Private ruling: Business deductions - food and drink
Published: January 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for expenses relating to your portion of food and drink consumed at a business meeting in a cafe? | A1: No. | Q2: Are you entitled to a deduction for expenses relating to your client's portion of food and drink consumed at a business meeting in a cafe? | A2: No.

Relevant facts and circumstances: You operate a sole trader business. You often meet with clients in local cafes and other cheap eateries to discuss business activities. You incur expenses at these meetings in relation to food and drink for yourself and your clients. The food and drink typically consumed are light meals and a drink. You do not typically provide alcohol. The meetings generally occur during business hours. The costs you incur at the meetings are normally approximately $X per person. Part of your residence is your place of business however it is not suitable for client meetings.

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

Reasons for decision: Detailed Reasoning - Expense for your portion: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision prevents you from deducting it. Expenditure on the daily necessities of life (for example, food and drink) are generally a private expense and are not incurred in gaining or producing assessable income. The issue of the deductibility of meals was considered by the Full Federal Court in FC of T v. Cooper (1991) 21 ATR 1616; 91 ATC 4396 where Hill J stated (ATR at page 1638; ATC at page 4415) For the Commissioner, it was submitted that, except in a rare case, the essential character of food was always private. Exceptions for the cost of entertainment (now excluded from deduction legislatively) and for meals taken while the taxpayer was away from home on a business activity, were acknowledged. Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home. The reference to 'expenditure incurred while away from home' is a reference to the situation where a taxpayer must travel away from home at least overnight for the purposes of their employment. Where a taxpayer is required to travel for work purposes the cost of meals may be deductible. The taxpayer must however be travelling for work purposes. For example, an office worker attending an interstate conference or an 'on road' salesman. You cannot be considered to be travelling for work as you are completing your business duties at the cafe in the town of your business. Your circumstances do not change the essential character of the expense as private or domestic in nature. The expenditure incurred by you on your portion of the food or drink is not incurred in gaining or producing assessable income or necessarily incurred in carrying on a business, but is private or domestic in nature. The cost of your portion of the food or drink consumed by you is therefore not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Expense for client's portion: The provision of food or drink at a cafe may be entertainment as defined in subsection 32-10 of the ITAA97. You can make an objective analysis of all the circumstances surrounding the provision of food or drink, using the Commissioner's view in Taxation Ruling TR 97/17. In making a determination of whether the food or drink provided to a client results in the entertainment of that person, an employer should consider paragraph 7 of TR 97/17. It lists four factors that need to be considered when determining whether the provision of food and drink constitutes entertainment. These factors are: · why the food or drink is being provided · what type of food or drink is being provided · when is that food or drink being provided, and · where the food or drink is being provided. Paragraph 18 states: …in most cases the mere provision of food or drink satisfies the 'entertainment' test. It is only a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for purposes of Division 32 of the ITAA 1997. Paragraph 24 refers to the tests in determining entertainment: No one of the above factors will be determinative; however, paragraphs (a) and (b) are considered more important. The application of the above factors results in the determination of whether the food or drink amounts to meal entertainment. In determining, whether you are providing entertainment by way of food or drink, the four factors listed in TR 97/17 are considered: Why is the food and/or drink being provided? The food is provided as refreshment or for the convenience of the client. The meeting between you and your clients is to facilitate business discussions in a social or convivial atmosphere. What type of food and/or drink is provided? Items consumed are usually light meals with a drink. The average spend per meeting is $X per person. You have stated that the meals provided are light and that alcohol is not provided When is food or drink being provided? The business meetings occur during normal business hours. Where is the food or drink provided? The food or drink being provided is consumed at cafes in the area in which you conduct your business. The food or drink may not provide entertainment in itself depending on the extent of the meal, but it is the setting in which it is consumed that turns the food or drink into the provision of entertainment. That is, entertainment is provided by way of food or drink, in a social situation at a cafe, despite business discussions taking place. Taxation Ruling IT 2675, states that these refreshments provided at the employer's business premises will not be entertainment by way of food or drink. The difference in your case is that these refreshments are consumed off the business premises, which characterises it into entertainment by way of food or drink. Moreover, as per the table and addendum provided in TR 97/17 at (b)(1), food or drink consumed off the employer's premises, at a social function or business lunch, by clients, is meal entertainment by way of food or drink. The fact that there are limited facilities at your business premises for meeting clients does not change the character of entertainment by way of food or drink. This is also the case where there are no business premises. Accordingly, no deduction is allowable for the expense for the client's portion of the food or drink.

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.