ATO ID 2005/122: GST and entitlement to input tax credits for acquisitions made to supply meals to clients in an in-house dining facility
Date of decision: 20 August 2002
Business line: Indirect Tax

Issue
Is the entity, a business operator, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act), for goods and services tax (GST) included in acquisitions made to provide meals to clients in an in-house dining facility when, in accordance with section 32-70 of the Income Tax Assessment Act 1997 (ITAA 1997), the entity includes $30 for each meal in its assessable income?

Decision
Yes, the entity is entitled to an input tax credit under section 11-20 of the GST Act for GST included in acquisitions made to provide meals to clients in an in-house dining facility when, in accordance with section 32-70 of the ITAA 1997, the entity includes $30 for each meal in its assessable income.

Facts
The entity is a business operator and is registered for goods and services tax (GST). The entity made acquisitions to provide meals to clients in an in-house dining facility. The supplies to the entity were taxable supplies. The meal is not provided at a party, reception or other social function. In accordance with section 32-70 of the ITAA 1997, the entity includes $30 per meal as assessable income for meals provided to clients.

Reasons for decision
Summary: Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act provides that an acquisition is creditable if: The entity made the acquisitions in the course of its business, the supplies to it were taxable supplies and it is registered for GST. Therefore, the requirements in section 11-5 of the GST Act are satisfied. However, Division 69 of the GST Act provides that some acquisitions that are not deductible under the ITAA 1997 are not creditable acquisitions. Subsection 69-5(1) of the GST Act provides that an acquisition is not a creditable acquisition to the extent that it is a 'non-deductible expense'. Of relevance to this situation is paragraph 69-5(3)(f) of the GST Act which provides that entertainment expenses that are not deductible under Division 8 of the ITAA 1997 because of Division 32 of the ITAA 1997 (which deals with entertainment expenses), are non-deductible expenses. Meal entertainment provided to clients on the business premises of the employer is generally not deductible for income tax purposes (section 35-2 of the ITAA 1997). However, item 1.2 in the table in section 32-30 of the ITAA 1997 provides an exception where the meal is provided to an individual (other than an employee) in an in-house dining facility (not at a party, reception or social function) and the employer includes $30 in assessable income in respect of the meal under section 32-70 of ITAA 1997. The entity has provided a meal to a client in an in-house dining facility. The meal is not provided at a party, reception or other social function and, in accordance with section 32-70 of the ITAA 1997, the entity includes $30 per meal as assessable income. Therefore, Division 32 of the ITAA 1997 does not prevent the entity from deducting the expenses under section 8-1 of the ITAA and the acquisitions are not non-deductible expenses. As such, the entity is entitled to an input tax credit under section 11-20 of the GST Act for GST included in acquisitions made to provide meals to clients in an in-house dining facility when, in accordance with section 32-70 of the ITAA 1997, the entity includes $30 for each meal in its assessable income

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 section 11-20 Division 69 subsection 69-5(1) paragraph 69-5(3)(f)
Related ATO interpretative decisions: ATO ID 2005/121
Subject references: Goods and services tax Non deductible expenses GST supplies & acquisitions Creditable acquisition Entertainment expenses