Private ruling: Entertainment expenditure
Date of advice: 25 August 2023
Published: 9 October 2023
Ruling period: 1 April 202X to 31 March 202X
Date scheme commenced: 1 April 202X

Ruling: Q1: Does food, drink, recreation and associated travel and accommodation provided to Marketing Managers while attending company sponsored events constitute entertainment for the purposes of section 32-10 of the Income Tax Assessment Act (ITAA) 1997? | A1: No | Q2: Does food, drink, recreation and associated travel and accommodation provided to Executives while attending company sponsored events constitute entertainment for the purposes of section 32-10 of the Income Tax Assessment Act (ITAA) 1997? | A2: Yes

Relevant facts and circumstances: The entity derives revenue from the marketing and distribution of automotive parts and accessories. One of its major brands is the leading provider of automotive aftermarket parts and accessories in Australia and a Country. The entity is a sponsor to a number of events across Australia. As a major sponsor of the events, the entity requires Managers and Executives to attend the events connected with the sponsorship. The events are typically held on weekends, which are outside core business hours. As the events are staged in numerous locations across Australia, the Executives and the Managers are often required to travel to these events. Accommodation is provided if the Managers and the Executives have to stay overnight. The costs of attending these events (i.e. travel, accommodation and incidental costs for both the Managers and the Executive) are incurred by the entity. The duties and expectations of the Managers and Executives at the events are: The Managers • planning and management of all marketing activities to be conducted across the sponsored events, including in the days before and after the event • setting up and packing up of promotional equipment and other displays and activities in the event precinct • development and creation of social content in support of marketing objectives • management of general admission and corporate hospitality ticketing for suppliers and high-level clients • liaising with the team around the official requirements of being the naming rights partner • management of 'money-can't-buy' experiences for event attendees, suppliers and high-level clients, including hosting these customers during their experiences • implementation of brand activity at the events • ensuring compliance with various contractual obligations pursuant to the agreement, including verifying all sponsorship package benefits are provided; and • attending sponsor meetings and team meetings The Managers will only enter VIP and Corporate Suite areas to facilitate specific promotional activities, including special appearances and 'money-can't-buy' experiences for customers, and are unlikely to consume any food and drink during that time. Managers are not permitted to consume any alcohol at any time during the events, given their substantial duties in relation to setting up and managing displays and other activities. Any food and drink provided to the Managers during the event is more akin to light refreshments and 'food on the go' e.g. sandwiches, salads, pizza, hot dogs, juice, soft drinks, coffees etc, that would typically be available at food stalls/canteens at such events. The Managers are unlikely to view the event, other than incidentally seeing a portion whilst executing their duties, such as managing various activation sites. The Executives • promote the business with potential suppliers • prospect and acquire new customers through networks, advertising and sales opportunities • reactivate inactive customers • utilise customer data to deliver actionable customer insights that drive personalised campaigns • deliver engaging and personalised marketing campaigns • focus on key customer metrics • develop an understanding of customer preferences through regular contact and engagement • host and attend events with customers in VIP and Corporate Suite areas; and • attend official launches, ceremonies and trophy presentations as the naming rights partner representative Whilst in the VIP and Corporate Suite areas, the Executives may partake in the food and drink. This usually consists of a buffet meal, alcohol and non-alcoholic beverages and other light refreshments e.g. finger food, snacks, tea/coffee to the limited extent, as governed by the entities policies.


