Edited version of private advice

Authorisation Number: 1052269616377

Date of advice: 12 July 2024

Ruling

Subject: NDIS provider - deductions

Issue 1 your employee's costs

Question 1

Are the costs incurred by you for your employee's entry costs to community access activities deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are the costs incurred by you for the purchase of food and drinks consumed by your employees whilst at community access activities deductible under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 3

Are the costs incurred by you for travel and accommodation expenses for employees to facilitate respite care for client's deductible under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 4

Are the costs incurred by you for the purchase of food and drinks consumed by your employees whilst travelling and facilitating respite care deductible under section 8-1 of the ITAA 1997?

Answer

Yes, provided there is no other entertainment provided other than food or drink for example: a floor show. In this case it would be entertainment and not deductible under 8-1 of the ITAA 1997.

Question 5

Are the costs incurred by you, for employee entry costs to activities to facilitate a staff event, deductible under 8-1 of the ITAA 1997?

Answer

No.

Question 6

Are the costs incurred by you to purchase food and drinks for employees to provide a staff event, deductible under 8-1 of the ITAA 1997?

Answer

No.

Issue 2 your clients' costs

Question 7

Are the entry costs to community access activities incurred by you on behalf of client's deductible under 8-1 of the ITAA 1997?

Answer

Yes.

Question 8

Are the costs incurred by you, for food and drinks consumed by clients at community access activities deductible under 8-1 of the ITAA 1997.

Answer

Yes.

Question 9

Are the costs incurred by you to purchase items outlined in table 2 on behalf of your clients in relation to daily life services deductible under 8-1 of the ITAA 1997?

Answer

No.

Question 10

Are the costs incurred by you on behalf of clients for client travel and accommodation to provide respite care deductible under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 11

Are the costs incurred by you, on behalf of clients, for food and drink consumed whilst on respite care deductible under section 8-1 of the ITAA 1997?

Answer

Yes, provided there is no other entertainment provided other than food or drink for example: a floor show. In this case it would be entertainment and not deductible under 8-1 of the ITAA 1997.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a company operating as a registered provider of disability services in a specified Australian city.

You are not registered for Fringe Benefits Tax (FBT).

You offer living support and accommodation to clients under the National Disability Insurance Scheme (NDIS). This includes:

•         Supported Independent Living

•         Community Access

•         Respite Services

•         Additional NDIS Support services such as assistance with daily life services

You support people with a disability to achieve independence, social and economic participation.

Majority of the activities are conducted on an individual basis with clients due to behavioural concerns that preclude them from group activities.

Entry expenses to activities, food and drink expenses, and travel and accommodation expenses are incurred on behalf of employees and clients whilst your employees are engaged in delivering the following support services to the clients:

•         Supported Independent Living

•         Community Access

•         Respite Services

•         Assistance with daily life services

You engage in discussions with clients regarding their NDIS plans and goals, however given the limited range of services available in your city it is not always possible to align with the specifications of the NDIS plan.

You offer clients activities that may not be explicitly outlined in the client's NDIS plan.

You do not have access to clients plans, they are managed by the guardian and support coordinators.

The support coordinator serves as the key liaison between participants and service provider collaborating with external entities to ensure clients achieve their NDIS goals.

Public Guardians act as the legal decision-makers for the clients.

Due to challenges in managing their finances independently, most of your clients' funds are overseen by a public trustee.

Clients are either agency managed, or plan managed. You do not have clients that are self-managed.

You provided a breakdown of client expenses for the relevant financial year. You provided a list of places the expenses were incurred.

Supported Independent Living

For clients that reside in your Supported Independent Living (SIL) properties, meals are frequently delivered by meal delivery companies and are also offered to clients after both indoor and outdoor activities facilitated by your employees.

Clients that reside in SIL properties, are provided an initial welcome box with necessities including water, tea, coffee, milk, and cleaning supplies.

Clients that reside in SIL properties, are paid a specific allowance per week for groceries as their pension does not cover additional items.

