Allowable Deduction


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Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head.

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Allowable Deduction

  1. 1. Topic 5 –Allowable deductions Two positive limbs-four negative limbs Chapter 10
  2. 2. GENERAL DEDUCTIONS • Section 995-1 – definition of "deduction" means an amount that you can deduct - circular definition - unhelpful • Therefore must rely on common law interpretations of an allowable deduction. • It is not always helpful to look at both sides of a transaction: – (a) recipient - builder - taxable - income from the carrying on of a business of homebuilding – (b) payer - home owner - not deductible - capital expense incurred in respect of the acquisition of a capital asset
  3. 3. General Deductions Section 8-1 • You may deduct from your assessable income any loss or outgoing to the extent that: – (a) it is incurred in gaining or producing your assessable income (all taxpayers); – or – (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income (business taxpayers only) 2 positive limbs apply where there is sufficient nexus between the incurring of the expense and the earning/production of assessable income
  4. 4. Section 8-1(2) - 4 Negative Limbs • However you cannot deduct a loss or outgoing under this section to the extent that: – (a) it is a loss or outgoing of a capital nature; or – (b) it is a loss or outgoing of a private or domestic nature; or – (c) it is incurred in relation to gaining or producing your exempt income; or – (d) a provision of this Act prevents you from deducting it, e.g Fines or Penalties, s 26-5
  5. 5. Positive limbs • There must be sufficient nexus between a loss or outgoing and earning the assessable income • Various tests applied by the courts – (1) Incidental and relevant - the incurring of the expense must be incidental and relevant to the earning/production of income – (2) Essential nature and character of the expenditure - must be an income earning expense
  6. 6. Incidental and relevant • Charles Moore v FCT • The taxpayer claimed a deduction for the days trading receipts stolen from an employee at gunpoint on the way to the bank, he was not insured. • Held – deductible, banking is a necessary and integral part of business operations - The loss represented the kind of misfortune, which was a natural or recognized incident of the operations pursued by the taxpayer to earn its income. • Question - what if the taxpayer leaves takings in a briefcase on a train, or in a car in the casino car park?
  7. 7. Incidental and relevant - cont • Herald and Weekly Times Ltd v FCT • A newspaper paid amounts to settle a defamation action against it in respect of alleged libels published by it. • Held – deductible, publishing a newspaper inevitably exposes a publisher to the possibility of being sued for libel. The expense of settling a defamation action was incurred as a natural consequence of the inclusion of the alleged defamatory material in the newspaper. The fact that the income produced by the publication containing defamatory matter arose in an earlier income year is unimportant in the context of a continuing business
  8. 8. Inherent character of the expense • Can the expense be seen as inherently an income earning expense? Lunney v FCT • Claim by an employee for a deduction for traveling expenses in respect of traveling to work. • Held - it not sufficient that an expense be incidental and relevant to the derivation of income. Even if the expense is a prerequisite to the earning of income, it must also have the essential character of a business expense. • The expense was characterized as a personal or living expense - even if its purpose was to enable the taxpayer to derive income, it was incurred because the taxpayer lived in one place and worked in another.
  9. 9. Inherent character of the expense Lodge v FCT • The taxpayer worked at home, she needed a quiet environment so she sent her children to a nursery school. • Held - not deductible -essential character of the expense - nursery fees - essentially personal or living expenses. Even if the incurring of the nursery fees was a prerequisite for the derivation of income and its purpose was to enable the taxpayer to earn income, the expense did not have the character of a business expense
  10. 10. Timing issue • Loss or outgoing must be incurred in gaining or producing the assessable income. It is not necessary to match the loss or outgoing with the income earned in the same income year - at least where a continuing business is involved. • Expense may be relevant to the income of: – An earlier income year; or – A later income year; or – Be relevant to the reduction of future expenses
  11. 11. Timing- Amalgamated Zinc (de Bavay’s) v FCT • A mining company discontinued its business but remained liable to make annual worker's compensation payments. After it discontinued its business it derived its income solely from investments. • Held - not deductible. Complete cessation of income producing operations out of which the necessity to make the outgoing arose - there was no longer a nexus between the outgoing and the earning of assessable income. The taxpayer continued to make worker's compensation payments as a result of its liability under the relevant legislation and not because they could produce income.