Reasons for decision: Summary: The food, drink and recreation provided to Marketing Managers whilst facilitating and attending the events does not constitute entertainment as outlined in section 32-10 of ITAA 1997. | Detailed Reasoning - Detailed reasoning: Taxation Ruling 97/17 Income Tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) outlines the ATO's view regarding 'What is entertainment?'. Paragraph 23 of TR 97/17 stated that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. It is suggested that the following factors should be considered in undertaking an objective analysis: (a) Why is the food, drink and recreation being provided? (b) What in the way of food, drink and recreation is being provided? (c) When is the food, drink and recreation being provided? (d) Where is the food, drink and recreation being provided? Paragraph 24 of TR 97/17 stated that whilst none of the above factors are determinative, factors (a) and (b) above are considered the more important. | Detailed Reasoning - Why is the food, drink and recreation being provided ?: As stated in paragraph 23 of TR 97/17, this question is a purpose test whether food or drink provide in a social situation is for employees to enjoy themselves has the character of entertainment. Section 32-10 of the ITAA 1997 define the "Meaning of entertainment" as follows: 32-10(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. 32-10(2) You are taken to provide entertainment even if business discussions or transactions occur. The term 'recreation' is defined in section 995-1 of the ITAA 1997 to include amusement, sport or similar leisure time pursuits. There are some examples provide under subsection 32-10(2) for what is or is not entertainment These are some examples of what entertainment is • business lunches • social functions These are some examples of what entertainment is not: • meals on business travel • theatre attendance by a critic • a restaurant meal of a food writer | Detailed Reasoning - Application to your circumstances: The Managers attend the events as it is their role to facilitate and host the events to optimise the customer experience, as well as to ensure that expectations arising from the sponsorship agreement are being met. Given that the events are staged across Australia and over multiple days, the entity pays for the necessary travel and accommodation expenses for the Managers. The food, drink and recreation and associated travel and accommodation is also provided in the course of their employment. As such, this can be likened to the examples of what does not constitute entertainment as outlined in the note to subsection 32-10(2) of the ITAA 1997 above. In addition, as stated in the facts above, it is expected that work duties are performed by employees at these events. This demonstrates that the intended purpose of the employees' attendance is to discharge duties and responsibilities as per their job descriptions. The entertainment received while doing so is ancillary in nature. Therefore, it is concluded that the food, drink and recreation is not provided to the Managers for the purpose of their own entertainment, but rather in the course of fulfilling their employment duties. | Detailed Reasoning - What food, drink and recreation is being provided?: As explained in Paragraph 23 (b) of TR 97/17, light meals, such as morning and afternoon teas are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. | Detailed Reasoning - Application to your circumstances: The entity outlines the types of food, drink and recreation provided to employees required to attend these events as follows: • light meals would be consumed while liaising with staff, working on promotional displays and overseeing relevant marketing activities • The Managers are not to consume alcohol at these events under any circumstances The provision of the food, drink and recreation is to facilitate the provision of entertainment to customers by way of hosting and staging promotional displays and events. The provision of food and drink to the Managers in facilitating the entertainment of customers is considered incidental to this core purpose. It is considered that the food and drink provided is not elaborate in nature. | Detailed Reasoning - Conclusion: Having applied the objective tests as outlined in Paragraph 23 of TR 97/17, we can conclude that: • the provision of food, drink and recreation to the Managers is for the purpose of fulfilling their employment duties • the food, drink and recreation provided is not elaborate and is not in the nature of entertainment • the provision of food and drink to the Managers outside ordinary business hours are considered being for work-related purposes. Therefore, it is less likely to have the character of entertainment • however, the food, drink and recreation are provided at location that is designed for the provision of recreational entertainment. Hence, the food drink and recreation are considered to being provided at entertainment venues The attendance of the Managers at the events is an integral part of their employment duties. All food, drink and recreation that is provided to them are in the course of undertaking their employment duties. Therefore, the provision of food, drink and recreation does not constitute entertainment as defined in section 32-10 of ITAA 1997. It is considered that entertainment has not been provided. | Detailed Reasoning - Question 2: Does food, drink, recreation and associated travel and accommodation provided to Executives while attending at company sponsored events constitute entertainment for the purposes of section 32-10 of the Income Tax Assessment Act (ITAA) 1997? | Detailed Reasoning - Answer: Yes | Summary: The food, drink and recreation provided to Executives whilst facilitating and attending the events does constitute entertainment as outlined in section 32-10 of ITAA 1997. | Detailed Reasoning - Detailed reasoning: Paragraph 23 of TR 97/17 stated that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. It is suggested that the following factors should be considered in undertaking an object analysis: (a) Why is the food, drink and recreation being provided? (b) What in the way of food, drink and recreation is being provided? (c) When is the food, drink and recreation being provided? (d) Where is the food, drink and recreation being provided? | Detailed Reasoning - Why is the food, drink and recreation being provided ?: As stated in paragraph 23 of TR 97/17, this question is a purpose test whether food or drink provide in a social situation is for employees to enjoy themselves has the character of entertainment. Section 32-10 of the ITAA 1997 define the "meaning of entertainment" as follows: 32-10(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. 32-10(2) You are taken to provide entertainment even if business discussions or transactions occur. Paragraph 24 of TR 97/17 stated that whilst none of the above factors are determinative, factors (a) and (b) above are considered the more important. The term 'recreation' is defined in section 995-1 of the ITAA 1997 to include amusement, sport or similar leisure time pursuits. There are some examples provide under subsection 32-10(2) for what is or is not entertainment. These are some examples of what entertainment is: • business lunches • social functions These are some examples of what entertainment is not: • meals on business travel • theatre attendance by a critic • a restaurant meal of a food writer | Detailed Reasoning - Application to your circumstances: The Executives attend the events to ensure that expectations arising from the sponsorship agreement are being met. They will host and attend events with customers in VIP and Corporate Suite areas. Food and drink in VIP and Corporate Suite areas usually consists of buffet meal, alcohol and non-alcoholic beverages and other light refreshments (e.g. finger foods, snacks, tea/coffee). As such, this can be likened to the examples of what does constitute entertainment as outlined in the note to subsection 32-10(2) of the ITAA 1997 above. | Detailed Reasoning - What food, drink and recreation is being provided?: As explained in Paragraph 23 (b) of TR 97/17, light meals, such as morning and afternoon teas are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. Also, as an example given out in Taxation Determination 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? 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. | Detailed Reasoning - Application to your circumstances: The entity outlines the types of food, drink and recreation provided to the Executives when required to attend these events, are: • the Executives may have access to VIP areas or corporate suites to host, facilitate promotional activity, including viewing the event • food and drink consumed in this setting generally include light meals or at most, a buffet meal • the Executives may partake in alcohol consumption As such, the consumption of alcohol, buffet meal and the opportunity of viewing the event in the VIP areas and or corporate suites, will be considered "elaborate in nature" and will constitute entertainment. | Detailed Reasoning - Conclusion: Having applied the objective tests as outlined in Paragraph 23 of TR 97/17, we can conclude that the food, drink and recreation provided is more elaborate than a "light meal" and constitutes entertainment as defined in section 32-10 of ITAA 1997. It is considered that entertainment has been provided.