Question

Michael is the owner of several successful bars and restaurants in central Melbourne. Recently, Michael was invited to make a guest appearance on a new hit television show about small business success stories. For his efforts, Michael received a one-off payment of $15,000. Michael feels he should be allowed to exclude this payment from his usual business income.

Required

Do you agree with Michael’s conclusion?

Students must give reasons for their answer. This discussion must include an analysis of the pertinent sections of the relevant legislation, rulings, and the relevant case law. If relevant, students must show calculations.

NOTE: It references to Australian Taxation law, please provide the reasons with their supportive sections number as well.

Answer 1

Business Promotion Expenses

A promotional expense is a enpense for the compapnies which incure to market their product and service to the consumer , promotion expense relates to business concern in order to boast sale and revenue , company can write these cost off to the internal revenue service (IRS) as tax deductable business expense.

A promotion expense in which company's engaged in promotion of their product or services directly or indirectly to boast revenue from the business .

Promotion expense are deducted from revenue on income statement , these expenses are tax deductable and can be written off on a company's tax return.

Every kind of company runs up business expense , whether small or large.

Business expense are any cost to the company incurred as a result of their regular day to day operation. These expense are deducted from a company's revenue on income statement , the resulting figure is the entity's taxable net income .

Comapany's spend on promotion expense in order to promote the market for their goods or services to general public , some comapany's adopt various methods like giveaway or offering people free sample of their goods.

In some cases , anew product is launched for that company spend more on the promotion of the product or services.

The IRS consider promotion expense to be tax deductable as business expense provided , they are ordinary and necessary , when writing off promotion expense on tax return, company should take care to ensure that these expense would not more accurately be classified as advertising expense or charitable contribution.

Company's cannot write off the actual market value of the goods or services given away, instead its the cost of promotion that must be writtten off.

It is important to note that in order to write off promotion expense, company's may only deduct the cost associated with the promotion of gppds and services. not their market value

There is difference between promotion expense and advertising expense

The general rule of thumb is that advertising is a form of paid didtribution of a controlled marketing strategy. This realted to add in print , online , broadcast and direct mail .

But promotion expense more relates to generic, non message things like brand awareness , cost for promotion and advertising must be divided correctly and accounted seprately.