
a guest even if the entertainment expense was
genuinely for the purpose of earning income such
as dining and entertaining an overseas business
associate for the purpose of securing a valuable
contract unless the entertainment comes within
one of the in-house exceptions to division 32

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