  12. 12. AGC (Advances) Ltd v FCT • Concerned the deductibility of an interest expense and bad debts. ATO argued that those expenses not deductible on the basis of De Bavay’s case. • If there is a break in the carrying on of the business that produced the assessable income then the nature of the business that has recommenced must be substantially the same as that carried on in earlier period of time. • Losses can be claimed as a deduction without the company actively carrying on the same business
  13. 13. AGC (Advances) Ltd v FCT • It was suggested that Amalgamated Zinc might have been wrongly decided. It was stated that the liability to make the workers’ compensation payments was a liability incurred in the gaining of assessable income - on a construction of the section which allowed as deductions expenditures which related to the gaining of assessable income “generally”, the obligation to make the payments was a business liability which sprang out of the carrying on of the business which had yielded assessable income.
  14. 14. Placer Pacific Management Pty Ltd v FCT • The taxpayer, a manufacturer of conveyor belts installed a conveyor belt for NWCC. In July 1981 it sold its business. In August 1981 NWCC sued the taxpayer claiming that the conveyor belt was defective. In 1989 the taxpayer settled the action by paying NWCC $325,000 and claimed the amount as a deduction in the year of income ending 1989.
  15. 15. Placer Pacific Management Pty Ltd v FCT • Held - deductible - followed AGC. • Provided that the cause of the business outgoing is found in the business operations directed towards the gaining or producing assessable income generally – • the fact that the outgoing was incurred in a year later than the year in which the income was incurred; and • the fact that in the meantime the business may have ceased will not deny deductibility.
  16. 16. FCT v Jones • Wife continued to make loan payments on a loan taken out for a business. The husband dies and the business was sold. • Full Bench of the Federal Court held still deductible even though the business had ceased to operate. The taxpayer had no alternative but to keep paying the loan. Working as a nurse.
  17. 17. Expenditure to produce future income • In a continuing business, it is not the practice to inquire into the exact time that it is hoped that expense will affect the production of assessable income. Expenditure upon raw materials, repairs to plant, advertising - designed to produce results in future year - deductible. • Continuity requires that the expense should be attributable to the year against which it is actually defrayed.
  18. 18. Expenditure to reduce future expenses - W. Nevill and Co v FCT • Money was paid to persuade one of the joint managing directors of the company to resign, as the joint managing directorship had proved unsatisfactory. Held - deductible - the purpose of the expense was to: • Reduce salary costs, and to • End joint control and so increase efficiency of the company and to increase its income producing capacity. Not a capital expense - • No capital asset was acquired by the expense • It did not affect the structure of the business (page 737)
  19. 19. Expenditure related to income of a previous year • Continuing business - deductible in a later assessment year: • Example - exchange loss - • An exchange loss is the difference between • an amount paid in a later year and • the estimated amount debited in an earlier profit and loss account - deductible • What if a business person declines to pay debts incurred in a previous income year? • Creditors may not be prepared to continue supplying stock or may take steps to wind up the taxpayer's business
  20. 20. Losses and outgoings "to the extent" incurred in gaining or producing assessable income • It may be necessary to apportion an expense between the income earning and non- income activities. Steele v FCT • Mrs. Steele purchased land on which to build a motel. Money was borrowed to pay for the land and the interest expense was claimed as a deduction.
  21. 21. Steele v FCT • The motel was not built on the land and the land was used to agist horses. • Held - the expense was deductible because the loan was taken out to acquire a capital asset that was to be used for income producing purposes. The fact that the expected income was not generated did not preclude deductibility. Not necessary to match the expense with the assessable income.
  22. 22. Loss or outgoing must be "incurred" • An expense may be incurred even if not yet paid. Incurred - does not mean paid, defrayed, discharged. An expense is incurred when the taxpayer is committed, or completely subjected to the expense. The expense must be more than impending, threatened or expected. • For example - a taxpayer uses electricity to run a factory. The taxpayer incurs an expense not when the electricity is used, but prior to payment when the electricity authority renders a bill. It is only at that moment that the taxpayer is completely subjected to the expense. Until then the electrical authority cannot sue for the debt.
