Edited version of your written advice

Authorisation number: 1051204098221

Date of advice: 26 April 2017

Ruling

Subject: Deductibility of function expenses

Question 1

Will the expenses associated with attending a function, specifically the cost of admission, travel and overnight accommodation, be tax deductible under section 8-1 of the Income Tax Assessment Act 1997 (“the Act”)?

Answer

No.

Question 2

Will the cost of purchasing and cleaning official uniform of a department (the “Department”) be tax deductible under section 8-1 of the Act?

Answer

Yes.

This ruling applies for the following period:

1 January 2017 to 31 December 2017

The scheme commences on:

1 January 2017

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Department is planning to hold a function for its employees.

The function will be held at an off-site location, and will formally commence after official Department working hours.

A three course meal is expected to be provided to all attendees.

Formal protocols and procedures will be strictly followed throughout the function, and many high ranking officials of the Department will be in attendance.

The function will also provide Department employees with an opportunity to network with other Department members.

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.

Reasons for decision

Question 1

Will the expenses associated with attending a function, specifically the cost of admission, travel and overnight accommodation, be tax deductible under section 8-1 of the Act?

Summary

No. As the expenses will relate to the “provision of entertainment”, they will be specifically excluded from deductibility under section 8-1 by the operation of section 32-5 of the Act.

Detailed reasoning

General deductions

Section 8-1 of the Act allows a deduction for expenses incurred in earning or producing assessable income. However, you cannot deduct an expense under section 8-1 if it is capital, private or domestic in nature, or where a provision of the Act specifically prevents you from deducting it.

Importantly for your purposes, section 32-5 of the Act provides that expenses incurred “in respect of providing entertainment” cannot be deducted under section 8-1 of the Act. Therefore, if the cost of the admission ticket, travel and overnight accommodation are found to be costs incurred in 'providing entertainment’, they will not be deductible under the Act.

Provision of entertainment

The term 'entertainment’ is defined under section 32-10 of the Act as:

(a) entertainment by way of food, drink or recreation; or

(b) accommodation or travel to do with providing entertainment by way of food, drink or recreation

Under section 32-10(2) of the Act, you are still taken to 'provide entertainment’ even if business discussions or transactions occur. Examples of what will constitute entertainment under the Act include business lunches and social functions.

Importantly, in determining whether or not the provision of food or drink will be considered entertainment under the Act, an objective analysis of your circumstances is required.

Factors that are considered in making this determination include:

a) Why the food or drink is being provided

Food or drink provided for the purposes of refreshment will not generally have the character of entertainment, whereas food or drink provided in a social situation has the character of entertainment;

b) What food or drink is being provided

Light meals and refreshments are generally not considered entertainment; whereas a three-course meal provided to an employee is likely to constitute entertainment;

c) When the food or drink is being provided

Food or drink provided during work hours is less likely to have the character of entertainment; whereas food or drink provided outside official work hours; and

d) Where the food or drink is being provided

Food or drink provided on the employer’s business premises is less likely to have the character of entertainment; whereas food or drink provided in a function room, hotel, restaurant or café is more likely to have the character of entertainment.

Applying the above criterion to your case, the food or drink for your function is expected to be provided in a social setting in the context of a formal function for Department employees, rather than for the purposes of light refreshment. The function will also be held in a private venue outside normal working hours, rather than on the employer’s premises during work hours. Furthermore, attendees of the function will be provided a three-course meal, as opposed to light meals or refreshments.

Therefore, when your circumstances are examined objectively, it is clear that the provision of food or drink at your proposed function will be considered entertainment under section 32-10 of the Act. As such, you will not be able to claim a deduction for either the cost of the admission ticket, the cost of accommodation, or the cost of travel, as all of these expenses will be excluded from deductibility under section 32-5 of the Act.

This conclusion will stand, regardless of whether or not business discussions or networking activities also occur at the function.

Question 2

Will the cost of purchasing and cleaning official Department uniform be tax deductible under section 8-1 of the Act?

Summary

Yes. The cost of purchasing official Department uniform will be deductible under section 8-1 as it will fall under the category of occupation specific clothing. The cost of cleaning the uniform will also therefore be deductible.

Detailed reasoning

Cost of uniform

The cost of buying, renting, laundering and dry cleaning clothing are generally private in nature and therefore not deductible under section 8-1. However, expenditure on clothing, uniforms and footwear may be deductible if there is a sufficient connection between the clothing and the taxpayer’s income-producing activities, such that its essential character is work-related rather than private.

Relevantly for your case, a deduction under section 8-1 of the Act will be allowable for the cost of purchasing Department uniform if it falls under the category of occupation specific clothing. Occupation specific clothing is defined under section 34-20 as clothing that distinctly identifies you as belonging to a particular profession, trade, vocation, occupation or calling. This distinctive nature provides the necessary connection between the expenditure and the income earning activities.

In your case, the Department uniform distinctively identifies employees as members of the Department. Therefore, this will provide the necessary connection between the expenditure on the uniform and the income earning activities of Department employees, such that the expenses will be deductible under section 8-1 of Act.

Laundry expenses

A deduction for laundry expenses is allowable if an expense:

(a) Is incurred;

(b) Meets the deductibility tests;

(c) Satisfies the substantiation rules which apply to employees; and

(d) Is not excluded from deductibility under section 51AH of the ITAA 1936 or s 34-10(2) of the ITAA 1997

Further, a deduction is only allowable for the cost of washing, drying or ironing clothes that fall into the following categories:

(a) Compulsory uniform

(b) Non-compulsory uniform

(c) Occupation specific clothing; or

(d) Protective clothing

In your case, the first element will be satisfied so long as the laundry expense is actually incurred– i.e. if you have spent the money, or paid by cheque or credit card. Moreover, given it has already been established that the uniform will fall under the category of occupation specific clothing; the second element will also be satisfied.

In regards to substantiation, subdivision 900-B of the Act requires written evidence to be kept where the total amount of laundry expense incurred in the income year exceeds $150.

Therefore, as none of the fourth element exclusions apply to your in your case, you will be able to claim a deduction for the cost of cleaning Department uniform, as it will fall under the category of occupation specific clothing. Further, so long as the expenses incurred do not exceed $150 for the income year, no substantiation will be required.

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