You supply and incur expenditure on all necessary household products for clients residing in your SIL properties.

Your employees routinely undertake grocery and household shopping for clients residing in SIL properties. This is integral to assisting clients with disabilities in their daily activities such as cooking, cleaning, personal care and household maintenance.

Community Access

Your employees are tasked during their working hours to provide companionship and assistance to disability clients. This includes facilitating the participation in community access activities such as:

•         Watching movies at the cinema

•         Bowling

•         Participating in cooking or workout classes

•         Visiting markets

You incur the entry costs for the community access activities for employees and clients.

The social and recreation activities are intentionally designed to contribute to the health and wellbeing of individuals with disabilities.

The clients are responsible for selecting their preferred activities.

As a NDIS registered provider, you are obligated to adhere to the NDIS guideline and objectives in its service provision to NDIS clients.

The NDIS funds that the clients receive covers the support provided, and does not cover the activities clients engage in.

You invoice an hourly rate for support services. The rate varies depending on the time of day and the location the support is to be provided. These rates are guided by NDIS pricing arrangement and price limits.

If the activity is outside the NDIS plan or the client's available funds, you incur the cost.

You incur food and drink expenses for clients and employees at community access activities.

Food and drinks are provided during and after community access activities in a variety of settings including at specific activity locations, restaurants, cafes, fast food restaurants, public areas such as parks, or SIL properties.

Clients are responsible for selecting the food they will eat during or after community access activities.

The types of food and drinks consumed during community access activities include popcorn, snacks, soft drinks, sandwiches, burgers, or food from a grocery store.

You arrange large community access event for clients, and incur costs associated with providing food such as catering, pizzas, or sausage sizzles.

You provide meals and drinks to offer refreshments to clients.

You do not provide alcoholic beverages to clients.

Respite Services

You incur expenditure for employee and client travel expenses such as uber, flight tickets and accommodation for the holiday programs as part of respite services.

You provided a list of locations that employees and clients travel to for respite. Airbnb and resort accommodations are used for these trips.

Under the NDIS scheme, short term accommodation funding provided to clients, can be used to support clients, carers, and the support workers to cover costs associated with respite services.

Your employee stays in the same accommodation with the client during respite travel to provide the necessary support.

You employees facilitate the holiday excursions for clients with disabilities to aid in:

•         Enhancing client's independence and self-sufficiency

•         Fostering greater social engagement and pursuit of adventure

•         Facilitating visits to friends and family

•         Enabling travel to a desired destination

•         Attending a special event

•         Building confidence through learning new experiences

•         Encourage active participation in a new environment.

You charge the NDIS short-term accommodation rate, plus an hourly support rate for the period of support.

You incur expenditure for employee and client meal expenses whilst travelling. This encompasses breakfast, lunch, dinner.

Clients are responsible for selecting what type of food they will consume whilst travelling.

The meals are provided in a variety of settings including at restaurants, cafes, fast food restaurants and grocery shops.

The food eaten includes bacon and eggs, sandwiches, burgers, water, soft drinks.

Assistance with daily life services

Your employees are tasked during their working hours to aid disability clients in carrying out daily life services.

For clients that do not have the financial means to purchase certain items for themselves, you incur the expense. These expenses are outlined in Table 1.

Table 1:

Table 1: Outlined expenses incurred.

You cover the cost of expenses listed in table 1 as a gesture of goodwill to ensure client satisfaction and foster long-term relationships.

The clients that have the financial means to afford the expenses listed in table 1, pay for the expense themselves, or invoices are issued to their Public Trustee for reimbursement.

The Public Trustee will only cover personal items, activities, and property damage. You submit receipts and detailed information to the Public Trustee for reimbursement.

Occasionally you request approval from the Public Trustee and inquire with the client regarding the amount they wish to claim. Once approved you will then notify the client.

If a client requires accommodation or weekly groceries, you will set up a direct debit with their Public Trustee to transfer the money into your account.

You do not receive reimbursement for expenses from NDIS. NDIS does not cover accommodation, personal expenses, or groceries for clients.