  23. 23. FCT v James Flood P/L • Under an industrial award an employee only became entitled to receive holiday pay after 12 months continuous service, until then - the employee was not entitled to anything and even then could lose the entitlement to holiday pay - through unauthorized strikes, unauthorized absenteeism, death. • At the end of the income year a number of employees had completed less than 12 months continuous service but it was obvious that many employees would be become entitled during the next income year. The taxpayer calculated the proportional amount to which each employee was entitled as at the end of the income year and claimed a deduction.
  24. 24. FCT v James Flood P/L • Held - not deductible - the liability was not yet incurred. The employee might fail to become entitled to annual leave for a number of reasons. The taxpayer simply faced a possibility that it might have to incur a loss or outgoing in the future - the taxpayer was not yet completely subjected to the expense.
  25. 25. Nilsen Development Laboratories P/L v FCT • The taxpayer's employees were entitled to long service leave and holiday leave - some employees had completed the required service period. They were entitled to payment for long service leave pay and holiday pay - "when" they took leave - none had actually taken leave or been paid - the taxpayer claimed a deduction in respect of provisions in its accounts representing estimates of leave entitlements incurred at the end of the income year.
  26. 26. Nilsen Development Laboratories P/L v FCT • Held - not deductible. Liability arises once the triggering event has occurred, at the point in time when the employee has: • (1) served the required period and • (2) upon the occurrence of an event, that is - going on leave, termination of employment, death, etc. • Until then - no presently existing liability had been created. The commercial propriety of making provision for an accruing liability has little bearing on whether there is a loss or outgoing under section 8-1(1) (formerly s51(1))
  27. 27. Section 26-10, ITAA 97 • Section 26-10 confirms that a deduction for leave (LSL, annual leave, sick leave) may only be claimed in the year paid
  28. 28. Provisions • Provisions such as in respect of bad debts, etc, are not allowable deductions. Provisions are usually merely book entries in respect of anticipated or possible future loss contingencies. At the point of time of making the provision, it is not yet possible to say that a loss or outgoing has been "incurred," as the relevant "triggering" event has not yet occurred. However, insurance companies incur liabilities at the time that certain events occur (for example, motor accidents) but which in fact the insurance company may not become aware of until some time later.
  29. 29. Provisions - continued • It has been necessary for such companies to make some estimate of such liability usually by reference to historical experience.
  30. 30. RACV Insurances P/L v FCT • The taxpayer set aside amounts to cover unreported 3rd. party claims - These were estimates of the amount of claims arising out of accidents occurring before the end of the income year but not yet reported. • Held – deductible. Unlike Flood's case - there was no real question of the absolute liability of the insured as the 3rd. party might lose their entitlement. In this case the only question was the estimation of damages.
  31. 31. RACV Insurances P/L v FCT - Continued • The fact that the amount is estimated and that it may have to be adjusted in light of later events does not bar the deduction. Once the event had occurred (the accident) out of which absolute liability arose, section 8-1(1) applied, which was not dependant on notice of the claim.
  32. 32. Commercial Union Assurance v FCT • Same facts as RACV case except that its accident policies contained a clause stating that if the insured failed to give notice to the insurer of the event within the specified time, the insurer would be technically able to avoid the policy. But it was the established policy and practice never to refuse to pay merely because the time limit had not been observed.
  33. 33. Commercial Union Assurance v FCT • Held - deductible. The taxpayer was definitely committed to the expense. As a matter of business expediency and commercial certainty (though not as in RACV, legal certainty), the taxpayer's obligation to pay was not subject to any contingency and had therefore completely subjected itself to the payments. Although the taxpayer's eventual liability could not be quantified exactly, it was sufficient if a reasonable estimate could be made. Furthermore, increases in the initial estimate were deductible since the increase in the estimate constitutes a new loss or outgoing which is incurred for the first time in the year when the revised estimate is made presumably in the subsequent income year.
  34. 34. Provisions – Insurance • In both James Flood and Nilsen Developments, the actual provision for holiday pay and long service leave would only be an estimate made at current rates whereas the amount to be paid is always at the rate of pay the employee is receiving at the time the employee takes leave which may occur many years later. • The RACV and Commercial Union cases were both concerned with accident insurance companies that had long had a practice of providing annual reserves in respect of current risks. It appears that while their principles are not limited to insurance contexts, the commissioner may not accept that these principles apply in other contexts.
