Private ruling: Lunch expenses
Date of advice: 24 November 2015
Published: January 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the provision of light lunches for employees through the use of the business debit card regarded as entertainment? | A1: Yes. | Q2: Where a fringe benefit is provided, is entity A entitled to a deduction in respect of providing this entertainment for their employees? | A2: Yes.


Relevant legislative provisions: Section 8-1 of the Income Tax Assessment Act 1997 | Section 32-5 of the Income Tax Assessment Act 1997 | Section 32-10 of the Income Tax Assessment Act 1997 | Section 32-20 of the Income Tax Assessment Act 1997 | Section 32-30 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it. Section 32-5 of the ITAA 1997 provides a general prohibition on the deductibility of entertainment expenses under section 8-1 of the ITAA 1997. Entertainment is defined in section 32-10 of the ITAA 1997 and includes entertainment by way of food, drink or recreation. Section 32-5 of the ITAA 1997 does not stop you deducting certain losses or outgoings incurred by employers such as providing food or drink to your employees in an in-house dining facility. However this or the other exceptions outlined in section 32-30 of the ITAA 1997 do not apply to the Trust. Income Tax Ruling IT 2675 Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities states that the provision of morning teas or light meals on a working day, either on the employer's premises or at a worksite of the employer, is not considered entertainment. However, entity A is not providing meals on the employer's premises or at a worksite of the employer. Therefore this exception does not apply. Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink provides guidelines on the Commissioner's view of the factors to be considered in determining whether the provision of food or drink constitutes entertainment. As outlined in paragraph 7 of TR 97/17 in determining if the provision of food or drink to an employee is entertainment, an employer should consider: why the food or drink is being provided; what type of food is being provided; when the food or drink is being provided; and where the food or drink is being provided. TR 97/17 states that 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. However it cannot be said that lunch provided to an employee during their ordinary lunch break is for a work related purpose. 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. However, food or drink provided in a café or coffee shop 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. In this case, although the employee may consume their lunch in the work vehicle, the purpose of eating their lunch is not for a work related purpose. Although only light lunches may be bought, it is considered that entity A providing food and drink to employees for their lunch amounts to entertainment for Division 32 of the ITAA 1997 purposes. As entertainment is being provided, section 32-20 of the ITAA 1997 is relevant. Section 32-20 states that section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing entertainment by way of providing a fringe benefit. As the employees are provided with entertainment and use entity A's business debit card to pay for the lunches, a fringe benefit arises. As the provision of entertainment to the employees constitutes the provision of a fringe benefit, the exception in section 32-20 of the ITAA 1997 applies to remove the prohibition on deductibility provided under section 32-5 of the ITAA 1997 and a deduction is allowed.

Relevant facts: Entity A operates a business and has employees. | Each employee is given a debit card which is linked to the business bank account. Each employee uses the debit card to purchase petrol and other work items whilst working. | The employees also use the business debit card to buy lunches for themselves such as sandwiches, takeaway food and coffee. The food would then be taken back into the work vehicle and consumed during their lunch break. Employees are not allowed to use the card to go into a dining restaurant, nor allowed to buy alcohol. | The employees do not get a meal allowance. The employee dines alone. | The employees are not away overnight for work.