Deductions and expenses: motor bike sponsorship

Can the taxpayer claim an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses in sponsoring motor bike racing?

Yes. The taxpayer is entitled to claim an income tax deduction for expenses in sponsoring motor bike racing under section 8-1 of the ITAA 1997.

The taxpayer operates a business as a sole trader.

The taxpayer would like to sponsor motor bike riding in the belief that the exposure will benefit his business in the form of advertising. The taxpayer will provide sponsorship for up to four riders. The taxpayer will pay the costs of purchasing motor bikes and other costs such as fuel, repairs, spare parts and safety clothing. The motor bikes and a support vehicle as well as the clothing and caps worn by the riders will carry the taxpayer's business name.

In addition, the taxpayer intends to hand out business cards at the motor bike events to stimulate interest in his business through his position as sponsor of the sporting event.

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income.

The expenses associated with the taxpayer's sponsorship of motor bike riding are deductible under section 8-1 of the ITAA 1997. They are in the nature of advertising expenses and are directed to enhance the income producing activities of the taxpayer's business and are not excluded on the basis of being capital or of a private or domestic nature.