Expense Deduction Question

Posted On: Friday, October 05, 2018

QUESTION

We require an opinion on the following: -

We have a client that owns two car yards with multiple brand dealerships and they run a sprint car operation that competes around Australia. We are wanting to know more about the deductibility of the sprint car expenses.

The sprint car set up is a serious operation, all drivers/mechanics etc. are employees and are not family members. The main business owner and his son are involved as managers of the sprint car operation, but not day to day managers as their day job is actually running the car yards. The primary purpose of the sprint car operation is to promote the car yard businesses. Ball park numbers $400k expenses and $200k prize money.

The “Sprint Car’ business is operating under the same entity as the car business. The ‘loss’ has been written off as advertising in previous years.

Do you know of any ATO guidance documents on the deductibility of these types of expenses? Do you have any advice on general deductibility of the expenses?

ANSWER

This is a division of the business that derives assessable income and as long as all expenses are incurred in deriving that assessable income we don’t see a problem. As the owner and son are not actively engaged in driving the sprint cars, it cannot be suggested that this is a personal pursuit - it is crucial that there is genuine and prominent advertising on the vehicles along with other promotional material.

Although this is not a sponsorship situation, ATO interpretative decision ATO ID 2005/284 is worth a read as well as it makes it clear sponsorship payments in broadly the same context will be deductible – this ID deals with motor cycle sponsorship.

 

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