Edited version of your written advice

Authorisation Number: 1051360941185

Date of advice: 12 April 2018

Ruling

Subject: Deductibility of meal expenses

Question 1

Are you entitled to deductions for business lunches in relation to your employment in hospitality sales?

Answer

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

You are a manager for a company that markets digital advertising, advertising response analytics and marketing strategy.

Once the services are engaged the client’s business would appear in a directory which can be sourced by potential customers.

You book a lunch or dinner meeting with the prospective clients to discuss the proposal.

You pay for your meal yourself.

At the meeting you discuss the services your company provides with the aim to securing a service agreement with the client.

You also book meals as a technique to start the conversation with a client in order to secure a deal with them.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

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.

The nexus between an expense and your assessable income must be of a primary, not secondary nature. In establishing a connection, it must be shown that the expense incurred is relevant and incidental to the gaining of your assessable income.

In most circumstances the expense of dining would be a private expense. In some limited circumstances this expense may be characterised as an income producing expense and may be an allowable deduction. However there is an onus on the taxpayer to prove that such an outlay should be an allowable deduction.

ATO Interpretative Decision ID 2002/319 Income Tax Beverage Analyst - purchase of wine for tasting determines that a food and beverage analyst was not entitled to a deduction for expenditure incurred in purchasing wine for tasting.

In Case P30 25 CTBR (NS); Case 94 82 ATC 139, the Board of review disallowed a claim for the purchase of newspapers by a real estate salesman. The real estate salesperson would gather information from the daily papers to assist him in selling real estate. The salesperson was however, unable to demonstrate that his income was affected by expenditure on the newspapers. The expense retained its private character and the deduction was not allowed.

Case R113 84 ATC 750 considered a taxpayer who was a sales manager for an airline. The Board of Review disallowed a deduction for costs associated with overseas travel. In making this decision Member P. M. Roach made the following comment:

One can well understand the proposition that travel experience is of advantage to a salesman of tour and travel services, just as experience of drinking whisky may be of advantage to a salesman of whisky. But it does not follow for the whisky vendor that all expenditure he incurs relating to his consumption of whisky lacks any private character.

The Full Federal Court considered the deductibility of food costs in FC of T v Cooper (1991) 21 ATR 1616; 91 ATC 4396 (Cooper 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 weight of the taxpayer was not allowable. Hill J said (at FCR at 201; ATC 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.

Further, Hill J stated (FCR at 200; ATC at 4414; ATR at 1636):

...the fact that the employee is required, as a term of his employment, to incur a particular expenditure, does not convert expenditure that is not incurred in the course of the income-producing operations into a deductible outgoing.

You purchase a meal with a view to securing business with a new client. However, the expense is not necessarily incurred in order to earn that income. You book yourself a lunch or dinner appointment with a prospective client which places you in a position to discuss what your company has to offer. While your patronage would assist in capturing the favourable attention of the client, it is not a requirement that you do so. A subjective purpose in incurring a loss or outgoing is normally irrelevant in the case of voluntary expenditure.

The cost of dining has the character of a private expense. The connection is too general or tenuous to allow a deduction for any portion of the cost. Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997.