Staff Events

On a regular basis, you provide employees with recognised staff events in acknowledgement and appreciation of the work they undertake. This is also an opportunity for staff training and team building.

The events can include bowling, movies, or morning tea and lunches.

You incur any entry costs, and food costs associated with providing the staff event.

Food provided can include catering, sausage sizzles, water, and soft drink.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1992 Division 32

Income Tax Assessment Act 1997 section 32-5

Income Tax Assessment Act 1997 section 32-10

Income Tax Assessment Act 1997 section 32-20

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows for a deduction for all losses and outgoings to the extent that they are incurred in gaining or producing your assessable income except where the outgoings are of a capital, private or domestic nature, or they relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.

Section 32-5 of the ITAA 1997 prevents an income tax deduction to the extent that an entity incurs expenditure on entertainment unless that expenditure is related to any of the exceptions outlined in Subdivision 32-B of the ITAA 1997.

Entertainment is defined in section 32-10 of the ITAA 1997 as:

(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.

The term recreation is defined in subsection 995-1(1) of the ITAA 1997 to include amusements, sport, or similar leisure-time pursuits.

Under section 32-20 of the ITAA 1997, section 32-5 does not prevent a deduction for a loss or outgoing to the extent that it is incurred in respect of providing entertainment by way of providing a fringe benefit. However, the exemption does not apply to the amount where the fringe benefit is reduced for example: employee contributions.

Section 32-40 of the ITAA 1997, allows a deduction for entertainment expenses where the business is in the entertainment industry. For example: restaurants and theatres.

Food and Drink

Expenditure on food and drink is usually considered to be private in nature and will not ordinarily provide the necessary connection to a taxpayer's income earning activities (Federal Commissioner of Taxation v Cooper (1991) 21 ATR 1616).

The terms 'private' and 'domestic' are not defined in the Act but have the ordinary meanings of 'personal' and 'relating to the home, or 'household affairs' respectively.

Taxation Ruling TR 2020/1 Income Tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 outlines in paragraph 48:

Everyday clothing, personal grooming items, and food and drink are usually private expense items, even if an employer encourages or gives instructions to incur the expenditure. However, expenses that are typically private in nature may be deductible when there is sufficiently close and real connection to the employment activities that produce assessable income for the employee. An example is expenditure on food and drink incurred in the course of overnight travel away from home or for work purposes.

Taxation Ruling TR 97/17 Income Tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) considers entertainment as it relates to the provision of food and drink for fringe benefits and income tax purposes.

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.

To determine whether the provision of food or drink constitutes entertainment, TR 97/17 provides four factors that need to be considered. Paragraph 23 of TR 97/17 provides the following relevant factors:

(a)           Whyis the food or drink 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.

(b)           What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three-course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c)           When is the food or drink 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. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d)           Whereis the food or drink 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; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

No one of the above factors will be determinative, however paragraphs (a) and (b) are considered more important.

The view that an element of entertainment is required before the provision of food or drink becomes meal entertainment is based on the ordinary meaning of the word 'entertainment' by itself. As was suggested by the Lord Justice-Clerk (Lord Thomson) in Bow and Others v. Heatly (1960) SLT 311 at 313:

'entertainment is the gathering together of a number of people to carry out some activity or to be present at some activity presumably with a view of enjoying themselves.'

Paragraph 16 of Taxation ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities (IT 2675) provides the following guidance:

16. The provision of biscuits and drinks such as tea, coffee, soft drinks and fruit juices to employees or their association on a working day for morning or afternoon tea cannot be said to provide amusement or even to be an agreeable occupation. It is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort. The same may be said of light meals provided by a taxpayer to employees or their associates on a working day.

Paragraph 61 and 62 of TR 97/17 provides examples of non-deductible expenses for employee social functions, whilst paragraph 83 and 84 provides an example of deductible meal expenses for employees and clients whilst travelling:

Example 2.1

61. An employer provides food or drink at a social function for the employees to celebrate a particularly successful quarter of trading. The function is held at a restaurant near the office.

