Edited version of private advice

Authorisation Number: 1052285039434

Date of advice: 02 August 2024

Ruling

Subject: Business deductions - NDIS

Question 1

Are your employee's entry costs to activities under the mentoring service agreement, paid by you, in respect of their employment, deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Are your employee's food and drink consumed at activities under the mentoring service agreement, paid by you, in respect to their employment, deductible under section 8-1 of the ITAA 1997?

Answer

Yes, provided the meals are not elaborate in nature, and in 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 3

Are your employee's entry costs to activities under the respite service agreement, paid by you, in respect of their employment, deductible under section 8-1 of the ITAA 1997?

Answer

Yes

Question 4

Are your employee's food and drink consumed at activities under the respite service agreement, paid by you, in respect to their employment, deductible under section 8-1 of the ITAA 1997?

Answer

Yes, provided the meals are not elaborate in nature, and in 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:

Year Ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a company operating as a registered provider of National Disability Insurance Scheme (NDIS) support services.

The company supports the independence and social and economic participation of people with a disability and enable people with a disability to exercise choice and control in the pursuit of their goals the planning and delivery of their supports.

You provide mentoring support and respite support which are laid out in service agreements or service quotes to clients.

Your clients are plan managed or self-managed.

The support and the prices clients pay are set out in the schedule of supports in the mentoring or respite service agreements.

Prices are GST inclusive and include the cost of providing the supports.

Your pricing structure follows the NDIS pricing arrangement and are subject to change in line with the NDIS pricing arrangement.

There is no regular business premise for employees. Their roles entail the travel to different locations each day, which is dependent on the needs or requests of the client which is outlined in the mentoring or respite service agreements.

Mentoring service agreements

Under mentoring service agreements, you incur entrance or ticket costs for clients and employees to support activities. You provided a list of the support activities frequently covered by mentoring service agreements.

These activities are all located in your local area.

You incur food and drink expenses for clients and employees whilst providing support through mentoring service agreements.

The food and drinks are consumed at cafes, pubs, and restaurants.

You incur the cost for any food available for purchase on the menu at the food locations and incur expenses for drinks such as coffees, juices, and milkshakes. Alcohol is not included.

It is the duty of the employee to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time. The employee does not have any rostered meal breaks separate to the client.

Respite service agreement

Under respite service agreements, you incur the following expenses for employees and clients for respite services:

•         Plane flights

•         Accommodation at hotels and Air BnB's

•         Car hire fees

•         Entrance fees for activities

•         Meals and drinks

You travel to interstate cities to provide respite services. The city selected is by request of the client and may be a capital city, a holiday city, or a local city experience.

You do not offer travel to international destinations.

You charge clients daily rates which includes the cover of activities, meals, groceries, flights, accommodation, sporting events, concerts, and car hire.

The daily rate is based on either a weekday, Saturday, or Sunday rate.

Food and drinks are consumed at cafes, pubs, and restaurants.

You incur the cost for any food available for purchase on the menu at the food locations and incur expenses for drinks such as coffees, juices, and milkshakes. Alcohol is not included.

It is the duty of the employee to sit with clients to assist them in eating their meal, whilst the employee also eats their own meal at the same time. The employee does not have any rostered meal breaks separate to the client.

Expenses are paid for via a corporate credit card or a purchased pre-paid credit card solely for the expenses incurred for the respite services.

You do not incur expenses for any personal shopping or personal items for clients or employees whilst providing respite services.

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)    Why is 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)    Where is 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 83 and 84 provides an example of deductible meal expenses for employees and clients whilst travelling:

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.

Application to your circumstances

Question 1

You incurred expenses on behalf of your employees for entry costs to mentoring service activities 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 incur for your employee's entry costs to mentoring service 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 incurred expenses for employees to consume food and drinks whilst providing support during mentoring service activities. The food and drinks were provided at locations such as restaurants and cafes. All meals advertised on the menu were available for the employee and drinks included coffees, soft drinks, and milkshakes. Alcohol was not covered.

The food and drinks are provided in cafes and restaurants due to the non-existence of a regular business premise. Employees may be in a different location each day, as mentoring service activities will change dependant on the services to be provided to the client. The quality of the lunch meals that may be provided to an employee on a standard working day at the venues would not be considered so elaborate as to take on the characteristics of 'entertainment'. It would be considered the provision of refreshments to enable the employees to complete the working day in comfort.

The employee is also required to sit with clients to assist them in their eating their lunch, whilst the employee also eats their own meal at the same time. There is no separate allocated meal break for employees. In this instance, the provision of food and drink has a work-related purpose as it undertaken whilst completing a duty of their role.

Therefore, in the absence of a more elaborate meal or supplementary entertainment such as a floor show, the expenses incurred for food and drinks on behalf of employees whilst providing support at mentoring service activities are deductible under 8-1 of the ITAA 1997.

Question 3

You incurred expenses on behalf of your employees for entry costs to activities whilst travelling away from home overnight to perform their support duties to provide respite to clients. Your employees are on duty assisting and providing care to clients 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 as outlined in the respite service agreement.

Therefore, the expenses you incurred for your employee's entry costs to respite service 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 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 their work-related travel. Considering the factors outlined in TR 97/17 and in the absence of any supplementary entertainment provided such as a floor show, the food or drink is not provided by the employer to provide entertainment to that employee.

As also outlined in question 2, the employee is required to sit with clients to assist them in their eating their meals, whilst the employee also eats their own meal at the same time. There are no separate allocated meal breaks for employees. In this instance, the provision of food and drink has a work-related purpose as it undertaken whilst completing a duty of their role.

Therefore, in the absence of a more elaborate meal or supplementary entertainment such as a floor show, the expenses incurred for food and drinks on behalf of employees whilst providing support under the respite service agreement are deductible under 8-1 of the ITAA 1997