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Ruling

Subject: Networking expenses

Question 1

Is the cost of membership to a business networking group tax deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Is the cost of attending a business networking meeting including a light morning tea deductable under section 8-1 of the ITAA 1997?

Answer

Yes.

Question 3

Is the cost of attending a business networking meeting including a light morning tea and a glass of champagne deductable under section 8-1 of the ITAA 1997?

Answer

No.

Question 4

Is the cost of attending a business networking meeting including breakfast deductable under section 8-1 of the ITAA 1997?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You paid the costs of;

§ membership to three independent business networking groups,

§ networking group meetings including light morning tea, a light morning tea with a glass of champagne and a meeting including breakfast.

Membership of the business networking group provides a directory listing for your business. It provides an opportunity for your employee to meet business operators as potential clients and speak at functions both to promote your business and to provide technical information sessions to the members of the network with the objective of improving the profile of the your business and acquiring clients.

Other members of the networking group have the same opportunity to promote their businesses. Members include a variety of providers of goods and services including real estate agents, massage therapy, bookkeeper, car detailer, office assistant, jewellery design, psychologist and many more- all potential clients.

Networking meetings allow your employee to speak to the attendees as a group in formal presentation sessions of the meeting, and also to individual attendees in less formal sections of the morning including coffee breaks and smaller group presentations.

The goal of the networking group is to provide support to each other in the way of advice and reciprocal custom.

The networking group is open to the public for membership and most members were not previously acquainted with each other.

Guest speakers attend some networking meetings and speak on a wide variety of topics including finance, marketing & personal wellbeing. The topics vary with each meeting and speakers include successful business people including authors.

The primary purpose for membership of the networking group and for attending meetings is to attract more clients and to improve the local profile of your business.

You meet in a variety of locations including restaurants and hotels.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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, relate to the earning of exempt income or are excluded by another provision of the taxation legislation.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:  

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.

Membership

Your membership of the networking groups effectively allows you to obtain publicity for your accountancy business by providing a directory listing for your business and an opportunity for you to meet business operators as potential clients on a regular basis. Therefore the cost of the networking membership is deductible under section 8-1 of the ITAA 1997 as it is incurred in gaining or producing assessable income.

Meeting with light morning tea

Paragraph 19 of Taxation Ruling TR 97/17 refers to the provision of light meals in the context of a working lunch and is not considered to be entertainment for the purposes of Division 32 of the ITAA 1997. Taxation Ruling IT 2675 also refers to the provision of a light meal such as morning tea as not constituting the provision of entertainment. Therefore in your circumstances the cost of attending a business networking meeting including a light morning tea is deductible under section 8-1 of the ITAA 1997.

Meeting with light morning tea with alcohol

Paragraph 18 of Taxation Ruling TR 97/17 states that providing alcohol with morning tea is the provision of entertainment. This is because the consumption of alcohol has social connotations and therefore provides or affords diversion or amusement. Paragraph 8 of Taxation Ruling IT 2675 denies the deductibility of a morning tea with alcohol as it is considered to be the provision of entertainment, the deductibility is denied for both the food and drink. Therefore in your circumstances the cost of attending a business networking meeting including a light morning tea with alcohol is not deductible under section 8-1 of the ITAA 1997.

Meeting including breakfast

Paragraph 23 of taxation Ruling TR 97/17 discusses the why, what, when and where food is being provided are considerations for determining the deductibility for the provision of food. In your situation what food is being provided is important. As previously mentioned morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal. The nature of the food itself confers entertainment on the employee.

The explanatory memorandum to Taxation Laws Amendment Bill (No 4)1985 found that business lunches and drinks, dinner, cocktail parties and staff social functions confer entertainment on the recipient. Section 32-10 of the ITAA 1997 treats food and drinks consumed in these situations as entertainment, whether or not business discussions or business transactions occur at the same time.

In your situation the cost of the meeting including breakfast is not deductible under section 8-1 of the ITAA 1997 as the nature of the meal confers entertainment on you with the meeting seen as incidental to the social aspect of the meal.

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