1 Are the expenses incurred in purchasing light food and/or drinks deductible under Division 8 of the Income Tax Assessment Act 1997 (ITAA1997)?
Yes, but only to the extent that the expenses are subject to Fringe Benefits Tax (FBT). Otherwise, the expenses are not deductible. Question 2 Are the expenses incurred in purchasing substantial meals deductible under Division 8 of the Income Tax Assessment Act 1997 ? Answer Yes, but only to the extent that the expenses are subject to FBT. Otherwise, the expenses are not deductible. Issue 2 Fringe Benefits Tax Question 1 Do restaurants and cafés constitute your business premises under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? Answer No Question 2 Has the entity provided its employees a meal entertainment benefit under section 37AD of the FBTAA 1986 or any other fringe benefit? Answer Yes Question 3 If the entity has provided its employees with a meal entertainment fringe benefit or any other fringe benefit, is it exempt under minor benefits provision under section 58P of the FBTAA 1986? Answer No Issue 3 Goods and services tax and creditable acquisitions Question 1 Are the expenses incurred in purchasing coffee, drinks and/or light meals creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999
(GST Act)? Answer No Question 2 Are the expenses incurred in purchasing substantial meals creditable acquisitions under Division 11 of the GST Act? Answer No This ruling applies for the following periods : Income Tax Year ending 30 June 2022 Income Tax Year ending 30 June 2023 Income Tax Year ending 30 June 2024 Income Tax Year ending 30 June 2025 FBT year ending 31 March 2022 FBT year ending 31 March 2023 FBT year ending 31 March 2024 FBT year ending 31 March 2025 The scheme commences on: 1 April 2021
The entity operates a business. The entity is registered for GST. There are no business premises. The business owners and all their employees work from home and are located significant distances from each other. The business deals with international freight. There are no regular office hours, as they operate 24 hours a day 7 days a week. Meetings held for the general operation of the business are conducted at cafés and restaurants and may be held at any time of the day and night. Meetings may consist of: • meetings between the business owners to discuss general operations of the business • meetings between business partners and staff • meetings between business owners/and or staff and clients or suppliers Depending on the time of day or night of the meeting, they consume light refreshments (coffee and sandwiches), or they may consume a substantial meal. Some meetings may take place after 6 p.m. when light meals/refreshments are not available, and a substantial meal may be the only option. On some occasion's alcohol may be included in the substantial meal.
The cost of the food and drink is paid for using the business credit card. The client estimates about 3-4 meetings per month, 50% of which would be with clients.
Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subdivision 32-B Income Tax Assessment Act 1997 section 32-5 Income Tax Assessment Act 1997 section 32-10 Fringe Benefits Tax Assessment Act 1986 subsection 136(1) Fringe Benefits Tax Assessment Act 1986 section 40 Fringe Benefits Tax Assessment Act 1986 section 20 Fringe Benefits Tax Assessment Act 1986 section 58P Fringe Benefits Tax Assessment Act 1986 section 37AD 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 69-5
Issue 1 Income Tax - deductibility of food and drink Question 1 Are the expenses incurred in purchasing light food and/or drinks deductible under Division 8 of the Income Tax Assessment Act 1997 (ITAA1997)? Summary Expenses incurred for the provision of light food and/or drinks fall under the definition of 'Entertainment' in section 32-10 of the ITAA 1997. Therefore, the expenses are only deductible under section 8-1 to the extent that they are subject to FBT. Otherwise, such expenses are not deductible. Detailed reasoning Section 8-1 of the ITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income; or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, paragraph 8-1(2)(d) denies a deduction for an expense under section 8-1, to the extent that another section of the ITAA 1997 prevents you from deducting it. Section 32-5 of the ITAA 1997 provides that you cannot deduct the costs of providing entertainment under section 8-1. 'Entertainment' is defined in section 32-10 of the ITAA 1997 which states: (1) Entertainment means:
(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. (2) You are taken to provide entertainment even if business discussions or transactions occur. The phrase 'entertainment by way of food, drink or recreation' is not further defined in the income tax legislation. Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food and drink (TR 97/17) provides guidance on whether the provision of food and drink constitutes entertainment. TR 97/17 explains that only the provision of food and drink that has an element of entertainment satisfies the definition, based on the ordinary meaning of entertainment, which in this context is 'amusement'. However, in most cases the mere provision of food and drink satisfies the 'entertainment' test. It is only a narrow category of cases where the mere provision of food and drink does not amount to 'entertainment' for the purposes of Division 32. However, as noted in Paragraph 5 of TR 97/17: 'when the entertainment is subject to fringe benefits tax (FBT), Division 32 has no effect.'