62. Applying the tests in paragraph 23 above leads to the conclusion that the food or drink amounts to meal entertainment. This is the case regardless of the type of food or drink provided as the function is a social gathering. As a result, the provision of these meals gives rise to a property benefit which is subject to FBT. There is no reduction available under the 'otherwise deductible' rule in this case as the employee would not have been entitled to a deduction if they had paid for the meal. Section 32-20 of the ITAA applies to prevent section 32-5 from denying an income tax deduction.

Example 6.1

83. An employee of a real estate agent travels with a client from Hobart to the Gold Coast for two days in order to inspect a number of properties. The employee and the client dine together and pay for their own individual meals. The employee's meal cost is subsequently reimbursed by her employer. The 'otherwise deductible' rule applies to reduce the taxable value of the fringe benefit provided to the employee. The employer is able to claim an income tax deduction for the cost of the employee's meal.

Example 6.2

84. Assume the same facts as in Example 6.1. However, the employer pays for the meals of both the employee and the client. It is considered that neither meal will amount to meal entertainment. The fact that the employer pays for both meals does not change the character of the meal. The employer is able to claim an income tax deduction for the cost of both meals under section 8-1 of the ITAA. The exclusion provision section 32-5 does not apply because the food or drink does not amount to entertainment. No FBT is payable as the 'otherwise deductible' rule reduces the taxable value of the fringe benefit to nil.

Travel Expenses

If the employee is found to be travelling on work in the course of performing their income earning activities, these activities will generally be deductible under section 8-1 (The Roads and Traffic Authority of New South Wales v. Commissioner of Taxation [1993] FCA 445 (Roads and Traffic)).

Accommodation expenses are only deductible when travel is an essential characteristic of the job itself, and the necessity to stay away from the employee's usual residence overnight is encountered while performing their income producing activities (paragraph 19 of Taxation Ruling TR 2021/4)..

Gifts

Taxation Determination TD 2016/14 Income tax: is an outgoing incurred by a business taxpayer for a gift provided to a former or current client deductible under section 8-1 of the Income Tax Assessment Act 1997 outlines:

If a taxpayer provides a gift that is characterised as being made for the purpose of producing future assessable income, the outgoing incurred on the gift will be incidental and relevant to gaining or producing assessable income. The taxpayer's outgoing is 'dictated by the business ends to which it is directed' and is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

The term 'gift' is not defined in either of the Income Tax Assessment Acts therefore the word 'gift' takes its ordinary meaning.

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift explains what a "gift" is, for the purposes of the gift deduction provisions (Division 30 of the ITAA 1997). The same principles can be applied for identifying what is a gift for general deduction purposes.

Rather than attempting a definition of gift, the courts have described a gift as having the following characteristics and features:

•         there is a transfer of the beneficial interest in property

•         the transfer is made voluntarily

•         the transfer arises by way of benefaction, and

•         no material benefit or advantage is received by the giver by way of return.

Application to your circumstances

Issue 1 your employee's costs

Question 1

You incurred expenses on behalf of your employee for entry costs to community access activities is for the purpose of escorting the client, caring for them, and providing necessary support. Your employees are on work duty and assist clients with other needs as required.

The expected outcome of providing access to the activity is not social in nature, as the role they are employed to complete is to accompany and support the client.

Therefore, the expenses you incurred for your employee's entry costs to community access activities is not for the purpose of providing entertainment to the employee as it is considered a duty of their role. The expenses incurred are deductible under 8-1 of the ITAA 1997.

Question 2

You provided a list of food and drinks consumed by employees whilst providing support at community access activities. The Commissioner considers that those food and drinks consumed generally constitute 'light meals' in accordance with IT 2675 and thus do not take on the characteristics of entertainment. It is merely the provision of refreshments to enable the employees to complete the working day in comfort.

Therefore, based on the food and drinks outlined in the facts above, and in the absence of a more elaborate meal being provided, the expenses incurred to provide refreshments to employees whilst providing support at community access activities are deductible under 8-1 of the ITAA 1997.

