1 Are the expenses incurred in drinks and/or light meals deductible expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. Issue 2 - GST Question 1 Are the expenses incurred in drinks and/or light meals creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Answer No. This ruling applies for the following period : Year ending XX June 20XX The scheme commenced on: 20 July 2024
You operate a business. You meet clients at cafes and restaurants. Your business premises is at your home or in a hot-desk office. These premises are not suitable for meetings. You meet clients at restaurants and cafés. Your clients generally use public transport so meeting in the city is convenient. You incur expenses at these meetings in relation to food and drink. The food and drink consumed are light meals and drinks. You do not consume alcohol at these meetings. The expenses you incur at the meetings are on average between $XX and $XX. The meetings occur during work hours. On average each meeting takes X to X hours.
Income Tax Assessment Act 1997 Section 8-1 Income Tax Assessment Act 1997 Section 32-10 A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 A New Tax System (Goods and Services Tax) Act 1999 Section 11-10 A New Tax System (Goods and Services Tax) Act 1999 Section 11-15 A New Tax System (Goods and Services Tax) Act 1999 Section 11-20 A New Tax System (Goods and Services Tax) Act 1999 Section 69-5
Issue 1 - Income Tax Question 1 Are the expenses incurred in drinks and/or light meals deductible expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary No, the expenses incurred in providing light meals and drinks constitutes meal entertainment and it not an allowable deduction. Detailed reasoning Section 8-1 of the ITAA 1997 allows a deduction for all expenses to the extent they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature or relate to earning of exempt income or a provision prevents you from deducting it. However, Subdivision 32-A of the ITAA 1997 specifically prohibits the deduction of entertainment expenses, except for some specific exceptions outlined in Subdivision 32-B of the ITAA 1997. The exceptions in subdivision 32-B are: • Fringe benefits • Certain employer expenses • Seminar expenses • Entertainment industry expenses • Promotion and advertising expenses, and
• Certain other expenses, specifically food and drink where an overtime allowance is paid and providing entertainment to disadvantaged members of the public. Section 32-10 of the ITAA 1997 includes entertainment by way or food, drink, or recreation even if business discussions or transactions occur. Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) provides an objective analysis is required in all circumstances surrounding the provision of food or drink to determine when the provision of food or drink to a recipient results in the entertainment of that person. In making this determination the following should be considered: Why the food or drink is being provided; What type of food or drink is being provided; When that food or drink is being provided; and Where the food or drink is being provided. Food or drink which is determined by these criteria to constitute entertainment is taken to be 'meal entertainment'.
Paragraph 18 of TR 97/17 states that the mere provision of food or drink satisfies the 'entertainment' test and there is only a narrow category of cases were the provision of food or drink does not amount to 'entertainment' for the purposes of Division 32 of the ITAA 1997. Taxation Ruling IT 2675 Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities provides that the provision of morning or afternoon tea to employees (and associates of employees) on a working day, on the business or taxpayer's premises is not entertainment. The following factors as outlined in TR 97/17 have been considered as your circumstances do not fall within any of the specific exceptions outlined in subdivision 32-B of the ITAA 1997. Why the food and/or drink is provided? The food and drink are provided in a social situation to facilitate business discussion. What type of food and/or drink is provided? The items consumed are light meals and drinks. No alcohol is provided at these meetings. When is the food and/or drink provided? The business meetings occur during work hours. Where is the food and/or drink provided?
The food and drink are provided at cafes and restaurants. It is the setting in which the food or drink is provided that turns the provision into entertainment. Whilst the food and drink may not provide entertainment in itself, it is being provided in a social situation at cafes and restaurants. Despite business discussions taking place, the food and drink in your case is consumed off premises, which characterises it into meal entertainment. The fact that you deem your business premises unsuitable for meetings does not change the fact that it is meal entertainment. Furthermore, at (b)(1) in the table at paragraph 25 of TR 97/17 shows that circumstances where food or drink is consumed off the employer's premises by clients constitutes the provision of meal entertainment. You don't meet any of the exceptions under 32-B. The expenses incurred in providing light meals and drinks constitutes meal entertainment and is not an allowable deduction under section 8-1 of the ITAA 1997. Issue 2 - GST Question 1 Are the expenses incurred in drinks and/or light meals creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Summary
No GST input tax credits can be claimed on these expenses for food or drink. Under section 69-5 of the GST Act, an entity is not entitled to claim input tax credits for the GST in certain expenses that are non-deductible for income tax purposes. These expenses include entertainment expenses that are non-deductible under Division 32 of the ITAA 1997. Detailed reasoning Section 11-20 of the GST Act states that an entity that makes a creditable acquisition is entitled to the input tax credit for that acquisition. Creditable acquisitions Under section 11-5 of the GST Act, you generally make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered or required to be registered. Creditable purpose Section 11-15 of the GST Act provides that an entity makes an acquisition for a creditable purpose to the extent that it is acquired in carrying on an enterprise and does not relate to supplies that are input taxed (e.g. residential premises and financial supplies). Non-deductible expenses
However, subsection 69-5 of the GST Act provides that an entity is not entitled to claim input tax credits for GST if certain expenses are non-deductible under Division 32 of the ITAA 1997. Non-deductible expenses are defined in subsection 69-5(3) and 69-5(3A) and include entertainment expenses. In your case, the expenses incurred in providing food and drinks constitute meal entertainment and are therefore non-deductible expenses. As such, they do not give rise to creditable acquisitions under paragraph 69-5(3)(f) of the GST Act, and any input tax credits incurred for acquisitions related to providing entertainment to clients will be disallowed. Subsection 69-5(5) provides that this section has effect despite section 11-5 discussed above. Consequently, you are not entitled to the input tax credit on the cost of food or drink for these business meetings with clients at cafés or restaurants under section 11-20 of the GST Act.