Private ruling: Business deductions
Date of advice: 1 April 2020
Published: May 2020
Ruling period: Financial year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the company entitled to a deduction for the cost of accommodation in respect of the employee's share? | A1: Yes. A loss or outgoing is not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that it is incurred in respect of providing entertainment (section 32-5 of the ITAA 1997). Providing accommodation by way of recreation is considered to be entertainment. However, Section 32-5 of the ITAA 1997 does not stop the company from deducting a loss or outgoing to the extent that it is incurred in respect of providing 'entertainment' by way of a fringe benefit (section 32-20 of the ITAA 1997). The proportion of the cost of accommodation that relates to the company's employee is a Fringe Benefit and is therefore deductible under section 8-1 of the ITAA 1997. | Q2: Is the company entitled to a deduction for the cost of accommodation in respect of the individual's share? | A2: Yes. 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 (section 32-5 of the ITAA 1997). Providing accommodation by way of recreation is considered to be entertainment. However, section 32-50 of the ITAA 1997 provides that the prohibition in section 32-5 of the ITAA 1997 does not apply to a loss or outgoing incurred in providing entertainment free of charge to members of the public who are sick, disabled, poor or otherwise disadvantaged. Accordingly, the proportion of the cost of accommodation that relates to the individual is deductible under section 8-1 of the ITAA 1997.

Relevant facts and circumstances: The company has paid for several nights' accommodation for its employee and an individual who is disabled, for a personal short term holiday for free. The employee and the individual have paid for their own costs for travel and food and personal items.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 division 32 | Income Tax Assessment Act 1997 subdivision 32-A | Income Tax Assessment Act 1997 subdivision 32-B | Income Tax Assessment Act 1997 section 32-10 | Income Tax Assessment Act 1997 section 32-20 | Income Tax Assessment Act 1997 section 32-50 | Income Tax Assessment Act 1997 section 32-80 | Fringe Benefits Tax Assessment Act 1986