  35. 35. Second Limb-s. 8-1(1)(b) - Business deductions • The deduction of a loss or outgoing necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The two limbs overlap to a considerable extent but the 2nd. Limb is confined to circumstances where a business is carried on. It has been said that the 2nd. Limb in actual working adds little in operation to the 1st. limb, which would appear to apply to both business and non-business circumstances.
  36. 36. FCT v Snowden and Willson P/L • The taxpayer, a speculative builder, incurred expenses attempting to counter by means of advertisements in the press attacks made upon the conduct of its business in Parliament and in legal costs appearing before a Royal Commission to inquire into the charges. • Held - deductible under 2nd. Limb and perhaps 1st. limb - The expense was necessarily incurred because the nature of the business demanded that it be incurred. The expression "necessarily" in section 8-1(1)(b) does not mean that an expense is compulsory or unavoidable.
  37. 37. FCT v Snowden and Willson P/L • The word “necessarily” does not require legal or logical necessity. It is sufficient if the expense is appropriate, adapted for or dictated by business ends or commercial necessity - that is, the expense is based on reasonable commercial judgment. • A speculative builder inevitably confronts the possibility of attacks upon its trading character. • Therefore, it was commercially necessary to expend such amounts.
  38. 38. Negative Limbs - Section 8-1(2)(a) • Losses or outgoings of a "capital nature" • Even if a loss or outgoing satisfies either limb of section 8-1(1), it is not deductible to the extent to which the expense is of a capital nature. Note that this assumes that a loss or outgoing incurred in gaining/producing the assessable income (1st. limb), or necessarily incurred in carrying on a business for that purpose (2nd. limb) may still be of a capital nature. • One judge has cynically stated in relation to numerous borderline situations, that in many cases it is almost true to say that a spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons.
  39. 39. Tests for distinguishing between revenue and capital - (1) Once and for all test • Vallambrosa Rubber Co Ltd v FCT • The taxpayer cultivated and sold rubber, claimed deductions for annual weeding and superintending immature trees. • Held - deductible. Capital - "tends" to be spent once and for all. Revenue - tends to recur every year, refers to continuous demand. Not a conclusive test - a once and for all payment may be of a revenue nature - For example - a gratuity paid by employer to employee upon retirement or payment to get rid of a director to facilitate the general running of the business.
  40. 40. (2) The enduring benefit test • If an expense creates an advantage of enduring benefit it is generally capital but test this is not decisive. It means that an asset or right acquired must have enough durability to justify its being treated as a capital asset. • Commissioner of Taxes v Nchanga Consolidated Copper Ltd. • 3 companies independently carried on copper mining but had overlapping directorates/ common sales departments. The world copper price fell by 10%.
  41. 41. Commissioner of Taxes v Nchanga Consolidated Copper Ltd. • The 3 companies agreed that: • (1) B company would cease production for 1 year; • (2) A and C companies would produce the amount of copper that the 3 companies had formerly produced less 10%; and • (3) A and C companies would pay B company compensation. • C company claimed that compensation paid was deductible.
  42. 42. Commissioner of Taxes v Nchanga Consolidated Copper Ltd. • Held – deductible. The expense was not incurred for the acquisition of a business or for the benefit of a long term or enduring contract. The sole right acquired was to have B Company out of production for 1 year. It was not an accretion to capital or the profit-earning structure, but an incidental cost to the production and sale of copper - an operating cost.
  43. 43. (3) Business entity test Sun Newspapers Ltd & Assoc. Newspapers Ltd v FCT Taxpayer published the Sun Newspaper in Sydney. It became aware that a rival company intended to introduce a new paper and to sell it more cheaply than The Sun. It agreed to pay the rival company a large sum money by installments in return for the rival company undertaking not to produce a newspaper in Sydney for 3 years. • Held - capital expense.
  44. 44. Sun Newspapers Ltd & Assoc. Newspapers Ltd v FCT • On both the “once and for all” test and the “enduring benefit test” the expense bore the hallmarks of a capital expense: • the expense was of a non-recurring nature, • The expense was incurred for the purpose of securing freedom from threatened competition and the resultant continuing benefit to taxpayer's business.
