Steve Smooth operates a management consulting business in downtown Brisbane as a sole practitioner. His clients are large businesses prepared to pay premium fees for Steve's expert advice and ideas on all aspects of business. During the 2015 income year, Steve incurred the expenses listed below in the operation of his business.
Dining Expenses:
-Steve regularly conducts business meetings with current and potential clients over lunch or dinner and spent $40,000 on fine dining restaurant meals for himself and clients during the year. Steve's records indicate that 30% of the total expenses incurred related to his own personal meals, 30% related to current clients and 40% related to potential clients. His expenses also included taxi fares for himself and his clients on these occasions. The taxi fares amounted to $12,500. Advise Steve whether he can claim a tax deduction for these expenses.
Legal Fees
-About five years ago Steve purchased a licence to exclusively sell a particular human resource management software package in Brisbane as part of his consulting services. At the time he invested $15,000 in purchasing the licence which was for 6 years with an option to renew. Due to the popularity of the software, the developer wants to amend the terms of the contract to restrict Steve's licence to a certain number of sales rather than exclusivity for a particular area. This would be in exchange for a lump sum payment. The sale of this software accounts for approximately 20% of Steve's total revenue, but notwithstanding this, he is not keen to change the terms of his licence. He has therefore incurred $14,000 in legal fees during the 2015 income year in negotiating with the developer. As at 30 June 2015, the matter is still ongoing, but Steve is hopeful for an outcome in his favour.
Conference Attendance:
-Steve travelled to a management conference in Las Vegas during the year. He travelled with his wife Sally. Sally is a teacher and does not have any involvement in the business. While in the Las Vegas, Steve and Sally attended the four day conference and then boarded a tour which took them all over the East Coast of the United States. The tour was for 7 nights. Their expenses were as follows:
o Airfares $1,900 each
o Hotel - Las Vegas three nights $1,800
o Tour - all inclusive $8,000 each
o Meals during conference $1,000 each
o Return airport transfers $100 each trip (2 trips)
Maintenance
-During the year, Steve repainted the entire interior of his business premises at a cost of $11,000. The interior was last painted eight years ago and the old colour scheme did not match the new business branding and logo which was launched the previous year. Although the paintwork was generally in a fair condition, in several places and particularly in the reception area, the paintwork was peeling, scuffed and chipped.
-Steve installed new blinds on all windows in the premises at a cost of $9,000. Previously the windows were covered with curtains which were approximately eight years old.
Letter of Advice:
Provide advice to Steve as to the deductibility (or not) of each of the above transactions for the 2015 income tax year in the form of a Client Letter of Advice. Your letter of advice should be written in language suitable for the audience and highlight Steve's likely ability of claiming tax deductions along with any requests for further information you would need to come to a conclusion. You should also submit a brief summary of the law/legal principles you have used to write your letter as a separate page. This is where you would make reference to all relevant legislation, case law principles and rulings in approaching this question. Please consult the marking criteria for further information.