To determine whether the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. 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. (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.
Paragraph 24 of TR 97/17 provides that no one factor will be determinative however, paragraphs (a) and (b) carry greater importance. Application to your circumstances The provision of light food and/or drink occurs during the course of meetings attended by employees or clients of the entity. The food and/or drink provided is for the purpose of refreshment of attendees at business meetings that take place at cafés and restaurants. Provision of light food and/or drink for the purposes of refreshment for employees does not generally have the character of entertainment when provided on business premises during business hours. Where it is provided in a social setting, it has the character of entertainment. However, the provision of light food and/or drink to clients of an entity is likely to have the character of entertainment. The type of food and/or drink provided is light refreshments such as coffee or sandwiches. These types of food and/or drink are generally not considered to confer entertainment, when provided on business premises during business hours.
The provision of light food and/or drink occurs during meetings attended by employees and clients of the entity, for the purpose of refreshment during typical work hours. The business is run 24 hours a day so these meetings could occur anytime of the day or night. Although the nature of the food and/or drink provided may suggest that entertainment is not an expected outcome of the provision by the recipients, this is when provided on business premises during business hours. Even though the business is stated to run 24 hours a day, provision of substantial food and/or drink during meetings that occur outside of typical business hours are likely to constitute entertainment. There is no business premises, and employees work from home. The light food and/or drink is provided in cafés or restaurants centrally located in Perth. This does not change the hospitality nature of a café or restaurant. As the provision of light food and/or drink does not occur on business premises and rather is provided in hospitality venues, it is considered to have the character of entertainment. Conclusion
It is considered that expenses incurred in providing light food and/or drink to employees and/or clients of the entity constitutes 'Entertainment' under section 32-10. Therefore, they are only deductible under section 8-1 to the extent that they are subject to FBT. Otherwise, such expenses are not deductible. Question 2 Are the expenses incurred in purchasing substantial meals deductible under Division 8 of the Income Tax Assessment Act 1997 ? Summary Expenses incurred for provision of substantial meals fall under the definition of 'Entertainment' in section 32-10 of the ITAA 1997. Therefore, the expenses are only deductible under section 8-1 to the extent that they are subject to FBT. Otherwise, such expenses are not deductible. Detailed reasoning The applicable legislation and principles for provision of substantial meals are the same as those for provision of light food and/or drinks in question 1, as discussed in TR 97/17. However, as noted in Paragraph 5 of TR 97/17: 'when the entertainment is subject to fringe benefits tax (FBT), Division 32 has no effect.' Application to your circumstances
The provision of substantial meals and/or occasionally alcohol occurs during the course of meetings held with employees or clients of the entity. Generally, the provision of food and/or drinks in a social situation such as a restaurant, is considered to be for the purpose of enjoyment of the attendees and has the character of entertainment. The type of food and/or drink provided are substantial meals and/or occasionally, alcoholic drinks. Substantial meals are more elaborate than refreshments and are therefore likely to have the characteristic of entertainment. Furthermore, the consumption of alcohol has social connotations. Overall, it is considered that the provision of substantial meals and on occasion, alcohol, have the character of entertainment.
The provision of substantial meals and occasionally alcohol occurs during business meetings. Such meetings are often held outside of typical business hours, during evenings. Although your business is stated to run 24 hours a day, it is considered that if food and/or drink are provided outside of typical business hours, that the entertainment of the recipient is the expected outcome of the provision of the food and/or drink. As a result, it is considered to have the character of entertainment. You have stated that you do not have business premises, but your employees work from home. The provision of substantial meals and/or occasionally alcohol occurs in cafés or restaurants. As the provision of food and/or drinks does not occur on business premises and rather is provided in hospitality venues, it is considered to have the character of entertainment. Conclusion
It is considered that expenses incurred in providing substantial meals and/or occasionally alcohol to employees and/or clients of the entity constitutes 'Entertainment' under section 32-10 of the ITAA 1997. Therefore, such expenses are only deductible under section 8-1 to the extent that they are subject to FBT. Otherwise, expenses incurred in the provision of substantial meals and/or alcoholic drinks are not deductible. Issue 2 Fringe Benefits Tax Question 1 Do restaurants and cafés constitute your business premises under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? Summary Cafés and restaurants do not meet the definition of business premises. Detailed reasoning Subsection 136(1) of the FBTAA defines 'business premises' in relation to a person to mean 'premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include: • premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or • a corporate box; or
• boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or • other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment.' Therefore, two requirements need to be met for premises to be business premises: • the premises or part of the premises are 'of' the person; and • the premises or part of the premises must be used by the person, in whole or in part, for the purposes of their business operations. Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' ("TR 2000/4") provides the Commissioner's view on what constitutes business premises. Paragraph 5 of TR 2000/4 states: It is a question of fact and degree as to whether particular premises are 'business premises' of a person. This can only be resolved by making a common-sense judgment about the facts of each case and not by adopting any absolute rule. Premises of the person Paragraph 7 of TR 2000/4 states:
If a person has ownership of premises, or has exclusive occupancy rights as lessee of premises, the premises would ordinarily be described as premises of the person. Paragraph 8 of TR 2000/4 states: ...where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations. Paragraph 12 of TR 2000/4 states In making this analysis, an employer should carefully weigh all relevant matters, including the following factors that are especially relevant to determining whether each of the two requirements has been met: (a) the control the employer has over the premises; and (b) the consistency of an employer's actions and activities on the premises with those of normal business practices.
