Edited version of your private ruling

Authorisation Number: 1012506759971

Ruling

Subject: Meal expenses

Issue 1

Question 1

Is the cost of lunches purchased by the taxpayer for himself, while he is working at locations outside of his business premises, deductible to the taxpayer under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Is the cost of lunches purchased by the taxpayer for their employees, while those employees are working at locations outside of the employer's business premises, deductible to the taxpayer under section 8-1 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Income tax year ended 30 June 2013

Income tax year ended 30 June 2014

The scheme commences on:

1 July 2012

Issue 2

Question 1

Is the provision of lunches by the taxpayer to their employees, while those employees are working at locations outside of the employer's business premises, property fringe benefits for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes

Question 2

If the answer to Question 3 is 'yes', are the taxable values of the property fringe benefits reduced to 'nil' under the 'otherwise deductible rule' contained in section 44 of the FBTAA 1986?

Answer

No

This ruling applies for the following periods:

FBT year ended 31 March 2013

FBT year ended 31 March 2014

The scheme commences on:

1 April 2012

Relevant facts and circumstances

The taxpayer is a sole trader

The taxpayer runs a business in a rural area

The taxpayer employees staff to assist with the principal work.

The taxpayer does not engage subcontractors.

The taxpayer and employees travel to jobsites daily in towns approximately x kms away from the business base.

There is no overnight stays involved by the taxpayer or any of the employees.

The taxpayer always accompanies the employees on jobs performed at worksites in towns approx x kms away from the employer's business base.

The taxpayer purchases lunch for themself whilst working at jobsites in towns approx x kms away from the employer's business base.

The taxpayer purchases lunch for their employees whilst they are working at jobsites in towns approx x kms away from the business base.

The taxpayer purchases lunch for their employees in above situation approx twice a week.

The food purchased is usually takeaway food

The food is consumed by the taxpayer and their employees on the job site.

The taxpayer and employees do not eat at cafes

The food is purchased by the taxpayer on one receipt

Receipts for the purchase of food are kept by the taxpayer.

The amount spent on lunch per person on average is $x

Relevant legislative provisions

Income tax Assessment Act 1997 Section 8-1

Income tax Assessment Act 1997 Section 32-5

Income tax Assessment Act 1936 Subsection 51

Fringe Benefits Tax Assessment Act 1986 Division 9A

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 41

Fringe Benefits Tax Assessment Act 1986 Section 44

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Issue 1

Question 1

Is the cost of lunches purchased by the taxpayer for himself, while he is working at locations outside of his business premises, deductible to the taxpayer under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Detailed reasoning

As a general rule, expenditure on meals and accommodation while away from home can not be deducted under section 8-1 of the ITAA 1997. Such outgoings are essentially "living expenses" of a private and domestic nature.

Section 8-1 General deductions:

" (1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income;

or

(b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your *exempt income or your *non- assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it.

(3) A loss or outgoing that you can deduct under this section is called a general deduction.

The Full Federal Court considered the deductibility of food costs in Cooper's case. In that case, a professional footballer had been instructed to consume large quantities of food during the off-season to ensure his weight was maintained. By majority, the Full Federal Court found that the cost of additional food to add to the weight of the taxpayer was not allowable. Hill J (FCR at 199-200; ATC at 4414; ATR at 1636):

'The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. Expenditure on food, even as here "additional food" does not form part of expenditure related to the income-producing activities of playing football or training.'

Hill J went on to say (FCR at 201; ATC at 4415; ATR at 1638):

'Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home.'

As per section 8-1 of the ITAA 1997, to claim a deduction, you must have made the purchase in the course of earning your assessable (taxable) income and it must not be a private, domestic or capital expense.

Private or domestic expenditure is considered to include costs of living such as food, drink and shelter.

Such expenditure does not have the essential character of an outgoing incurred in gaining your assessable income, even if there is a connection between that expenditure and your income earning activities.

The taxpayer incurs costs purchasing lunch for himself, this expenditure incurred by the taxpayer is considered to be of a private and domestic nature under section 8-1 of the ITAA 1997 and therefore non deductible to the taxpayer.

Question 2

Is the cost of lunches purchased by the taxpayer for his employees, while those employees are working at locations outside of the employer's business premises, deductible to the taxpayer under section 8-1 of the ITAA 1997?

Detailed reasoning

As advised above in Question 1 as per section 8-1 of the ITAA 1997, the taxpayer can deduct general outgoings incurred in relation to gaining their assessable income provided the expenses are not of a private or domestic nature.

The taxpayer incurs the costs of purchasing lunch for the employees when they are working at locations outside of the taxpayer's business premises. These expenses are incurred in the course of gaining their assessable income as a sole trader and therefore are considered to be business expenses. The costs incurred in purchasing lunch for their employees is not private and domestic in nature to the taxpayer, as is the case when the taxpayer purchases lunch for himself.

