Edited version of your written advice

Authorisation Number: 1051412205261

Date of advice: 17 August 2018

Ruling

Subject: Income tax deductions and goods and services tax being claimable for food review and critic activities

Question 1

Where the client is undertaking food review and critic activities, is food consumed at cafés and restaurants by staff and mystery shoppers income tax deductible?

Answer

Yes.

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 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.

In establishing a connection, it must be shown that the outgoing is relevant and incidental to the gaining of assessable income.

By application of section 32-5 of the ITAA 1997 you cannot claim a deduction under section 8-1 of the ITAA 1997 for a loss or outgoing in respect of entertainment as a general deduction.

Section 32-10 of the ITAA 1997 outlines examples of what is not entertainment, which includes a restaurant meal of a food writer.

In FC of T v. Cooper 91 ATC 4396; 21 ATR 1616, Lockhart J stated that there is a clear nexus between expenditure and derivation of income for a person that is in the business of publication of a food guide, where it comes to buying and tasting food in the course of conducting their business.

In this case the food is paid for by the company. The expenditure on the food has to be incurred in order to write the reviews. A deduction is allowable for the food purchased for the food review and critic activities.

Question 1

Where the client is undertaking food review and critic activities, could a credit be claimed for the goods and services tax (GST) on food consumed at cafés and restaurants by staff and mystery shoppers?

Answer

Yes.

It has already been established that the client is conducting a business of writing reviews for the restaurant or café.

The client is making a supply of services to the café or restaurant, the consideration for that supply being the amount paid by the restaurant or café to be featured and reviewed on the Application (APP) plus the value of any free meals provided to the reviewer or critic.

Under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 you make a creditable acquisition if you acquire anything solely or partly for a creditable purpose; and the supply of the thing to you is a taxable supply; and you provide, or are liable to provide, consideration for the supply; and you are registered, or required to be registered.

All food and drinks sold in a restaurant or to be eaten or drunk at the place they are sold are taxable even if they are a GST-free item. This means a supplier must charge their customers GST and pay that GST to the ATO if food and drinks are sold at a restaurant or café.

If you are a GST-registered business, you can claim ‘GST credits’ for any GST you pay in the price of food items you purchase for your business. You cannot claim GST credits for food supplied as an ‘entertainment expense’ if you cannot claim an income tax deduction for it.

In your case the income tax deduction is allowable for food review and critic activities and the GST credit will be allowable for the food purchased for this activity.

Note that if GST credits are going to be claimed by an entity, they must be registered for GST.

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The entity is a digital marketing business that focuses on restaurants and cafes.

The food is consumed at cafés and restaurants by staff and mystery shoppers. The company pays for the food consumed for these reviews. This may also include providing free meals to the reviewer or critic. The entity provides the mystery shoppers with meals for providing their critique. This is then conveyed in addition to those provided by employees, to the company who use it on their website and APP. The photos are published, along with the reviews of the quality, taste and service provided, on various social media platforms. This creates a ‘following’ on social media and other channels.

The ‘followers’ are able to download an APP where all restaurants and cafes that have been reviewed are able to be researched.

This provides a restaurant and cafe guide that can be accessed by the general public via the APP. At the same time it creates a database that can be advertised on by restaurants and cafes. Restaurants and cafes pay the entity to be featured and reviewed on the APP. Restaurants and cafes subscribe to the APP so they can be reviewed.

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-5