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Ruling

Subject: The deductibility of meal expenses

Question

Is the company entitled to a deduction for the costs incurred for meals during consultations with clients?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The company provides various services during consultations.

The company specialises in the hospitality sector.

The company takes clients to various cafes, bars and restaurants for consultations.

The client is charged for the consultation and currently the client's meals are paid for by a director of the company.

In the future the company intends to pay for the client's meals.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1,

Income Tax Assessment Act 1997 section 32-5, and

Income Tax Assessment Act 1997 section 32-10(2).

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, relate to the earning of exempt income or are excluded by another provision of the taxation legislation.

Section 32-5 of the ITAA 1997 does not allow a deduction under section 8-1 of the ITAA 1997 to the extent that a loss or outgoing is incurred in respect of providing entertainment.

Subsection 32-10(2) of the ITAA 1997 provides examples of what is and what is not entertainment. Entertainment includes business lunches and social functions.

Taxation Ruling TR 97/17 discusses the Commissioner's view on entertainment by way of food or drink. Paragraph 18 of TR 97/17 states:

In most cases the mere provision of food or drink satisfies the entertainment test. It is only a narrow category of cases where the mere provision of food and drink does not amount to entertainment for the purposes of Division 32 of the ITAA 1997.

The food or drink may not provide entertainment in itself depending on the extent of the meal, but it is the setting in which it is consumed that turns the food or drink into the provision of entertainment. That is, entertainment is provided by way of food or drink, in a social situation at a café or restaurant, despite business discussions taking place.

Taxation Ruling IT 2675, states that refreshments provided at the employer's business premises will not be entertainment by way of food or drink. The difference in this case is that refreshments are consumed off the business premises, which characterises it into entertainment by way of food or drink.

Moreover, as per the table and addendum provided in TR 97/17 at (b)(1), food or drink consumed off the employer's premises, at a social function or business lunch, by clients, is meal entertainment by way of food or drink.

Application to your circumstances

In this case, the company holds consultations with clients at restaurants, bars and cafes. The clients are charged for the consultation and the company intends to pay for the meals they consume during the meeting. The company is considered to be providing entertainment to the clients by way of meals in a social setting under section 32-10 of the ITAA 1997. Accordingly, no deduction is allowable for the costs incurred for meals during client consultations.