Private ruling: Tax deductibility of certain entertainment expenses
Published: July 2012
Ruling period: 1 January 2010 to 31 December 2010
Date scheme commenced: 1 January 2010

Ruling: Q1: Will specified entertainment expenditure incurred in providing incentives under the relevant promotional packages fall within item 4.1 of the table in section 32-45 of the Income Tax Assessment Act 1997 (ITAA 1997) and as such section 32-5 of the ITAA 1997 will not stop the taxpayer from deducting a loss or outgoing for the entertainment expenditure. | A1: Yes

Relevant facts and circumstances: The taxpayer is a tax consolidated group comprising various members ("group members") and is a member of the operating group. Promotional packages As a means of attracting long term advertisers and building advertising loyalty to customers, the company (a member station of the tax consolidated group) offers packages ("promotional packages") to prospective clients which combine regular services with the provision of a benefit/incentive which could be used by the recipient for the purpose of entertainment. The incentives are offered as a bonus to encourage prospective clients to take up the package. The loss or outgoing incurred in the provision of entertainment under the promotional packages are incurred to promote to the public, the business carried on by the company. The packages are promoted in newspapers and directly to both clients and potential clients through either face to face meetings or phone calls. Any member of the public wishing to advertise with the company may elect to take part in the promotional package providing they meet the minimum advertising spend. The entertainment expenditure incurred in providing the promotional packages is incurred in providing entertainment to clients who have entered into the relevant promotional package contracts with the company. The incentives/benefits cannot be exchanged for additional advertisements or cash. Annual seminar The annual seminar is organised by the operating group with the main aim to provide rigorous and informative consultation sessions and to work with the attendees in developing a tailored marketing strategy. The seminar is run for four days. The main purpose of the seminar is not to promote or advertise the business or goods or services of the operating group (or any of its members) and it is not intended that any information or discussion of matters particular to the operating group take place. Rather, the main purpose of the seminar is to develop a marketing strategy for the operating group's clients. Recreational activities are not part of the schedule for the seminar and any additional activities that attendees may wish to undertake must be taken during their own time and at their own expense.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 32-35 | Income Tax Assessment Act 1997 Section 32-45

Reasons for decision: Summary: Yes, the specified entertainment expenditure incurred in providing incentives under the relevant promotional packages falls within item 4.1 of the table in section 32-45 of the ITAA 1997 and as such section 32-5 of the ITAA 1997 does not stop the taxpayer from deducting a loss or outgoing for the entertainment expenditure. | Detailed Reasoning - Detailed reasoning: Item 4.1 of the table in section 32-45 of the ITAA 1997 allows a deduction for a loss or outgoing that is entertainment, if: (a) you provide it to an individual under a contract to supply him or her with goods or services in the ordinary course of your business; and (b) you incur the loss or outgoing to promote or advertise to the public your business or its goods or services. | Detailed Reasoning - Promotional packages: Section 32-45 of the ITAA 1997 only applies to losses or outgoings that are entertainment. The expenditure incurred in providing the entertainment is incurred in providing entertainment to its clients under a contract to supply them with goods and services in the ordinary course of its business. Furthermore, the promotional packages are advertised in newspapers and directly to potential clients. There are no restrictions on who may contract with the company for one of the promotional packages. As such the packages would be considered to be advertised to the public as a method of promoting the company's services. Accordingly, the entertainment expenditure as listed above incurred in providing incentives under the promotional packages would fall within item 4.1 of the table in section 32-45 of the ITAA 1997 and as such section 32-5 of the ITAA 1997 does not stop the taxpayer from deducting a loss or outgoing for the entertainment expenditure. | Summary: Yes, the annual seminar (as described in the relevant facts for this ruling), falls within the definition of a "seminar" under item 2.1 of section 32-35 of ITAA 1997, and none of paragraphs (a), (b) and (c) in column 3 of item 2.1 apply to override the exclusion. | Detailed Reasoning - Detailed reasoning: Section 32-35 of the ITAA 1997 provides an exception to s 32-5 in respect of certain seminars. However the exception does not apply if the seminar: (a) is a business meeting; or (b) its main purpose it to promote or advertise a business or its goods or services; or (c) its main purpose is to provide entertainment at, or in connection with, the seminar. Seminar is given a broad definition in subsection 32-65(1) of the ITAA 1997 and is defined to include a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, "question and answer session", training session or educational course. Furthermore, subsection 32-65(3) states that a seminar will be a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular business to give or receive information, or discuss matters, relating to the business. | Detailed Reasoning - Annual seminar: For the purposes of section 32-35 of the ITAA 1997, the annual seminar would satisfy the definition of 'seminar' as provided in subsection 32-65(1) of the ITAA 1997 as it is a combination of a training session and educational course. The annual seminar is not considered a business meeting as the activities and services of the operating group are not discussed throughout the seminar. The main purpose is not to promote or advertise a business or to provide entertainment at, or in connection with, the seminar, but rather to provide rigorous and informative consultation sessions and to work with the attendees in developing a tailored marketing strategy. Accordingly, the annual seminar, as described in the facts to this ruling, falls within the definition of a "seminar" under item 2.1 of section 32-35 of the ITAA 1997, and none of paragraphs (a), (b), and (c) in column 3 of item 2.1 apply to override the exclusion.

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. | Question 2: Will the annual seminar (as described in the relevant facts for this ruling), fall within the definition of a "seminar" under item 2.1 of the table in section 32-35 of the Income Tax Assessment Act 1997 (ITAA 1997), and none of paragraphs (a), (b), and (c) in column 3 of item 2.1 apply to override the exclusion.