Considering the above paragraphs and taking the common-sense approach it is fair to determine that the restaurants and cafés do not constitute the business premises of the employer as they do not have ownership or exclusive occupancy rights to the restaurants and cafés. The meetings are not necessarily held in the same restaurant or café on each occasion. A business premises does not ordinarily change location on a weekly basis. It is not necessary to explore the second requirement of the definition as it does not meet the first requirement. Consequently, the restaurants and cafés do not meet the definition of business premises. Question 2 Has the entity provided its employees a meal entertainment benefit under section 37AD of the FBTAA 1986 or any other fringe benefit? Summary The Commissioner has determined that the benefit being provided to the employees has the characteristics of a meal entertainment benefit as defined under section 37AD of the FBTAA 1986 when substantive meals are consumed subject to employer making an election under Division 9A of the FBTAA 1986. A property benefit will arise
under section 40 of the FBTAA 1986 when lite meals are consumed or when an election is not made for substantive meals. Detailed Reasoning Provision of meal entertainment is defined in section 37AD of the FBTAA 1986 as the provision of: (a) entertainment by way of food or drink, or (b) accommodation or travel in connection with, or for the purpose of facilitation, entertainment to which paragraph (a) applies; or (c) the payment of reimbursement of expenses incurred in providing something covered by paragraph (a) or (b); whether or not: (d) business discussions or business transactions occur; or (e) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or (f) for the purposes of promotion or advertising; or (g) at or in connection with a seminar. Subsection 136(1) of the FBTAA defines entertainment as having the meaning given by section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 32-10 of the ITAA 1997 defines entertainment 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 includes amusement, sport and similar leisure-time pursuits and includes recreation and amusement in vehicles, vessels, or aircraft (for example, joy flights, sightseeing tours, harbour cruises). Some examples of the provision of entertainment are: • business lunches and drinks, cocktail parties, and staff social functions • providing entertainment to employees and clients by providing access to sporting or theatrical events, sightseeing tours, holidays and so on • accommodation and travel when it's provided in connection with, or to facilitate, activities such as entertaining clients and employees over a weekend at a tourist resort or providing them with a holiday. Meal entertainment benefit Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) provides guidance in relation to entertainment.
Paragraphs 22 to 24 of TR 97/17 state that in determining whether entertainment is provided, an objective consideration of the circumstances in which the entertainment is provided are required. Paragraph 23 of TR 97/17 suggests the following tests be applied: (a) Why is the food, drink and recreation being provided? Food, drink, and recreation provided in a social situation where the purpose of the function is for the employees to enjoy themselves has the character of entertainment. (b) What food, drink and recreation are being provided? The more elaborate the food, drink, and recreation, the greater the likelihood that entertainment will arise. (c) When is the food, drink and recreation being provided? Food or drink provided during work time, overtime or travelling on business is less likely to have the character of entertainment. (d) Where is the food, drink and recreation being provided? Food or drink provided on the employer's business premises is less likely to have the character of entertainment. Why is the food, drink and recreation being provided?
