Private ruling: Entertainment - Boat, food and drinks
Date of advice: 11 May 2017
Published: September 2017
Ruling period: Income Year ending 30 June 2017
Date scheme commenced: 01 July 2016

Ruling: Q1: Is there a fringe benefit in provision of the entity's asset with food and drink to its current and prospective clients? | A1: No. Issue 2 | Q2: Are the associated expenses, in relation to the asset and provision of the asset with food and drink, allowable deductions? | A2: No. | Q3: Upon sale of the asset, how is the assessable amount calculated? | A3: The asset is considered to be used wholly for non-taxable purpose. Upon sale of the asset, a capital gain or loss under capital gains tax (CGT) event K7 is calculated based on the difference between the asset's cost and termination value. Issue 3 | Q4: Are you entitled to any GST credits on the listed items of estimated expenses? | A4: No.

Relevant facts and circumstances: The entity is in a business of providing certain services to its clients, other than leasing or entertainment. In order to obtain large contracts, the entity continuously provides entertainment to its current and prospective clients. The entity plans to purchase an asset. This asset will be used solely for the purpose of inviting and entertaining its current and prospective clients with food and drinks. One or two employee(s) of the entity will be paid to work on the asset and other duties. The entity will pay for storage of the asset. There will be associated costs and expenses for this asset.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 | Income Tax Assessment Act 1997 | A New Tax System (Goods and Services Tax) Act 1999 Issue 1 | Question 1

Reasons for decision: Summary: Provision of the asset with food and drinks to the clients do not constitute fringe benefit. Therefore, no taxable fringe benefit arises. | Detailed Reasoning - Reasons for decision: Provision of the asset with food and drinks to entertain the entity's current and prospective clients constitutes entertainment. The entity is taken to provide entertainment even if business discussions or transactions occur. Deductibility of a loss or outgoing incurred in respect of providing entertainment is prohibited. To the extent that the entity uses the asset in providing entertainment, use of the asset is taken not to be for the purpose of producing assessable income if the entity is prohibited from deducting a loss or outgoing incurred in providing the entertainment. Other claims for the asset to the extent that it is used for the provision of non-deductible entertainment are also prohibited. Costs towards provision of food or drinks consumed by clients off the employer's premises are not allowable deductions. The wages to employee(s) are incidental to provision of entertainment; accordingly, they are not allowable deductions. Therefore, none of the associated costs and/or expenses to the asset and provision of food and drinks are allowable deductions. | Detailed Reasoning - Reasons for decision: The asset is considered to be used wholly for non-taxable entertainment purpose. Upon sale of the asset, a capital gain or loss under capital gains tax (CGT) event K7 is calculated on the basis of the asset's cost and termination value, there will be no balancing adjustment. | Detailed Reasoning - Reasons for decision: The costs and/or expenses to provision of the asset with food and drinks constitute non-deductible entertainment expense. Therefore, the entity will not be entitled to any input tax credit on these expenses, which are not creditable acquisitions.