Edited version of your written advice

Authorisation Number: 1012927274233

Date of advice: 23 December 2015

Ruling

Subject: Deductibility of expense

Question

Are you entitled to a deduction for the cost of take away coffee provided to an employee?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You operate a business.

Your employee is given a debit card which is linked to the business bank account.

The employee uses the debit card to purchase business expenses such as petrol and materials.

The employee would, during the normal working day as they are travelling to different work sites, occasionally pass a fast food outlet with a drive through facility where they would use the facility and the debit card to purchase coffee to drink and then continue to their next job.

The employee does not receive a meal allowance.

The employee dines alone.

The employee does not travel overnight.

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 or they are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

The phrase 'necessarily incurred' does not mean that the expense was unavoidable or logically necessary. The expense must be clearly and appropriately adapted for the ends of the business.

You incur the cost of purchasing coffee for your employee when they are travelling between worksites. These expenses are incurred in the course of gaining your assessable income and are therefore considered to be business expenses.

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 provides a general prohibition on the deductibility of entertainment expenses under section 8-1 of the ITAA 1997.

Entertainment is defined in section 32-10 of the ITAA 1997 and includes entertainment by way of food, drink or recreation.

Taxation Ruling TR 97/17 provides guidelines on the Commissioner's view of the factors to be considered in determining whether the provision of food or drink constitutes entertainment.

As outlined in paragraph 7 of TR 97/17 in determining if the provision of food or drink to an employee is entertainment, an employer should consider:

      why the food or drink is being provided. This test is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment , whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment;

      what type of food is being provided. Morning and afternoon teas and light meals are generally not considered to constitute entertainment;

      when the food or drink is being provided. Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose; and

      where the food or drink is being provided. Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment

In your case, it is not considered that the provision of coffee to your employee amounts to entertainment. Consequently, a deduction is not prohibited under section 32-5 of the ITAA 1997.

Therefore, the cost of providing coffee to your employee while travelling between worksites is a deductible business expense under section 8-1 of the ITAA 1997.

Further information

As a result of providing coffee to your employee a fringe benefits tax liability may arise. For information in relation to fringe benefits tax and the associated fringe benefits liability, please refer to the Australian Taxation Office website www.ato.gov.au.