INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 51AE   DEDUCTIONS NOT ALLOWABLE FOR ENTERTAINMENT EXPENSES  

51AE(1A)   [No application 1997/98 income year onwards]  

This section does not apply to an assessment for the 1997-98 year of income or a later year of income.

Note:

Division 32 of the Income Tax Assessment Act 1997 deals with the deductibility of entertainment expenses.

51AE(1)   [Definitions]  

In this section, unless the contrary intention appears -

"agreement"
means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings;

"business"
includes a prospective business;

"eligible dining facility"
, in relation to a taxpayer, means -

(a) a canteen, dining room or similar facility; or

(b) a cafe, restaurant or similar facility,

that is located on premises of the taxpayer or, if the taxpayer is a company, of the taxpayer or of a company that is related to the taxpayer;

"eligible relative"

"eligible seminar"
means a seminar that has a continuous duration of not less than 4 hours, but does not include -

(a) a seminar (other than an exempt training seminar) where it would be concluded that the sole or dominant purpose of the seminar was to enable participants, or prospective participants, in a particular business to -

(i) give information relating to the business to;

(ii) receive information relating to the business from; or

(iii) discuss matters relating to the business with,

other participants, or prospective participants, in the business or other persons;

(b) a seminar where it would be concluded that the sole or dominant purpose of the seminar was the promotion or advertising of a business or of goods or services provided by a business; or

(c) a seminar where, having regard to -

(i) the content and location of the seminar; and

(ii) any food, drink, accommodation, travel or opportunities for recreation connected with the seminar,

it would be concluded that the sole or dominant purpose of the seminar was the provision of entertainment at, or in connection with, the seminar;

"employee"
, in relation to a company, includes a director of the company;

"exempt training seminar"
means a seminar that -

(a) is organised by, or on behalf of, an employer solely for either or both of the following purposes:

(i) training -

(A) the employer and employees of the employer; or

(B) employees of the employer,

in matters relevant to the employer's business;

(ii) enabling -

(A) the employer and employees of the employer; or

(B) employees of the employer,

to discuss general policy issues relevant to the internal management of the employer's business; and

(b) is conducted on premises that -

(i) are not premises of the employer or, if the employer is a company, of the employer or of a company that is related to the employer; and

(ii) are premises of a person whose business consists of or includes organising seminars or making available premises for the purposes of the conduct of seminars;

"industrial instrument"
means a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law;

"in-house dining facility"
, in relation to a taxpayer, means a canteen, dining room or similar facility that is -

(a) located on premises of the taxpayer or, if the taxpayer is a company, of the taxpayer or of a company that is related to the taxpayer;

(b) operated wholly or principally for providing food and drink on working days -

(i) in any case - to employees of the taxpayer; or

(ii) if the taxpayer is a company - to employees of the taxpayer or of a company that is related to the taxpayer; and

(c) not open to the public at any time;

"in-house recreational facility"
, in relation to a taxpayer, means a recreational facility that is -

(a) located on premises of the taxpayer or, if the taxpayer is a company, of the taxpayer or of a company that is related to the taxpayer; and

(b) operated wholly or principally for use on working days by -

(i) in any case - employees of the taxpayer; or

(ii) if the taxpayer is a company - employees of the taxpayer or of a company that is related to the taxpayer;

"participant"
, in relation to a business, means a person involved in, or associated with, the carrying on of the business, whether as an agent, employee, partner, shareholder, provider of finance, adviser or otherwise;

"premises"
includes a vessel or floating structure;

"recreation"
includes -

(a) amusement;

(b) sport or similar leisure-time pursuits; and

(c) recreation or amusement provided on, or by means of, a vehicle, vessel or aircraft;

"recreational facility"
means a facility for recreation, but does not include a facility for accommodation or a facility (other than a food or drink vending machine) for drinking or dining;

"seminar"
includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, Question and answer session , training session or educational course.

51AE(2)   [Continuity of eligible seminar]  

For the purposes of the definition of eligible seminar in subsection (1), any part of a seminar that occurs during a meal, and any break during a seminar for the purpose of a meal, rest or recreation -

(a) shall not be taken to affect the continuity of the seminar; and

(b) shall not be taken to form part of the seminar.

51AE(3)   [``Provision of entertainment'']  

A reference in this section to the provision of entertainment is a reference to the provision (whether to the taxpayer or to another person and whether gratuitously, pursuant to an agreement or otherwise) of:

(a) entertainment by way of food, drink or recreation; or

(b) accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies (whether or not the accommodation or travel is also in connection with something else or for another purpose),

whether or not -

(c) business discussions or business transactions occur;

(d) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment;

(e) for the purposes of promotion or advertising; or

(f) at or in connection with a seminar.

51AE(4)   [Non-deductible losses and outgoings]  

A deduction is not allowable under section 51 in respect of losses or outgoings incurred after 19 September 1985 to the extent to which they are in respect of the provision of entertainment.