The food and drink are being provided by way of sustenance for employees who are attending meetings. As the organisation is a 24/7 operation these meetings can occur at night. The food and drink are being provided to the employees in the course of their employment and for their sustenance during the day and meetings that could occur outside of regular business hours. Employees who attend these meetings are fulfilling their employment duties. Any food and drink they are provided is not for their own entertainment. However, this could be viewed differently when clients are engaged in the business meeting. What food, drink and recreation are being provided? As stated in paragraph 23 of TR 97/17, the more elaborate meals are the more likely that they have the characteristics of entertainment. The food and drink are provided to the employees in cafés and restaurants. Light meals, refreshments are provided during the day and if the meeting takes place after 6pm then often light food is no longer available on the menu, so the employees order substantial meal with or without alcohol...
The extent to which employees partake in the food and drink varies as the employees work different times due to the business operating 24/7. Consumption of substantial meals with or without alcohol is what the Commissioner would consider a more elaborate meal. On occasions when a more elaborate meal and alcohol is served that takes on the characteristics of entertainment. The consumption of the lighter meals would not constitute entertainment. When is the food, drink and recreation being provided? TR 97/17 provides at paragraph 23(c) that: Food and drink provided during work time, 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 and drink. For example, a staff social function held during work time still has the character of entertainment.
The employee's consumption of food and drink occurs during their normal working hours, and it is in the form of sustenance for them to continue their work and not to confer entertainment on them. The employees are working while they are eating and drinking by way of a staff meeting. Business hours for this entity does not take on the normal character of 9am to 5pm work. This entity operates 24 hours a day, 7 days a week. At times meetings occur in the evening after 6pm.The food and drink are provided during work time and is less likely to have the characteristics of entertainment. Where is the food, drink and recreation being provided? TR 97/17 provides at paragraph 23(d) that: ...food or drink provided in a function room, restaurant, café, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of food is less likely to have a work-related purpose.
The food and drink are being provided at locations such as restaurants and cafés. At times employees consume more elaborate meals. However, the food and drink are provided in these venues due to non-existence of a business premise. In this instance, the provision of food has a work-related purpose. Therefore, the provision of food in these venues is less likely to have a character of entertainment. Has entertainment been provided? Applying the above, the tests can be summarised as follows: • the purpose of providing food and drink, so employees can gather for meetings as the business does not have a business premises and all business owners and employees work from home; • what has been provided to the employees is in the nature of the meals; especially when the employees consume more elaborate meals it takes the character of entertainment. The provision of the light meals and coffee is not entertainment.
• the food and drink are provided during work time. This entity operates 24/7, 7 days a week, so operations are outside standard business hours. Provision of food and drink during working hours is less likely to have the character of entertainment; and • the food, drink and recreation are provided at entertainment venues such as restaurants and cafés. Paragraph 24 of TR 97/17 states that no one factor will be determinative. However, factors (a) and (b) are considered the most important. By applying the four tests outlined in TR 97/17 above, it is considered that the food and drink provided to the employees while attending meetings in a restaurant or café does not constitute entertainment when light meals are served. When substantial meals and alcohol are served it takes on the characteristics of entertainment. An election can be made under Division 9A to value the entertainment as meal entertainment. A fringe benefit does not arise when payment is made for food and drink for clients. A fringe benefit only occurs when payment is made for food and drink for employees and associates. Expense payment benefits
As we have determined that the provision of the light meal is not meal entertainment benefits, we need to consider if the food and drink will be either expense payment benefits according to section 20 of the FBTAA where you reimburse your employees, or property benefits according to section 40 of the FBTAA where you provide the food or drink to the employees. An expense payment fringe benefit may arise in either of two ways: • you (the employer) reimburse an employee for expenses they incur • you pay a third party in satisfaction of expenses incurred by an employee. In either case, the expenses may be business expenses or private expenses, or a combination of the two. Section 20 of the FBTAA states: Where a person (in this section referred to as the "provider"): (h) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of expenditure incurred by the recipient; or
(i) reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient' the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit to the recipient. It is important to note that these rules apply to expenses incurred by an employee that are reimbursed or paid the employer. They don't apply to goods or services employer purchase directly and provide to the employee. Nor do they apply to goods or services purchased using the company credit card. In this situation, the employees are required to attend meetings that are held in restaurants or cafés as the employer does not have a business premises. While the meeting is in progress the employees partake of light meals and drinks to which the employer pays for with the company credit card. Therefore, an expense payment benefit has not occurred. Property fringe benefit
The term property fringe benefit is defined in subsection 136(1) of the FBTAA to mean 'a fringe benefit that is a property benefit' and property benefit is defined in that subsection to mean: a benefit referred to in section 40 but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III. Section 40 of the FBTAA states: Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time. Property is defined in subsection 136(1) of the FBTAA to include tangible property.