  45. 45. Sun Newspapers Ltd & Assoc. Newspapers Ltd v FCT • Business entity test - • The difference between expenditure and outgoings on the revenue account and on capital account corresponds with the difference between the.... – "business entity, structure or organization set up for the earning of profit", and the.... – “the process by which such an organization operates to obtain regular returns by means of regular outlays”, per Dixon J (p 359, CLR)
  46. 46. Business entity test – Sun Newspapers case • Profit yielding structure - On the one hand, in a trade or pursuit where little or no plant is required, the business structure may be represented by nothing more than the intangible element of goodwill. • On the other hand, the business structure may consist of the great aggregate of buildings, machinery, plant and intangible elements - restraint of trade agreements, etc.
  47. 47. Business entity test – Sun Newspapers case • Under the Business entity test the court held - the expense was of capital nature. The purchase of the restraint of trade was an addition to the newspaper's business or profit-yielding structure rather than a regular outlay for the purpose of yielding a regular return.
  48. 48. Business entity test – Sun Newspapers case • Dixon J established 3 tests to be considered: – 1. The character of the advantage sought, and in this its lasting qualities may play a part – 2. The manner in which it is to be used, relied upon or enjoyed….recurrence may play its part – 3. The means adopted to attain 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 (page 766)
  49. 49. Hallstrom Pty Ltd v FCT • The taxpayer wished to manufacture improved refrigerators based on a patent owned by Electrolux, which was about to expire. Electrolux applied for a 10-year extension of their patent. Hallstroms incurred legal costs in successfully opposing the Electrolux application which meant that the Electrolux process became generally available for exploitation. The taxpayer sought a deduction
  50. 50. Hallstrom Pty Ltd v FCT • Majority held - deductible. The expense was not made to acquire an asset (enduring benefit test) or to add to the profit-yielding structure, but to enable them to carry on the same business unfettered by a particular difficulty - Electrolux’s patent. When Electrolux's patent expired, Hallstroms had the same right as every other person to manufacture refrigerators based upon the patent - a right enjoyed in common with all persons is not a capital asset of any single person - it did not acquire an asset.
  51. 51. Hallstrom Pty Ltd v FCT • Minority held - although no enduring asset - capital - not deductible. Applying the business entity test, saw the purpose of the expense as being to enable Hallstroms to complete and carry into effect its plans to re-organize its manufacturing and selling business for the production and sale of an entirely different refrigerator. The expense was directed to ensuring that there should be no renewal of the restriction which would prevent the re- organization occurring - this went to the character and organization of the profit-earning business as the expenditure had a special and lasting importance to the taxpayer’s profit-earning business and was not an incident in the operations by which it carried on.
  52. 52. John Fairfax and Son Pty Ltd v FCT • F and C companies had been rivals in an attempt to gain control of A company. F company expended legal costs in defending the issue of shares to it which enabled it to gain control of A company. • Held - capital expense. Expenses incurred to acquire a new asset - the shares and control of A company - were concerned with the structure of the profit-earning enterprise of F company.
  53. 53. Negative Limbs - Section 8-1(2)(b) Losses or outgoings of a ‘private or domestic nature’ • Not deductible though to some extent it is arguable that they satisfy the primary requirement of section 8-1(1) in that they are incurred as a prerequisite to the earning of assessable income - but the expense - • (1) has insufficient nexus to the earning of assessable income, and • (2) is inherently of a private or domestic nature.
  54. 54. Private or domestic - Traveling to work expenses • Generally seen as a private expense, a living expense - a cost of not living at or near work. Although traveling to work is a prerequisite to earning assessable income, the expense of doing so is not necessarily incurred in the course of gaining or producing assessable income. • FCT v Payne – travel between two places of employment. Qantas pilot and farmer. No deduction. However, Government introduced s 25-100 which allows the deduction for travelling expenses between two places of employment provided no break.
