Amway junkets paid by taxman

The Sydney Morning Herald/December 22, 2003
By Anne Lampe

Multi-level marketing and distributor recruiting group Amway of Australia has had a partial win against the Tax Office with a Federal Court ruling that it is entitled to claim a large part of its offshore seminar expenses in exotic locations.

However, Justice Roger Gyles has ruled that substantial food and drink bills associated with the seminars were not deductible and that the Tax Commissioner was right to deny them in Amway's tax return.

The decision involving Amway's claims for expenses incurred in conducting seminars known as the Australian Leadership Seminars between 1989 and 1996 and other seminars known as the Go Diamond in 1995 and 1996 clarify exactly what is and what is not allowed to be claimed when companies take customers and leading distributors to seminars and pay fully for the costs.

What has emerged from the decision, which followed the Tax Office challenging deductions claimed for the entire seminar expenses on the grounds that they were associated with the provision of entertainment, is that air fares and accommodation appear to be allowable deductions for seminars - in Amway's case held annually in locations including Bangkok, Las Vegas, Hamilton Island, Alice Springs and Hawaii - but meals and drinks consumed by the delegates are not.

Freight, stationery and meeting room expenses were also fully deductible.

In costings given to the court for the 1993 Bangkok seminar, costing a total of $1.4 million, or an average of $2594 per head, meals accounted for just under one third of the total cost.

The court heard from a number of attendees as to how they spent their time at these locations and what they learnt.

Justice Gyles noted that the locations at which the seminars were held were indeed desirable and the surroundings had "something of a holiday atmosphere". Usually the seminars lasted for five days.

Justice Gyles noted that the impact of section 51 of the Income Assessment Act was to "impose a blanket ban on entertainment as defined" and although Amway submitted that that prohibition did not extend to food or drink, he rejected that submission.

Justice Gyles ruled that the seminars were not a social event or entertainment with some token business tacked on at the end.

"The fares and accommodation were expended to bring distributors to a business seminar, not in order to provide the participants with food, drink and recreation. I therefore conclude that the travel and accommodation provided to distributors to attend . . . was not in connection with, or for the purpose of facilitating the entertainment provided by way of food and drink and recreation . . . The expense of doing so therefore is deductible pursuant to s.51."