Edited version of private advice

Authorisation Number: 1052359989878

Date of advice: 27 March 2025

Ruling

Subject: GST - deductions

Question 1

Can you claim a deduction for the cost of providing clients with lunch in the work premises of the business within normal working hours under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Can you claim a deduction for the cost of providing clients with morning and afternoon tea in the work premises of the business within normal working hours under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 3

Can you claim a deduction for the cost of lunch for clients provided at an off-site restaurant, café, or other venue during normal working hours under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 4

Can you claim a deduction for the cost of morning and afternoon tea for clients at an off-site restaurant, café, or other venue during normal working hours under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 5

Are the acquisitions made by your business in providing morning and afternoon tea and lunches, creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are a company operating a community home care service.

You are an Australian entity and registered for GST.

The main purpose of the organisation is to provide services for the elderly in line with a plan based on a government funded program.

The services provided are brokered through an organisation matching elderly people with program funding with service providers.

The funding packages that provide the funding for these activities look to provide support to the elderly in their home and in the community.

A range of services can be funded from these packages including social assistance.

You provide services including social support.

These services are aimed at keeping participants physically, mentally, and socially healthy and active, and contribute to the ongoing wellbeing and healthy aging of participants so they can remain in the community.

The activities you are providing are within the scope of those authorised by participants' funding packages.

Activities for participating clients are negotiated between the participant and you, as the service provider, as part of an agreed care plan.

The activities in which you are providing food and drink are directed to engaging participants in the activity and encouraging recreation and social interaction.

Clients who are taking part in these activities need this support as they suffer conditions such as anxiety, depression, or dementia, and are at risk of isolation. Benefits to participants include improved mental health and social inclusion.

These activities might include craft groups, games, bingo, going to see live entertainment, coffee and cake at a café, or going to lunch at local clubs or hotels.

Examples of the food and drink you have provided at morning teas at your premises include cake, biscuits, tea, coffee, and fruit juice.

Examples of the food and drink you have provided at lunches at your premises include sandwiches, cheap pizzas, tea, and coffee.

Examples of food and drink you have provided for morning and afternoon teas at other venues such as cafes and clubs include toasted sandwiches, paninis, chips with gravy, tea, coffee, fruit juice, and water.

Examples of food and drink you have provided for lunches at other venues such as taverns, clubs, and hotels include steak with pepper sauce, fish or chicken schnitzel with chips, cake, tea, coffee, juice, and canned drinks.

The food and drink is included and packaged in the price of the activity.

You regularly conduct activity sessions for your clients.

In these activity sessions you:

•                     Host clients in your office activity room for social get-togethers with music, craft, games, or other activities.

•                     Take your clients out to lunch or morning tea at a venue which has music, bingo, or movies, or other entertainment.

You charge each client for participation in these sessions.

Sessions include an activity as well as transport to and from the activity venue.

You usually provide clients with lunch during the sessions you provide when they are held in your office, or purchase lunch for them if sessions are held at a restaurant or café.

The provision of morning tea, lunch, or afternoon tea is a part of the service you are providing to your clients.

The food provided is part of the activity your clients are engaged in and part of the service you are providing.

You don't consider the provision of food as an entertainment expense.

You are not providing meals to solicit clients or to keep their business.

You charge GST for your services, but do not believe GST is charged by the brokers who refer clients for your services.

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

Income Tax Assessment Act 1997 subsection 32-10(1)

Income Tax Assessment Act 1997 Subdivision 32-B

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 32-40

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

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

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

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-5(3)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 69-5(3)(f)

Reasons for decision

Questions 1, 2, 3, and 4

Expenses incurred in carrying on a business for the purpose of gaining or producing assessable income are deductible under section 8-1 of the >Income Tax Assessment Act 1997 (ITAA 1997) to the extent that they are not:

•                     Capital or of a capital nature

•                     Private or domestic in nature

•                     Incurred in gaining or producing exempt or non-assessable non-exempt income, or

•                     Prevented from being deductible by another provision of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936)>.

Section 32-5 of the ITAA 1997 prevents the expense of providing entertainment from being deductible under section 8-1 of the ITAA 1997 unless one of the exceptions in subdivision 32-B applies. Entertainment is defined in subsection 32-10(1) 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

Recreation is described in section 995-1 of the ITAA 1997 as "including amusement, sport or similar leisure-time pursuits".

Under section 32-40 of the ITAA 1997 section 32-5 does not prevent the deduction of expenses associated with providing entertainment for payment in the ordinary course of carrying on a business.

The deductibility of expenses associated with providing morning or afternoon tea, or light meals, is considered on Taxation Ruling IT 2675 Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in house dining facilities. As explained in IT 2675 the cost of providing morning or afternoon tea, or light meals, to visitors or guests at a business worksite is considered light refreshment, or sustenance, and not in the nature of entertainment by way of food or drink. Examples of light meals in this context include sandwiches, finger food, salads, or orange juice. Section 32-5 of the ITAA 1997 will not prevent the cost of providing such refreshments or sustenance being claimed as a deduction under section 8-1 of the ITAA 1997.

