Edited version of private advice

Authorisation Number: 1051970257501

Date of advice: 7 April 2022

Ruling

Subject: Goods and services tax and creditable acquisitions

Question 1

Are expenses incurred by you for networking events, creditable acquisitions when fully funded by member subscriptions?

Answer

Your acquisition of goods and services (your expenses) for networking events are creditable acquisitions to the extent that your acquisitions meet the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and are not non-deductible expenses under Subdivision 69-A of the GST Act. See Reasons for Decision for a detailed explanation.

Question 2

Are expenses incurred by you for networking events, creditable acquisitions if attendees of the event are charged a fee for the networking events, the intention being for you to breakeven?

Answer

Same as answer to Question 1.

Question 3

Are expenses incurred by you for networking events, creditable acquisitions if attendees of the events are charged a fee to partially contribute towards the cost of the event (the balance of the cost is to be funded by member subscriptions)?

Answer

Same as answer to Question 1.

Question 4

An event is jointly held by two Chapters. Chapter A pays for all the expenditure and then invoices Chapter B for their share of costs. Can Chapter A claim input tax credits on all the expenditure incurred?

Answer

Section 11-20 of the GST Act provides that you are entitled to the input tax credits for any creditable acquisitions that you make. Therefore, Chapter A is entitled to claim input tax credits for all creditable acquisitions that it makes that are not non-deductible expenses.

Further, Chapter A may be liable for GST under section 9-5 of the GST Act for the amount it invoices Chapter B.

This ruling applies for the following periods:

XX April 20XX to 30 June 20XX

The scheme commences on:

XX April 20XX

Relevant facts and circumstances

You are a not-for-profit organisation, are registered for goods and services tax (GST) and are subject to income tax under the principle of mutuality.

You carry on an enterprise of networking facilitation. Income from membership fees enables you to achieve these objectives.

Your members are top chief executives in their business or organisations and have achieved significant leadership success at a young age. Each member brings a diverse background of culture, perspective, ideas and expertise to you.

Your main objective is to create better leaders through education and idea exchange.

You meet this objective through holding events for your members. This enables your members to engage with each other and create business networks. Some of these events are open to the members' associates and/or family.

Events can consist of genuine structured educational seminars. However, most events are networking functions to enrich members on both a business and personal level.

Examples of some event costs include venue hire, catering costs and speaker fees. You predominantly fund events through your member subscriptions. Some events are paid for by attendees (being your members). Some events are jointly held by more than one entity.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Division 69-A

Income Tax Assessment Act 1997 Division 32

Reasons for decision

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.

Section 11-15 of the GST Act defines the meaning of creditable purpose and provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

Subdivision 69-A of the GST Act provides amongst other things that non-deductible expenses do not give rise to creditable acquisitions. Section 69-5 states:

Non-deductible expenses do not give rise to creditable acquisitions or creditable importations

(1)  An acquisition is not a • creditable acquisition to the extent that it is a * non-deductible expense.

(2)  An importation is not a • creditable importation to the extent that it is a * non-deductible expense.

(3)  An acquisition or importation is a non-deductible expense if it is not deductible under Division 8 of the *ITAA 1997 because of one of the following:

(a)  section 26-5 of the * ITAA 1997 (Penalties);

(b)  section 26-30 of the * ITAA 1997 (Relative's travel expenses);

(c)   section 26-40 of the * ITAA 1997 (Maintaining your family);

(d)  section 26- 45 of the * ITAA 1997 (Recreational club expenses);

(e)  section 26-50 of the * ITAA 1997 (Expenses for a leisure facility);

(f)    Division 32 of the * ITAA 1997 (Entertainment expenses);

(g)  Division 34 of the * ITAA 1997 (Non-compulsory uniforms);

(h)  section 51AK of the * ITAA 1936 (Agreements for the provision of non-deductible non-cash business benefits).

(*denotes a defined term in the GST Act).

Non-deductible expenses are defined in the Income Tax Assessment Act 1997 (ITAA 1997). Division 32 of the ITAA 1997 deals with what are non-deductible entertainment expenses for the purposes of subdivision 69-A of the GST Act.

Under section 32-10 of the ITAA 1997 entertainment means, amongst other things, entertainment by way of food and drink or recreation. An entity is required to determine if the provision of food and drink constitutes an entertainment expense.

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) looks at the concept of what is entertainment as it relates to the provision of food and drink. Although TR 97/17 relates to employees, the principles it contains can be used to establish whether the provision of food and drink, you supply to your members comprise entertainment.

Paragraph 5 of TR 97/17 notes that Division 32 of the ITAA 1997 provides for a general prohibition on the deduction of entertainment expenses unless the entertainment is subject to fringe benefits tax.

You have told us that you conduct an enterprise of network facilitation. You are registered for GST and you are liable to provide the consideration for your acquisitions (expenses). Therefore, the acquisitions that you make are creditable acquisitions under section 11-5 of the GST Act on the basis that the acquisitions are acquired in carrying on your enterprise and are not input taxed or private in nature and the supplies of the goods and services to you are taxable supplies.

However, the application of section 11-5 of the GST Act is limited by section 69-5 of the GST Act. To the extent that your acquisitions meet the definition of entertainment expenses as set out in Division 32 of the ITAA 1997, these acquisitions (expenses) will be non-deductible expenses and will not give rise to creditable acquisitions. Therefore, no GST credits will be available for these expenses.