Question 3

Services you provide to clients includes respite by the way of travel to other cities or destinations. You incur the expenses associated with ensuring an employee travel with a participant to provide any necessary support. This results in overnight travel away from the employees home for the purpose of work. Travel and accommodation expenses are an essential characteristic of the service you are providing and are incurred in gaining or producing your assessable income.

Consequently, the costs incurred for travel and accommodation expenses on overnight travel for employees to provide respite are deductible under 8-1 of the ITAA 1997.

Question 4

Where an employee is travelling away from home overnight while performing their employment duties, the food or drink provided is consumed as a result of the work-related travel. Considering the factors outlined in TR 97/17 and in the absence of supplementary entertainment such as a floor show, the food or drink is not provided by the employer to provide entertainment to that employee.

Therefore, for the food and drink expenses do not have the character of entertainment and is deductible under section 8-1 of the ITAA 1997.

Question 5

You provide staff social events in acknowledgement and appreciation of the work employees undertake. The activities arranged do not directly relate to your income earning activities and are social in nature for the purpose of providing entertainment for staff.

Therefore, the entry costs to any social activities for staff events are not deductible under 8-1 of the ITAA 1997.

Question 6

Applying the factors outlined in TR 97/17, and example 2.1 at paragraph 61, the food and drink consumed by employees at staff events is in social situations where the purpose of the event is for employees to enjoy themselves, regardless of any business discussions that may occur at the event.

The food and drinks take on the character of meal entertainment and the costs incurred by you to purchase the food and drinks for employees for staff events, is not deductible under 8-1 of the ITAA 1997 due to the operation of section 32-5 of the ITAA 1997. Section 32-20 of the ITAA 1997 does not apply to you as you are not registered for FBT. There are no other exemptions set out in Subdivision 32-B that apply to your circumstances.

Issue 2 your client's costs

Question 7

It is considered that community access activities do not constitute entertainment under Division 32 of the ITAA 1997. These activities are part of the disability support services you provide and are incurred in gaining or producing your assessable income.

Therefore, the entry costs for clients to community access activities are deductible under section 8-1 of the ITAA 1997.

Question 8

You charge an hourly rate based on the location and time of day the support services are provided. Food and drinks provided to clients during and after community access events are provided with the intent of refreshment whilst delivering the income producing activity of providing support services.

Therefore, in the absence of supplementary entertainment such as a floor show, the cost of the food and drinks consumed at community access activities by clients are deductible under section 8-1 of the ITAA 1997.

Question 9

The costs outlined in table 2 do not have the character of a gift as there is no transfer of property. For there to be a transfer of property, the property which belonged to the giver must become the property of the recipient. In your case, you are covering the expenses of activities or goods on behalf of your client.

The expenses outlined in table 2 are expenses that clients would incur during the normal course of their day. This is evident by covering costs only for clients that do not have the financial means to cover it themselves. The expenses do not have a direct correlation to the income earned for the support services you provide.

Consequently, the expenses in table 2 are not deductible under section 8-1 of the ITAA 1997.

Question 10

As part of services provided to participants, you arrange and provide respite by the way of travel to other cities or destinations. You charge short-term accommodation rates plus hourly support required for the period of travel.

As the travel and accommodation expenses for respite care is incurred in gaining or producing your assessable income, and you incur this expense for your clients, the costs are deductible under 8-1 of the ITAA 1997.

Question 11

As mentioned in question 10, you charge clients a specific rate for short-term accommodation stays to provide respite for participants and their carers.

Your employees accompany participants to other cities providing necessary support, including at mealtimes. Your employees dine with participants whilst simultaneously providing support. The clients' meals are eaten at a café or restaurant and can be likened to example 6.2 of TR 97/17.

In the absence of supplementary entertainment such as a floor show, the food or drink is not provided by way of entertainment and the expense is incurred in relation to your income for providing respite services. Therefore, the food and drink expenses are deductible under section 8-1 of the ITAA 1997.