Further guidance on entertainment as it relates to the provision of food or drink for the purposes of Division 32 of the ITAA 1997 is given in Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink. The ordinary meaning of the word entertainment is adopted in TR 97/17, noting the comment 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.

The discussion of what might constitute entertainment by way of food or drink in TR 97/17 draws attention to the contrast between the light refreshments described in IT 2675 and the provision of food or drink that confers entertainment on the recipient. Examples given of food and drink conferring entertainment include business lunches and drinks, dinners, cocktail parties, and staff social functions.

In determining whether the provision of food or drink results in the entertainment of a person the following factors should be considered:

•                     Why the food or drink is being provided

•                     What type of food or drink is being provided

•                     When that food or drink is being provided

•                     Where the food or drink is being provided

More information on how these factors are taken into account in determining whether the provision of food or drink results in the entertainment of a person is given in paragraph 23 of TR 97/17:

(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)           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.

As noted in paragraph 24 of TR 97/17 no one of the above factors is determinative but the purpose and substance of the food or drink provided are considered to be more important.

You provide clients with simple lunches, such as sandwiches with tea and coffee, at your work premises as part of the activities you have been engaged to provide them. As explained in IT 2675 these items are by nature light refreshments and you will not be prevented from claiming deductions for the cost of providing these items through the operation of section 32-5 of the ITAA 1997.

You provide clients with morning and afternoon teas, including items such as coffee, tea, fruit juice, cake, or biscuits at your work premises as part of activities you have been engaged to provide them. These food and drink items are considered light refreshments, and you will not be prevented from claiming deductions for the cost of providing these items through the operation of section 32-5 of the ITAA 1997.

You provide clients with lunches, such as steak with pepper sauce followed by cake or chicken with parmigiana topping and chips, at off-site premises including local clubs or hotels as part of the package of activities you have been engaged to provide them with and included in the price of the activity.

The provision of meals is an inclusion in the activities package provided to the clients, paid for by their aged care funding. It is not provided for the purpose of entertaining your clients, but rather as part of the social support provided to clients to help improve and maintain their mental health. Whilst ordinarily the provision of meals during a "social function" can be considered entertainment, considering the factors listed in TR 97/17 the food and drink is provided as a refreshment during the social support activities that encourage the clients to spend time in the community. The meals are not elaborate, and enjoyment of the meal is not determinative of the food and drink being entertainment.

Therefore, deductions for the meals you provide to clients will not be denied by section 32-5 of the ITAA 1997.

You provide clients with morning and afternoon teas, including items such as toasted sandwiches or paninis with tea or coffee, at off-site premises such as cafes and clubs as part of the activities you have been engaged to provide them. These food and drink items are considered light refreshments, and you will not be prevented from claiming deductions for the cost of providing these items through the operation of section 32-5 of the ITAA 1997.

As such, all the expenses you incur in providing refreshments and meals to your clients as part of your services are deductible under section 8-1 of the ITAA 1997.

Question 5

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you are entitled to input tax credits on any creditable acquisition that you make. The amount of the input tax credit is the equivalent to the amount of GST included in the supply made to you. Section 11-5, which defines what a creditable acquisition is, states:

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.

Under section 11-15 of the GST Act, 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 the thing for a creditable purpose to the extent that:

(a)           the acquisition relates to making supplies that would be input taxed; or

(b)           the acquisition is of a private or domestic nature.

Regarding the acquisitions you made:

•                     Paragraph 11-5(a) of the GST Act is met. You are undertaking an enterprise of providing services for the elderly. The supplies you make related to this enterprise are not input taxed supplies or of a private or domestic nature.

•                     Paragraph 11-5(b) of the GST Act is met to the extent that the acquisitions you made were taxable supplies, as defined within section 9-5 of the GST Act, made to you. It is noted that some supplies of food will be GST-free supplies and thus not meet the test of paragraph 11-5(b). The tax invoice issued to you when making the acquisitions will show if any GST has been included in the supply.

•                     Paragraph 11-5(c) of the GST Act is met as you provided or were liable to provide consideration for the supplies.

•                     Paragraph 11-5(d) of the GST Act will be met as you are registered for GST.

Therefore, within the parameters of paragraphs 11-5(a) to (d) of the GST Act, you are entitled to claim input tax credits for the GST paid on the acquisitions made in providing morning and afternoon tea and lunches.

However, despite section 11-5 of the GST Act being met, Subdivision 69-A of the GST Act denies claiming input tax credits if an amount is not deductible under income tax laws. Subsection 69-5(1) of the GST Act states:

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

Subsection 69-5(3) of the GST Act lists what non-deductible expenses will include. Relevantly, paragraph 69-5(3)(f) states that an expense will be a non-deductible expense if it is not deductible under:

•                     Division 32 of the ITAA 1997 (Entertainment expenses).

However, as the expenses incurred by you are not entertainment expenses under Division 32 of the ITAA 1997, Subdivision 69-A of the GST Act will not apply, and the acquisitions will remain creditable acquisitions as defined within section 11-5 of the GST Act.