Edited version of your written advice

Authorisation Number: 1012770243886

Ruling

Subject: GST and input tax credit entitlement

Question 1

Is the Organisation entitled to claim 100% of the Input Tax Credits (ITCs) relating to the costs incurred in conducting its Board meeting and Conference? In particular, that the Organisation have made 'creditable acquisitions' (that are not excluded by the special rules in Division 69) for all costs (including 'socials' costs) that relate to providing the Conference to members and their spouses as well as conducting the Board meeting.

Answer

Yes

Question 2

If 'no' to Question 1, can the Organisation determine ITC entitlements based on the following:

• for the board meeting, full ITCs are available other than costs that relate to the 'socials' and costs associated with the spouse program; and

• for the conference, that full ITCs are available other than costs that relate to the 'socials' and costs associated with the spouse program

Answer

Not applicable

Question 3

Alternatively, if full ITCs are not available and that 2 above does not apply, can the Organisation apportion the ITCs relating to costs associated with the board meeting and conference based on a fair and reasonable basis, as per the apportionment methodology detailed in the 'Relevant facts and circumstances' below?

Answer

Not applicable

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 Organisation is non-profit organisation based overseas which connects young business leaders around the world. The Organisation has approximately 20,000 members, who pay an annual fee to connect to the Organisation network.

• In Australia there are a number of chapters affiliated with the Organisation that are separately registered for GST but will not be the relevant entities) that organised the events detailed in this ruling request.

• The two events the Organisation are seeking advice in relation to are:

• The Board meeting; and

• The Conference.

• The following provides specific details relating to the two the Organisation events.

Board meeting

• The Organisation held a Board meeting event for relevant board members and their spouses.

• Separate agendas were organised for the Organisation board members and the spouses for the event. In particular, the board member agenda involved various committee meetings and the Organisation business related discussions, as well as sightseeing activities, while the spouse agenda involved mostly sightseeing activities.

• Board members did not pay a fee to attend the Board meeting. However, their spouses paid a registration fee to attend the spouse program.

• All expenses were paid by the Organisation, which included, a travel subsidy or reimbursement for travel / airfares and, food and drinks during the six days (including breakfasts, lunches, refreshments and 'social' evenings.

Global Conference

• The Organisation plans to hold its annual Conference, which is scheduled to be segmented into two parts:

• The Organisation also allows the spouses of members to attend the Conference. A special agenda has been organised for the spouses for the duration of the Conference, which includes spouse forums. Spouses are charged a separate fee for attending the spouse program of the conference.

• The Organisation does not charge a registration fee to its incoming officers (i.e. the officers elect) to attend the Conference where they receive officer training. However, spouses and guests attending a separate program are charged a fee.

• The Organisation charges a registration to all members for attendance at the Conference. Also, a select number of attendees to the Conference who are volunteer members of the Board of Directors, Functional Committees etc. pay discounted fees or their fee is charged to a department operating expense account.

• As part of the Conference, members and spouses are provided with meals throughout the day (i.e. breakfast, morning tea, lunch, afternoon tea etc.), as well as evening 'social' events.

• There will be three main social functions.

• The Organisation has engaged Australian event management organisations and inbound tour operators to assist in organising the Conference, as well as directly engaging with hotels and function centres in order to organise the event. Most agreements and/or invoices include itemisation of costs.

• The Conference costs incurred to date include planning and site inspection costs, and sampling catering and excursion activities to determine which items to provide the Conference delegates.

• The Organisation is a body which is exempt from Australian income tax and is registered for Australian GST effective from 1 November 20XX.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 11-20

Subdivision 69-A

Income Tax Assessment Act 1997

Division 32

Section 32-10

Subdivision 32-B

A New Tax System (Goods and Services Tax) Act 1999 Fringe Benefits Tax Assessment Act 1986

Subdivision 69-B

Reasons for decision

Question 1

Summary

The expenses associated with the listed events are creditable acquisitions so long as they satisfy the requirements of the section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The Board meeting and Conference are not excluded by the special rules in Division 69 of the GST Act. The entertainment expenses incurred by the Organisation during both the Board Meeting and the Conference, will satisfy the exclusion under item 3.1 of the table in section 32-40 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Under Division 11 of the GST Act 'you' are entitled to input tax credits for your creditable acquisitions.

