Private ruling: Deductions
Date of advice: 23 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019.
Date scheme commenced: 1 July 2015

Ruling: Q1: Can you claim a deduction for the cost of purchasing alcohol that is provided to your clients? | A1: No.

Relevant facts and circumstances: You operate a shop. You give your customers a free beer, tea, coffee or soft drink while they wait.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Subsection 32-10(1) | Income Tax Assessment Act 1997 Section 32-5

Reasons for decision: Summary: Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines ''entertainment''. Unless the contrary intention appears, ''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. A loss or outgoing is not deductible under section 8-1 of the ITAA 1997 to the extent that it is incurred in respect of providing entertainment under section 32-5 of the ITAA 1997. Taxation Determination TD 94/55 Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 32-10(1) of the Income Tax Assessment Act 1997 ? (TD 94/55) discusses when providing an item of property constitutes the provision of entertainment, and gives the following example: Example 2 Costs incurred in providing glasses of champagne, hot meals, theatre tickets, holiday accommodation, hired entertainers, and hired sporting equipment, have a dynamic and immediate character. Consumption can usually occur immediately. These items of property do not last beyond initial consumption (or are to be returned at the end of the hire period). Hence, these items of property would generally constitute provision of entertainment. In this case, the beers are provided for consumption immediately. Consequently, the beers are considered to be entertainment and are therefore not deductible under section 8-1 of the ITAA 1997.