Private ruling: GST and entertainment expenses
Published: July 2012

Ruling: Q1: Can you claim goods and services tax (GST) credits when you provide entertainment by way of provision of food and drinks to guests who are not your employees or associates of your employees? Advice: No.



Reasons for decision: Summary: Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to claim GST credits for any creditable acquisition it makes. You make a creditable acquisition under section 11-5 of the GST Act where: a) you acquire anything solely or partly for a creditable purposes b) the supply of the thing to you is a taxable supply c) you provide, or are liable to provide, consideration for the supply, and d) you are registered or required to be registered. The term "creditable purposes" is defined in section 11-15 of the GST Act and it means that you acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. Therefore, you would be making creditable acquisitions when you incur expenses relating to your enterprises. Where GST has been included in the price of the expenses (that is taxable supply to you), you can attribute these expenses (creditable acquisitions) in your activity statements. You must hold tax invoices for these expenses. | Detailed Reasoning - Non-deductible entertainment expenses and GST: However, Division 69 of the GST Act provides that an acquisition is not a creditable acquisition for GST purposes where the expense is not a deductible expense under Division 8 of the Income Tax Assessment Act (ITAA) 1997. Subsection 69-5(1) of the GST Act states that: An acquisition is not a creditable acquisition to the extent that it is a non-deductible expense. Paragraph 69-5(3)(f) of the GST Act provides that non-deductible expenses includes entertainment expenses under Division 32 of the ITAA 1997. These requirements also apply to income tax exempt entities. Subsection 69-5(4) of the GST Act states that: If the entity making the acquisition or importation is an exempt entity, the acquisition or importation is a non-deductible expense if it would have been a non-deductible expense under subsection (3) or (3A) had the entity not been an exempt entity. Therefore, paragraph 69-5(3)(f) of the GST Act will apply to entertainment expenses incurred by a tax exempt entity. | Detailed Reasoning - What are entertainment expenses?: Section 32-5 of the ITAA 1997 provides that a general deduction under section 8-1 of the ITAA 1997 is not allowable on expenditure incurred in providing entertainment, except in respect of providing entertainment by way of providing a fringe benefit under Subdivision 32-B of the ITAA 1997. Paragraph 32-10(1)(a) of the ITAA1997, defines the term entertainment as: entertainment by way of food, drink or recreation; In addition subsection 32-10(2) of the ITAA1997 provides that entertainment may include business lunches and social functions. Taxation Ruling TR 97/17 provides further explanation of entertainment by way of food and drink. We enclose a copy for your reference. You advised that you are not in the business of providing food and drinks. You will be providing food and drinks to your guests at a social function. Therefore we consider that the provision of food and drinks are entertainment for the purposes of Division 32 of the ITAA 1997. The expenses are non-deductible under section 32-5 of the ITAA1997, except in respect of providing entertainment by way of providing a fringe benefit under Subdivision 32-B of the ITAA 1997. A fringe benefit is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 as: in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; An associate for fringe benefits tax (FBT) purposes includes a spouse, a child or a relative of an employee. There is more explanation on the application of FBT and paragraph 69-5(3)(f) of the GST Act in Goods and Service Tax Ruling GSTR 2001/3 - GST and how it applies to fringe benefits tax. Paragraphs 99 and 100 of GSTR 2001/3 state: 99. Paragraph 69-5(3)(f) disallows any entitlement to input tax credits for acquisitions and importations for providing entertainment to clients rather than employees. However, to the extent that the acquisitions and importations are made in providing entertainment to employees and are otherwise creditable, Division 69 will not deny those entitlements. 100. Where an entity, such as a public benevolent institution, provides any benefits to employees which are in respect of employment, section 57A of the FBTAA provides that these are exempt benefits. As the fringe benefit exception rule in section 32-20 of the ITAA 1997 does not apply where entertainment benefits are exempt from FBT, paragraph 69-5(3)(f) can apply to deny any input credits for entertainment acquisitions and importations for public benevolent institutions. As subsection 69-5(4) applies the rules in subsection 69-5(3) to entities that are exempt from income tax as if they were subject to that tax, the fact that the benefit is exempt from FBT means that subsection 69-5(3) can apply to these entities in addition to entities that are subject to income tax. You have advised that the guests are not your employees or associates of your employees. Therefore we do not have to consider the provision of the food and drinks as a supply of a fringe benefit under Subdivision 32-B of the ITAA 1997. Paragraph 69-5(3)(f) of the GST Act disallows GST credits relating to entertainment expenses provided to your guests. The entertainment expenses are non-deductible under Division 32 of the ITAA 1997. Therefore, you are not entitled to claim GST credits on your entertainment expenses.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: · You are registered for GST. | · You are a non-profit entity and are income tax exempt. | · You are endorsed as a charitable institution for GST purposes. | · You are providing entertainment in a social function by providing food and drinks to guests who are not your employees or associates of your employees. | · However you are not in the business of providing food and drinks.