Section 11-5 of the GST Act provides that 'you' make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose and

(b) the supply of the thing to you is a taxable supply and

(c) you provide or are liable to provide consideration for the supply and

(d) you are registered or required to be registered.

From the information the Organisation satisfies the requirements of section 11-5 of the GST Act. Therefore the Organisation's acquisitions will be creditable acquisitions if the supplies to the Organisation are taxable supplies unless any special provisions over ride this section of the GST Act.

Subdivision 69-A of the GST Act provides amongst other things that non-deductible expenses do not give rise to creditable acquisitions. Non-deductible expenses are defined in the ITAA 1997. Division 32 of the ITAA 1997 deals with what are non-deductible expenses for the purposes of subdivision 69-A and has application to income tax exempt entities which are also defined in the ITAA 1997.

Section 32-5 of the ITAA 1997 generally disallows a deduction for entertainment expenses.

Item 3.1 of the table in section 32-40 of the ITAA 1997 lists an exception where an entity provides entertainment for payment in the ordinary course of a business that the entity carries on.

Section 32-10 of the ITAA 1997 defines the term 'entertainment':

Section 32-10 Meaning of entertainment

32-10(1) Entertainment means:

(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.

32-10(2) You are taken to provide entertainment even if business discussions or transactions occur.

Note: These are some examples of what is entertainment:

• business lunches

• social functions

These are some examples of what is not entertainment:

• meals on business travel overnight

• theatre attendance by a critic

• a restaurant meal of a food writer.

Paragraph 14 of Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) states:

The word 'entertainment', which is key to the operation of the relevant words, is defined in the Macquarie Dictionary to mean:

(a) agreeable occupation for the mind, diversion or amusement; or

(b) something affording diversion or amusement; or

(c) hospitable provision for the wants of a guest.

Although TR 97/17 relates to employees and the treatment of entertainment, the principles within TR 97/17 can be applied to establish whether the provision of food or drink supplied to members (i.e. conference attendees) constitute entertainment.

Paragraph 10 of TR 97/17 provides that meal entertainment arises when the food or drink provided has the character of entertainment. The meal may be substantial, may be consumed as part of a social gathering, or may be consumed with other forms of entertainment.

Paragraph 18 of TR 97/17 provides that it is the Commissioner's view that in most cases the mere provision of food and drink satisfies the 'entertainment' test, and it is only in certain cases that the provision of food and drink does not amount to 'entertainment'.

A core part of the Organisation's 'business' is organising regular events to facilitate member networking, training and information sharing. These events generally include the provision of food, drink and social activities.

It is reasonable to conclude that a component of each member's fees would necessarily provide funding for the Organisation's event organising expenses. In addition, direct fees are charged to members and/or spouses/families when attending certain events.

Therefore, the scope of the Organisation's event organising operations would be sufficient for the Commissioner to conclude that the Organisation's ordinary 'business' includes providing 'entertainment' by way of food, drink and social activities to members and/or their spouses/families for remuneration by way or membership fees or direct event fees.

In these circumstances, both the Board Meeting and the Conference can reasonably be considered to include the provision of entertainment by the Organisation as defined in subsection 32-10(1) of the ITAA 1997.

Consequently, in relation to any entertainment expenses incurred by the Organisation during both the Board Meeting and the Conference, the Organisation will satisfy the exclusion under item 3.1 of the table in section 32-40 of the ITAA 1997, providing entertainment for payment in the ordinary course of the Organisation's business and therefore would be entitled to claim 100% of the ITCs relating to the costs incurred in conducting the Board meeting and Conference.

As we have determined that ITCs are allowable it is not necessary to consider Questions 2 and 3.