Where employees use a corporate credit card to purchase the food and drink at the restaurants or cafés it is the employer that is liable for any expenses incurred on the credit card. Therefore, whether the employees are provided with the food and drink for free or use the corporate credit card, the benefit they are receiving is the provision of food and drink which is tangible property and therefore constitutes a property fringe benefit. Question 3 If the entity has provided its employees with a meal entertainment fringe benefit or any other fringe benefit, is it exempt under minor benefits provision under section 58P of the FBTAA 1986? Summary The Commission has determined that the benefits provided would not be considered exempt benefits under section 58P of the FBTAA 1986. Detailed reasoning The Applicant has asked us to consider if the food and drink will be an exempt benefit under section 58P of the FBTAA 1986. In determining whether the benefit providedis exempt, it is necessary to consider the criteria as stated in subsection 58P (1) of the FBTAA 1986. Section 58P of the FBTAA 1986 states: 58P Exempt benefits - minor benefits (1) Where:
(a) a benefit (in this section called a minor benefit ) is provided in, or in respect of, a year of tax (in this section called the current year of tax ) in respect of the employment of an employee of an employer; ... (c) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and (d) having regard to: (i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to: (A) the minor benefit; or (B) benefits provided in connection with the provision of the minor benefit; have been or can reasonably be expected to be provided; (ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax; (iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;
(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax: (A) if the minor benefit is not a car benefit - the minor benefit; and (B) if there are any associated benefits that are not car benefits - those associated benefits; and (v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing: (A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and (B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee; it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax; the minor benefit is an exempt benefit in relation to the current year of tax. Guidance on the possible application of section 58P of the FBTAA is contained within Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits
(TR 2007/12). In summarising the requirements of section 58P of the FBTAA, paragraphs 8 to 12 of TR 2007/12 state: 8. A minor benefit is an exempt benefit under section 58P where: • the notional taxable value of the minor benefit is less than $300; and • it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit. 9. In considering the application of the exemption under section 58P it is necessary to look to the nature of the benefit provided and give due weight to each of the criteria. The weight given to each criterion will also vary depending on the circumstances surrounding the provision of each benefit. 10. Section 58P does not apply to exempt all benefits that have a notional taxable value of less than $300. 11. First, there are certain benefits that are specifically excluded from section 58P. These are: • airline transport benefits; • expense payment benefits where, if the benefit was an expense payment fringe benefit, it would be an in-house fringe benefit;
• property benefits where, if the benefit was a property fringe benefit, it would be an in-house fringe benefit; and • residual benefits where, if the benefit was a residual fringe benefit, it would be an in-house fringe benefit. 12. Secondly, where: • tax-exempt body entertainment is provided, and • the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee or an associate of the employee, such benefits are excluded from consideration for exemption under section 58P, except in two limited circumstances.
In determining whether the property fringe benefitis exempt, it is necessary to consider the criteria as stated in subsection 58P (1) of the FBTAA 1986. Broadly, in-house fringe benefits are benefits that are identical or similar to the benefits you provide to customers in the ordinary course of business. The Applicant is in the business of freight and logistics and the benefit being provided is food and drink. Therefore, the benefit is not an in-house property benefit, and the exclusion does not apply as per paragraph 58P(1)(c). Paragraph 17 of the TR 2007/12 explains paragraph 58P(1)(e) places a threshold of 'less than $300 on the notional taxable value of a minor benefit. This threshold test applies to each benefit provided to an individual employee, and/or each benefit provided to an associate of an employee, to which section 58P may apply. The threshold test is not an upper limit on the total value of minor benefits that any individual employee may receive. We consider the following factors to determine whether exempt minor benefit apply in this scenario: (i) Is the notional taxable value of the benefit less than $300?
It is unlikely the notional value of the meals will be less than $300 per employee considering the frequency of the meetings. (ii) How frequently and regularly were identical or similar benefits provided? Paragraph 22 of TR 2007/12 provides that: ...in applying the 'infrequency and irregularity' criterion, it is not appropriate to stipulate the maximum number of times associated benefits that are identical or similar to a minor benefit, or benefits in connection with the minor benefit, can be provided before the criterion is not met. However, the more often and regularly those benefits are provided, the less likely it is that this criterion would be met. In this case, the meetings are held 3-4 times per month. The Commissioner regards the benefits as being provided on a frequent and regular basis. (iii) What is the sum of the notional taxable value of the benefit and any associated benefit? The total benefit provided for each employee is not known. However, due to the frequency and regular basis on which the food and drink is being provided and the cost of those benefits it is likely to be a substantial amount over a yearly period per employee.