  55. 55. Home office expenses - Swinford v FCT • Self employed script writer working from home. Separate room to do the writing in except for a wardrobe in the room. She claimed deduction in respect of rent in the proportion to which the room represented part of the house. • Held, deductible, no alternative place to work, distinguished Handley and Forsyth cases. • ATO – TR 93/30 and Practice statement PS 2001/6
  56. 56. Private or domestic - Handley v FCT • Held - not deductible - a private or domestic expense. The home was not his business premises; it was not his work base. The essential character of the expense was domestic; the study remained an integral part of the whole house despite its predominant professional use. The study was not distinctive, and it was not physically exclusive. It was capable of domestic use and was in fact used domestically. The taxpayer found it convenient to work at home, but was not compelled to do so. He used the home study mainly for research and reading. He did not require a secretary and rarely saw clients at home.
  57. 57. Overseas and education expenses • Expenses incurred in keeping up to date or to better enable oneself to discharge one's existing duties or to earn one's present income may be deductible. Costs incurred in gaining an initial or other qualification by a person not at the time engaged in any occupation or employment, or not occupied or employed in an area which makes that course of study necessary or desirable, would seem to be non- deductible because there would not be the relevant connection (sufficient connection) with the income-earning activity. No deduction is allowable for self-education expenses where the course of study is designed to enable the taxpayer to obtain employment or to obtain new employment,
  58. 58. Overseas and education expenses • For example - the costs of an MBA course was not deductible for a mining engineer who had been retrenched. FCT v Highfield • A dentist in general practice that performed some periodontal work wished to specialize in that field so he spent 1 year in UK doing a post-graduate degree. He successfully claimed as deductions the cost of airfares, university fees and meals and accommodation.
  59. 59. FCT v Highfield • The success of his claim resulted from the acceptance of his evidence that he had undertaken the specialist degree so that he could expand that aspect of his work in his general practice - as distinct from actually becoming a specialist periodontist. The acquisition of the additional knowledge would enable him to charge higher fees in his general practice. Furthermore, the taxpayer was treated as still carrying on business as a general practitioner even though he had leased his business to another dentist while he was away.
  60. 60. Clothing and Employment • FCT v Edwards – cost of clothing deductible. Secretary to the wife of the governor of QLD. • Needed an extensive range of clothing for the position. Conventional clothing and not a special uniform. • Division 34, ITAA 97 – deductibility of uniforms with registered design
  61. 61. Madad v FCT • Taxpayer company incurred a penalty for breach of the Trade Practices Act. • Wanted to claim a deduction, Held no. • Fines and penalties not deductible on public policy grounds. • Section 26-5, ITAA 97 introduced to deny a deduction for fines and penalties.
  62. 62. Section 8-1(2)(c) – exempt income or NANE • If income is not assessable, then cannot deduct losses or outgoings incurred in earning that income. • Example: part-time military service – exempt income. The cost of travel or uniform expenses not deductible. Dividends from shares in a Pooled Development Fund – not assessable. Cannot claim interest expense incurred in buying the shares as a deduction • GST input tax credit – amount not deductible
  63. 63. Specific non-deductions - section 8- 1(2)(d) • A loss or outgoing cannot be deducted if a provision of the Act prevents its deduction. • Section 26-10 - cannot claim a deduction for LSL, annual leave, sick leave, etc, unless paid (rather than incurred). • Section 26-5 provides that no deduction is allowable for an amount payable by way of penalty under a law. Before its introduction, it was clear that such outgoings were not deductible on the basis, that they were grounded in public policy considerations that a penalty is imposed as a punishment.
  64. 64. Examples • Section 26-45 - social or sporting club membership expenses are non-deductible regardless of the business use made of the club by the member. • Division 32 - entertainment is non-deductible although there are a number of exceptions: – In-house dining facilities, – The expenses of a taxpayer whose business is providing entertainment, – Eligible seminars, – Entertainment for the purpose of advertising or promotion, – Where entertainment is provided to an employee as a fringe benefit.
  65. 65. Examples • Section 26-30 - the cost of accompanying spouses on business trips is not deductible. These non- deductible benefits become deductible where provided to an employee and qualify as fringe benefits under the FBTAA. Such expenses will remain non-deductible where provided by a taxpayer on his or her own behalf.
  66. 66. Examples - continued • As a consequence of division 32, a self-employed person cannot claim a section 8-1(1) deduction for the cost of his or her entertainment nor that of a guest even if the entertainment expense was genuinely for the purpose of earning income such as dining and entertaining an overseas business associate for the purpose of securing a valuable contract unless the entertainment comes within one of the in-house exceptions to division 32
  67. 67.