Deductions: long term promotional display expenses

Is a deduction allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses incurred in the purchase and fitting of long term promotional displays in a business premises?

No. A deduction is not allowable under section 8-1 of the ITAA 1997 for the expenses incurred in the purchase and fitting of long term promotional displays in a business premises as the expenses are of a capital nature.

The taxpayer is carrying on a business.

The taxpayer purchased items to decorate their business premises in a manner which promoted their business activities.

The taxpayer paid another person to put those items together in a promotional display and fit the items, and thus incurred labour costs.

The promotional display was to be a permanent feature of the taxpayer's business premises.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent that they are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

In the case Sun Newspapers Ltd and Associated Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 87; (1938) 1 AITR 403, Dixon J considered that the difference between capital and revenue expenditure corresponds to the difference between the business structure and the business operations. His Honour when on to say that in relation to making the distinction between capital and revenue: There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain 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.

His Honour, in providing these characteristics of the capital or revenue nature of expenditure, also considered the judgement of Viscount Cave in British Insulated and Helsby Cable Ltd v. Atherton [1926] AC 205. At page 213 of this case Viscount Cave stated that expenditure was capital in nature when: ...an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade.

The expenditure for the display items and the labour costs incurred were a once off expense without any element of recurrent expenditure. It brought into existence the enduring assets used in the promotional display. The promotional display was to provide long term benefits to the taxpayer's business. In these circumstances it was expenditure of a capital nature rather than of a revenue nature.

Accordingly, no deduction will be allowable under section 8-1 of the ITAA 1997 for the expenditure on the long term display items and the associated labour costs.

Note: A deduction is available under section 40-25 of the ITAA 1997 for the decline in value of the long term promotional display items and the associated labour costs.