Paragraph 8-1(2)(d) of the ITAA 1997 denies a deduction under section 8-1 to the extent that another section of the ITAA 1997 prevents you from deducting it.

Section 32-5 of the ITAA 1997 prevents a deduction for expenditure that is entertainment. Per paragraph 32-10(1)(a) of the ITAA 1997, entertainment includes entertainment by way of food or drink.

Taxation Ruling 2675 (IT2675) Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in house dining facilities, explains whether morning teas, afternoon teas and light meals are considered entertainment. It refers to Section 51AE and 51(1) of the Income Tax Assessment Act 1936. These sections have been repealed and replaced by sections 32-5 and 8-1 of the ITAA 1997, however the principles in IT 2675 still apply.

As advised in Taxation Ruling IT 2675, morning and afternoon tea includes light refreshments such as tea, coffee, fruit drinks, cakes and biscuits, etc., but does not include alcohol. Furthermore light meals are treated in the same way as morning and afternoon teas.

Taxation ruling IT 2675 states:

"(a) Morning and afternoon teas and light lunches

- Income tax law

2. Providing morning or afternoon tea to employees (and associates of employees) on a working day either on the employer's premises or at a worksite of the employer is not the provision of entertainment. The cost of providing these refreshments is therefore not excluded as a deduction by subsection 51AE(4) of the ITAA. In most cases, an income tax deduction is allowable under subsection 51(1) of the ITAA.

3. However, it is necessary that the requirements of subsection 51(1) be met in each particular case for the cost of providing the morning or afternoon tea to be deductible. Broadly stated, the requirements are that the expenditure be incurred in the course of gaining assessable income (or carrying on business for this purpose) and that it not be of a capital, private or domestic nature.

4. If an employer (including a partner in a partnership) provides morning and afternoon tea to employees on a working day, and consumes morning or afternoon tea from the same source available to employees, the additional costs for the morning or afternoon tea consumed by the employer is not denied deductibility under the ITAA.

…

6. Morning and afternoon tea includes light refreshments such as tea, coffee, fruit drinks, cakes and biscuits, etc., but does not include alcohol.

7. Light meals are treated in the same way as morning and afternoon tea. It is not the provision of entertainment to provide sandwiches and other 'hand food', salads, orange juice, etc.,. that are intended to, and can, be consumed on the taxpayer's premises or worksite. As 'light' meals become more elaborate, they take on more of the characteristics of entertainment. There is no particular point at which this will become obvious. Normal business practice will be the yardstick.

8. If alcohol is provided at a morning or afternoon tea or at a light meal:

(a) this constitutes the provision of entertainment in terms of subsection 51AE(4) of the ITAA; and

(b) unless one of the exemptions set out in subsection 51AE(5) applies, expenses incurred on the food and drink (including the alcohol) are denied deductibility.

The taxpayer purchases takeaway foods for their employees, when the employees are working at locations outside of the taxpayer's business premises. The food provided is a light meal and is not consumed in a café, but is consumed at the worksite. The purchase by the taxpayer of lunch for the employees is not considered to be provision of entertainment under section 32 -5 of the ITAA1997.

Therefore the cost of lunches purchased by the taxpayer for their employees, while those employees are working at locations outside of the taxpayer's business premises, is deductible to the taxpayer under section 8-1 of the ITAA 1997.

ISSUE 2

Question 1

Is the provision of lunches by the taxpayer to his employees, while those employees are working at locations outside of the taxpayer's business premises, property fringe benefits for the purposes of section 40 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

A property benefit is defined in subsection 136(1) of the FBTAA 1986 to include a benefit as defined in section 40 of the FBTAA 1986, but it does not include any other benefit types.

Property is defined in subsection 136(1) of the FBTAA 1986 to include tangible property, which is then defined to mean goods.

Under section 40 of the FBTAA 1986, where a person provides property to another person, the provision of the property will constitute a benefit.

Section 40 of the FBTAA states:

"Where, at a particular time, a person (in this section referred to as the ``provider'') provides property to another person (in this section referred to as the ``recipient''), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time."

Therefore when you provide an employee with property including food either free or at a discount then a property fringe benefit may arise.

In relation to the taxpayer's circumstances, the only other type of benefit that could possibly arise would be a meal entertainment fringe benefit, where an election can be made to treat the provision of meal entertainment as a meal entertainment fringe benefit under Division 9A of the FBTAA 1986.

Specifically the provision of meal entertainment means:

· providing entertainment by way of food or drink

· providing accommodation or travel in connection with, or to facilitate the provision of, such entertainment, or

· paying or reimbursing the expenses incurred by the employee for the above.

As explained at Issue 1 Question 2, the provision of the lunches in the taxpayer's circumstances is not considered entertainment. Therefore, the provision of the lunches is a property benefit.

