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Providing entertainment Expenses

Basic treatment of Entertainment Expense

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Definition of Entertainment:

Entertainment entails by providing food, drink or recreation or accommodation or travel to do with providing such entertainment

It is taken to be provided even if business discussion or transaction occur (by section32-10(2))

Basic treatment of entertainment expense:

Rules: Division 32 ITAA

Entertainment expenses are NOT allowable deductions except in very limited circumstances

Entertainment expense and fringe benefit

Entertainment expense incurred in providing taxable fringe benefit is deductible. However, Entertainment expense is generating an exempt fringe benefit then entertainment expense is not deductible

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Property and Entertainment Expense:

Rule: Division 32 Part 2-5

Explanation: Deduction for decline in value (Depreciation) is not allowed for properties e.g T.V , Computers, Swimming pools etc to the extend they are used for entertainment.

Entertainment Expense-Food and Drink along with Surrounding analysis:

Rule: Ruling TR 97/17 for explanation of ITAA1936,ITA A1997 and FBT legislation

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Explanation:

  1. Morning and afternoon tea and light meals are not considered as entertainment expense but as the meals crosses normal course of action, it will be regarded as entertainment expense
  2. Food and drink provided during work time including overtime or while employee is travelling is mostly LESS likely to be an entertainment expense
  3. Food and drink provided on the employer’s business premises or employer usual place of work is less likely to have the character of entertainment but where food and drinks is provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to be an entertainment expense
  4. By case FCT vs Amway of Australia Ltd (2004) 57 ATR 339, Food and drink provided for the purpose of refreshment and sustenance are not generally regarded as an entertainment expense but where food and drink is provided in a social setting where purpose is to deliver “enjoyment to employee” is classified as an entertainment expense.

 

Entertainment to customers:

By default rule, any expense directly incurred for providing business entertainment to prospective or existing customers is regarded as entertainment. Hence not deductible. There are exceptional rules for businesses operating directly in entertainment industry.

Entertainment to or from Contractor:

To Contractee

The terms of contract play an important part to determine the legality of Expense. If the contractee is given an allowance (living away from home) by contractor for all the associated cost incurred for the performance of job than normal food and drink for sustenance will not be regarded as entertainment. The contractor can claim 100% expenses incurred for normal and sustenance ( maintenance) of contractee. However any food and drink creating an abnormal hospitality event is not allowed.

In case no allowance is agreed with contractee, the contractor cannot charge any amount incurred for providing food and drink to contractee as this is not agreed as a part of contract.

To  Contractor

The normal food and drink and sustenance meal  undertaken during business hour and overtime is not an entertainment expense. The contractor can claim such expenses in their deductions.

 

Record keeping for entertainment:

Exclusive register must be maintain to substantiate the type and nature of entertainment expense. It should have following heading

  1. Date
  2. For whom; Customer, supplier, Employee etc
  3. Cost
  4. Kind
  5. Place

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