Edited version of your private ruling

Authorisation Number: 1012532356100

Ruling

Subject: Business networking costs

Questions and Answers:

1. Is the full cost of your attending 90 minute business networking meetings (which include morning tea) deductable under section 8-1 of the ITAA 1997?

Yes.

2. Is the full cost of your attending two-hour business networking breakfast functions, which include breakfast and drinks, deductable under section 8-1 of the ITAA 1997?

No.

3. Is the part of the cost of your attending business networking breakfast functions, which excludes the cost that represents the food and drink, deductable under section 8-1 of the ITAA 1997?

Yes.

This ruling applies for the following period:

30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You carry on a business.

You regularly attend a 90 minute business event, which also provides coffee/tea and fruit and muffin platters to the participants. The event is business education based. As a participant, you are not only learning about additional topics to help you run your business but you are also making connections, which have turned into clients and therefore income generating.

You also regularly attend a two-hour breakfast function event, where the main attraction is to listen to a motivational speaker/successful business person. Here, you are provided with breakfast and coffee/tea/juice. The purpose of this event is motivational and also to make networking connections, which again have turned into clients and therefore income generating.

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 32-35

Income Tax Assessment Act 1997 Section 32-65

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 necessarily incurred in carrying on a business for the purpose of producing assessable income, except where the outgoings are of a capital, private or domestic nature.

Section 32-5 of the ITAA 1997 states to the extent that you incur a loss or outgoing in respect of providing entertainment you cannot deduct it under section 8-1.

However, section 32-35 of the ITAA 1997 includes an exception, which provides section 32-5 does not stop you deducting a loss or outgoing for seminar expenses where providing food, drink, accommodation or travel to an individual (including yourself) that is reasonably incidental to the individual attending a seminar that goes for at least 4 hours.

Section 32-65 of the ITAA 1997 explains a 'seminar' includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, "question and answer session", training session or educational course.

Taxation Ruling IT 2675, which is about entertainment expenses, explains the provision of biscuits and drinks, such as tea, coffee, soft drinks and fruit juices, to employees or their associates on a working day for morning or afternoon tea cannot be said to be the providing of entertainment. Instead, it is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort.

However, as 'light meals' become more elaborate, IT 2675 states they take on more of the characteristics of entertainment.

Therefore, Taxation Determination TD 93/195, which is about the deductibility of a registration fee for a Continuing Professional Development seminar, provides that the total registration fee for a two-hour income related industry seminar, including a 15 minute afternoon tea, is fully deductible.

However, TD 93/195 also provides, in accordance to section 32-35 of the ITAA 1997, where the duration of a seminar is for less than 4 hours and a full meal is included, the registration fee is deductible only to the extent that it does not represent a cost of food and drink.

TD 93/195 further explains:

The level at which a registration fee is set is generally determined, at least in part, by the estimated costs of the organiser including the cost of food and drink to be provided. The amount of the registration fee to be disallowed is that amount included in the fee in respect of the food and drink. It is not necessary for a participant to actually consume any food or drink for the fee to be apportioned. It is simply enough that the fee includes an amount in respect of food and drink.

In your case, section 32-5 of the ITAA 1997 prohibits a deduction for your breakfast functions costs that represent the food and drink (even when you do not actually consume any food or drink) because the seminar does not go for at least 4 hours and because it includes a full meal, namely, breakfast.

As for the remainder of your breakfast function event costs and your $X business event costs, these are deductible under section 8-1 of the ITAA 1997 because they are not prohibited by section 32-5 of the ITAA 1997 and because they have a necessary nexus with your earning of assessable income.