(iv) Are there any practical difficulties in determining the notional taxable value? There are no practical difficulties for the employer to maintain adequate records to determine the notional value of the benefit. (v) What are the circumstances in which the benefit was provided? All employees of the employer work from home. There are no business premises (owners and directors also work from home). Business team meetings and meetings with clients are held on a regular basis at restaurants and cafés where food and drink are provided to employees. Having weighed up the above matters, the Commissioner considers that the provision of food and drink to the employees will not be an exempt minor benefit under section 58P of the FBTAA 1986. Issue 3 Goods and services tax and creditable acquisitions. Question 1 Are the expenses incurred in purchasing coffee, drinks and/or light meals creditable acquisitions under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Summary In this situation, the expenses incurred in purchasing coffee, drinks and/or light meals are not creditable acquisitions under Division 11 of the GST Act. Detailed reasoning
Under Division 11 of the GST Act an entity is entitled to input tax credits for its creditable acquisitions. Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if: (a) it acquires anything solely or partly for a creditable purpose and (b) the supply of the thing to it is a taxable supply and (c) it provides or are liable to provide consideration for the supply and (d) it is registered or required to be registered. From the information supplied the entity has paid consideration for its acquisitions, it is registered for GST purposes, and it has acquired these goods and services in the course of its enterprise. Therefore, its acquisitions will be creditable acquisitions if the supplies to it are taxable supplies, unless any special provisions override this section of the GST Act. Under Division 69 of the GST Act meal entertainment expenses are not a creditable acquisition to the extent that they are not deductible under the Income Tax Assessment Act 1997 (ITAA 1997). Goods and Services Tax Ruling GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits
explains the circumstances under which supplies of fringe benefits are subject to GST. Paragraphs 97 to 99 of that ruling state: 97. Whilst section 32-5 of the ITAA 1997 denies a deduction for entertainment under section 8-1 of that Act, section 32-20 of the ITAA 1997 allows an exception where entertainment is provided by way of a fringe benefit. Consequently, Division 69 does not apply to disallow input tax credits for entertainment expenses made in providing fringe benefits (as defined in the FBTAA). This rule also applies to fringe benefit acquisitions and importations for recreational club expenses and expenses for a leisure facility or boat.
98. Although acquisitions and importations made to provide fringe benefits are an exception to the Division 69 denial of deductions for entertainment expenses, exempt benefits are not fringe benefits for these purposes. For example, in income tax, expenses for entertainment that are exempt under section 41 of the FBTAA, being provided and consumed on a working day, are not deductible expenses because of section 32-5 of the ITAA 1997. See Taxation Ruling TR 97/17 for an explanation of the interaction between entertainment as a fringe benefit and as a deductible expense in the context of meal entertainment. Under Division 69 of the GST Act these FBT exempt entertainment benefit expenses are not creditable acquisitions. 99. Paragraph 69-5(3)(f) disallows any entitlement to input tax credits for acquisitions and importations for providing entertainment to clients rather than employees. However, to the extent that the acquisitions and importations are made in providing entertainment to employees and are otherwise creditable, Division 69 will not deny those entitlements.
Subdivision 69-A of the GST Act provides, amongst other things, that non-deductible expenses do not give rise to creditable acquisitions. Non-deductible expenses are defined in the ITAA 1997. Division 32 of the ITAA 1997 deals with what are non-deductible expenses for the purposes of subdivision 69 of the GST Act. Subdivision 32-B of the ITAA 1997 contains the exceptions to the general rules concerning non-deductibility of entertainment. These exceptions include: • entertainment for payment in the ordinary course of the business that the entity conducts • expenses incurred in providing food or drink to employees/clients in an in-house dining facility • providing food, drink, accommodation, or travel to an individual reasonably incidental to attending a seminar • expenses incurred in providing entertainment to promote or advertise the business or its products to the public • expenses incurred by the entity in providing entertainment by way of fringe benefits to the entity's employees. Application to your circumstances
In this situation, none of the exceptions found in Subdivision 32-B of the ITAA 1997 applies. Conclusion As such the entity is not able to claim input tax credits to the extent that the meal entertainment expenses are non-deductible expenses. Question 2 Are the expenses incurred in purchasing substantial meals creditable acquisitions under Division 11 of the GST Act? Summary In this situation, the expenses incurred in purchasing substantial meals are not creditable acquisitions under Division 11 of the GST Act. Detailed reasoning Refer to the detailed reasoning for question 1.