Deductibility of advertising and marketing expenses

Normally, advertising and marketing expenses are allowed as deductible for the taxpayers. However, according to BP Australia Ltd v C of T of the Commonwealth of Australia (1966), an advertising expense can be claimed deduction only when “it is a part of the ordinary process of selling the goods and services of the business”.

However, IRD can stop you from deducting advertising expenses if they find that the expense has the capital nature. For example, the expenditure relating to set up a signage has the capital nature and you are not allowed to claim as expense. But it is a depreciable asset.

Private limitation can also stop taxpayer to claim deduction for their advertising expense. If the advertising expenses are found to be incidental to a personal enjoyment, private limitation will apply. For example, a deduction may not be allowed when the business makes a gift to a school attended by the owner or director’s child, where the school is far away from where the business activities are conducted.

Therefore, taxpayer needs to be careful when claiming deduction for advertising and marketing expenses. 

{proforms 1}