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Is the taxpayer, an employer, entitled to an income tax deduction, under section 8-1 of the Income Tax Assessment Act 1997 ('ITAA 1997'), for the annual fees of an airport lounge membership?

Yes, the taxpayer is entitled to an income tax deduction, under section 8-1 of the ITAA 1997, for the annual fees of an airport lounge membership.

The taxpayer purchased an airport lounge membership. The airport lounge facilities are used primarily by the taxpayer's employees whilst they are on business travel. The lounge membership is made available to employees while they are on private holidays. The extent of the private use is small.

The primary function of Airport Lounge Clubs is to provide business facilities and prompt and efficient services relating to the travel of their members. Hospitality, such as food, drink and recreation, is merely incidental to the primary function of these clubs.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

It is accepted that the fees for the airport lounge membership are incidental and relevant to the conduct of the taxpayer's business. However in some instances, even though an expense may be incidental and relevant to the production of income, there are some sections of the ITAA 1997 which may nevertheless specifically exclude some types of expenditure from deductibility.

The expense in this case may potentially be excluded from deductibility by Division 32 or section 26-45 of the ITAA 1997. Division 32 precludes a deduction for expenses which are considered to be entertainment expenses. Section 26-45 does not allow a deduction for the cost of recreational club membership.

However, the airport lounge membership does not meet the definition of an entertainment expense under Division 32. The Airport Lounge Club is also not considered to be a recreational club, and the fees are not excluded from deductibility on this basis.

Accordingly, the airport lounge annual membership fees are deductible under section 8-1 of the ITAA 1997.

Date of Amendment Part Comment 23 January 2015 Reasons for Decision Updated. Legislative References Updated.

Date of Amendment | Part | Comment

23 January 2015 | Reasons for Decision | Updated.

Legislative References | Updated.