A recent taxation determination is to the effect that a taxpayer who carries on a business is entitled to a general deduction (under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA97)) for an outgoing incurred on a gift made to a former or current client if the gift is characterized as being made for the purpose of producing future assessable income (TD 2016/14).
If a taxpayer provides a gift that is characterized as being made for the purpose of producing future assessable income, the outgoing incurred on the gift will be incidental and relevant to gaining or producing assessable income. The taxpayer’s outgoing is “dictated by the business ends to which it is directed” and is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
The outgoing will not be deductible where it is of a capital nature, relates to the gaining of exempt non-exempt income, or some other provision of the income tax law prevents it from being deductible.
Deductibility under S 8-1 is subject to there being no other provision in the tax law that affects the deduction. These situations include where the gift is:
• A bribe to a foreign official; in the provision of entertainment; and in within the prepayment rules.
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