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Edited version of private ruling
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Ruling
Subject: Meal expenses
Question
Are you entitled to a deduction for the lunch expenses you incur when you take your colleagues out for lunch?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You are a professional and work in a clinic with other colleagues.
As a favour to your work colleagues you have provided lunch in exchange for a higher referral rate.
You have incurred expenses in relation to these lunches.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 32-5.
Income Tax Assessment Act 1997 Section 32-10.
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, or relate to the earning of exempt income.
Division 32 of the ITAA 1997 overrides the general deduction section 8-1 of the ITAA 1997 with respect to entertainment. Section 32-5 of the ITAA 1997 provides that, to the extent that you incur a loss or outgoing in respect of providing entertainment, you cannot deduct it under section 8-1 of the ITAA 1997.
Subdivision 32-B of the ITAA 1997 contains exceptions to the general rule. An income tax deduction is allowed if one of the exceptions in Division 32 is satisfied or if FBT is paid on meal entertainment, as outlined in section 32-20 of the ITAA 1997. The exceptions relate mainly to providing food or drink to your employees in an in-house dining facility, but the exception does not apply if the food or drink is provided at a party, reception or other social function.
Section 32-10 of the ITAA 1997 provides the meaning of entertainment to include entertainment by way of food or drink. Business lunches and social functions are examples of what is entertainment. Subsection 32-10(2) of the ITAA 1997 states that you are taken to provide entertainment even if business discussions or transactions occur.
In your case the expenses you incurred were for providing lunch as a favour to your work colleagues. Although you state they were in exchange for a higher referral rate, these expenses meet the definition of entertainment expenses set out in section 32-10 of the ITAA 1997. Also, they do not fall within one of the exceptions contained in subdivision 32-B of the ITAA 1997. Therefore, these expenses are not deductible.