The definition of property fringe benefit in subsection 136(1) of the FBTAA 1986 is a property benefit that is a fringe benefit. The definition of fringe benefit in subsection 136(1) of the FBTAA 1986 does not include benefits that are exempt benefits. Where the food and drink (which is a property benefit) is provided to, and consumed by the employee on your business premises on a working day it is an exempt property benefit under section 41 of the FBTAA 1986 if it is not provided under a salary packaging arrangement.

SECTION 41 EXEMPT PROPERTY BENEFITS

41(1) Where:

(a) a property benefit is provided to a current employee of an employer in respect of his or her employment; and

(b) the property is provided to, and consumed by, the employee on a working day and on business premises of:

(i) the employer; or

(ii) if the employer is a company, of the employer or of a company that is related to the employer;

the benefit is an exempt benefit.

41(2) This section does not apply to food or drink provided to, and consumed by, an employee if the food or drink is provided under a salary packaging arrangement.

Business premises is defined in subsection 136(1) of the FBTAA 1986 as follows:

"Business premises, in relation to a person means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include:

(a) premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person;

(b) a corporate box; or

(c) boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or

(d) other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment."

Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' further explains what is meant by business premises for the purposes of the FBTAA 1986. TR 2000/4 states the following:

11. Given that each case turns on its own facts, there is no absolute or conclusive test of whether particular premises are 'business premises' of a person. However, in order to determine whether premises are 'business premises', i.e., they satisfy the respective requirements of 'premises of the person (the employer)' and 'used… for the purposes of business operations of the person (the employer)', an objective analysis of all the circumstances is necessary.

12. In making this analysis, an employer should carefully weigh all relevant matters, including the following factors that are especially relevant to determining whether each of the two requirements has been met:

(a) the control the employer has over the premises; and

(b) the consistency of an employer's actions and activities on the premises with those of normal business practices.

Importantly, each factor should be considered in relation to each of the two requirements. Further, the factors must be considered in combination and as a whole, together with all relevant matters.

13. Having regard to the above, where a person is carrying on 'business operations' on premises, the premises are their 'business premises' where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the 'business operations.'

In this case, the worksites cannot be considered to be 'business premises' as the taxpayer is conducting work on worksites owned by other entities. Those other entities bear the rights and risks of possession of the premises associated with the conduct of business operations.

The taxpayer purchases lunch for his employees when working at jobsites approx x km away from his business premises. The lunches are not consumed by the employee on the business premises of the employer. Therefore the property benefit provided by the taxpayer to his employees in the form of food and drink is not an exempt property fringe benefit under section 41 of the FBTAA 1986.

The minor benefits exemption under section 58P of the FBTAA 1986 also needs to be considered. Under section 58P of the FBTAA 1986, a minor benefit is an exempt benefit. A minor benefit arises where:

- the benefit is less than $300 in value, and

- it is unreasonable to treat the benefit as a fringe benefit.

The Australian Tax Office publication Fringe benefits tax: a guide for employers, available via www.ato.gov.au, provides the following information regarding whether it is unreasonable to treat the benefit as a fringe benefit:

The following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit.

1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit, are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit.

2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

3. The likely total of the notional taxable values of other associated benefits - that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night's accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit.

4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits.

5. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration.

In this case, the benefits are provided on average x times a week, at a cost of approximately $x per employee. Receipts can be, and have been, kept showing the cost of the lunches. In looking at the value, frequency and regularity of provision and recording and valuation difficulties associated with the lunches it is not unreasonable to treat the benefit as a fringe benefit.

As the provision of the lunches is not exempt, it is a property fringe benefit under section 40 and 136(1) of the FBTAA 1986.

Question 2

If the answer to Question 1 (issue 2) above is 'yes', are the taxable values of the property fringe benefits reduced to 'nil' under the 'otherwise deductible rule' contained in section 44 of the FBTAA? 

Detailed reasoning

The taxpayer not in the business of food preparation or sale of food to the public therefore the purchase of lunches for the employees is not an in-house fringe benefit as defined in subsection 136(1) of the FBTAA.

An external fringe benefit is any property fringe benefit that is not an in-house fringe benefit.

Therefore the taxpayer provides an external property fringe benefit when purchasing lunch for their employees.

The taxable value of the fringe benefit may, in certain circumstances, be reduced under the 'otherwise deductible' rule as per section 44 of the FBTAA 1986. The 'otherwise deductible' rule provides that you may reduce the taxable value of relevant fringe benefits you have provided to your employee, by the amount that the employee would have been entitled to claim as an income tax deduction if they had incurred and paid the expense and were entitled to deduct the expense under Section 8-1 of ITAA 1997.

As explained at Question 1, the expense incurred in purchasing lunch is private and domestic and not deductible to the employee under section 8-1of the ITAA 1997 therefore the taxable value of the fringe benefits provided can not be reduced under the otherwise deductible rule.