51AE(5)   [Deductible losses and outgoings]  

Subsection (4) does not apply to a loss or outgoing incurred by the taxpayer in a year of income to the extent to which:

(a) in a case where the taxpayer carries on a business that consists of, or includes, the provision for payment of entertainment to clients or customers of that business - the loss or outgoing is in respect of the provision of that entertainment by the taxpayer for payment in the ordinary course of that business;

(b) the loss or outgoing is incurred by the taxpayer:

(i) in respect of the provision of entertainment to another person under a contract between the taxpayer and that other person for the supply of goods or services to that other person in the ordinary course of a business carried on by the taxpayer; and

(ii) for the purpose of promoting or advertising to the public:

(A) a business carried on by the taxpayer; or

(B) goods or services provided by a business carried on by the taxpayer;

(c) the loss or outgoing is incurred by the taxpayer for the purpose of promoting or advertising to the public goods or services provided by a business carried on by the taxpayer, being a loss or outgoing incurred in providing or exhibiting those goods or services;

(d) the loss or outgoing is in respect of entertainment provided by the taxpayer:

(i) for the purpose of promoting or advertising to the public:

(A) a business carried on by the taxpayer or another person; or

(B) goods or services provided by a business carried on by the taxpayer or another person; and

(ii) on the basis that the opportunities available to any of the following:

(A) clients, customers or suppliers of the taxpayer or the other person;

(B) employees of the taxpayer or the other person;

(C) any other associates of the taxpayer or the other person;

(D) journalists;

(E) dignitaries;

(F) any other special class of persons,

to obtain the benefits of the entertainment are not greater than those of ordinary members of the public;

(e) the loss or outgoing is incurred by the taxpayer by way of an allowance to an employee of the taxpayer, being an allowance that is included in the assessable income of the employee;

(f) the loss or outgoing is incurred by the taxpayer in respect of:

(i) the provision of food and drink (not being food or drink provided at a party, reception or other social function) on working days to persons in an in-house dining facility of the taxpayer in respect of which the taxpayer has not made an election under subparagraph (ii) in relation to the year of income;

(ii) in a case where the taxpayer elects that this subparagraph shall apply to the taxpayer in relation to an in-house dining facility of the taxpayer in relation to the year of income, the provision of food and drink (not being food or drink provided at a party, reception or other social function) on working days:

(A) in any case - to employees of the taxpayer; or

(B) if the taxpayer is a company - to employees of the taxpayer or of a company that is related to the taxpayer,

in that in-house dining facility of the taxpayer;

(iii) the provision, in an eligible dining facility of the taxpayer, of food and drink (not being food or drink provided at a party, reception or other social function) on working days:

(A) in any case - to employees of the taxpayer; or

(B) if the taxpayer is a company - to employees of the taxpayer or of a company that is related to the taxpayer;

being employees the duties of whose employment consist of, or consist principally of, duties to be performed in, or in connection with:

(C) that eligible dining facility; or

(D) a facility for the provision of accommodation, recreation or travel of which the eligible dining facility forms part;

(iv) the provision of entertainment to a person (including the taxpayer) that:

(A) is reasonably incidental to the person's attendance at an eligible seminar; and

(B) is not by way of, or in connection with, the recreation of the person;

(v) the provision of an in-house recreational facility of the taxpayer; or

(vi) the provision of food or drink to an employee of the taxpayer pursuant to the provisions of an industrial instrument relating to overtime;

(g) the loss or outgoing is incurred by the taxpayer in respect of the provision of entertainment to a person (in this paragraph referred to as the ``recipient'' ) being:

(i) the taxpayer;

(ii) an employee of the taxpayer; or

(iii) a person who, although not employed by the taxpayer, is performing services for the taxpayer;

where:

(iv) in a case to which subparagraph (ii) or (iii) applies - a deduction would, but for this section, be allowable to the recipient under section 51 in respect of the loss or outgoing if it were incurred by the recipient; and

(v) in any case - it would not be concluded that a purpose of the taxpayer or, in a case to which subparagraph (ii) or (iii) applies, of the taxpayer or the recipient, in relation to the provision of the entertainment, is to enable or facilitate the provision of entertainment to a person other than the recipient;

(h) in a case where:

(i) the taxpayer is an employee and the duties of the taxpayer's employment consist of, or include, the provision of entertainment; and

(ii) the employer of the taxpayer carries on a business that consists of, or includes, the provision for payment of that entertainment to clients or customers of that business,

the loss or outgoing is incurred by the taxpayer in respect of the provision of that entertainment in the performance of those duties;

(j) in a case where the taxpayer is an employee and receives an allowance pursuant to the provisions of an industrial instrument for the purpose of enabling the taxpayer to purchase food and drink in connection with overtime worked by the taxpayer - the loss or outgoing is incurred by the taxpayer in respect of the purchase of food or drink in connection with that overtime; or

(k) the loss or outgoing is incurred by the taxpayer in providing gratuitous entertainment to members of the public who are sick, disabled, poor or otherwise disadvantaged.

51AE(5AA)   [When subsec (4) not applicable]  

Subject to subsection (5AB), the rule in subsection (4) does not apply to expenditure incurred by the provider of a fringe benefit (within the meaning of the Fringe Benefits Tax Assessment Act 1986 ), if the expenditure is in respect of the provision of the fringe benefit.

51AE(5AB)   [Taxable value of fringe benefit reduced]  

For the purposes of subsection (5AA), if the taxable value of the fringe benefit mentioned in that subsection is reduced by a percentage under section 63A of the Fringe Benefits Tax Assessment Act 1986 , that percentage of the expenditure mentioned in subsection (5AA) is to be disregarded in applying that subsection.

51AE(5A)   [Losses and outgoings on fringe benefits]  

Subsection (4) does not apply to a loss or outgoing incurred by the taxpayer to the extent to which it is incurred in respect of -

(a) the provision of a meal where the provision of the meal constitutes a board fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 ;

(b) the provision of food or drink where the provision of the food or drink would, but for section 54 , 58 , 58N , 58S or 58T of the Fringe Benefits Tax Assessment Act 1986 , constitute a fringe benefit within the meaning of that Act;

(c) the provision of a living-away-from-home food fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 ;

(d) the provision of a meal where the provision of the meal would, but for section 58A , 58F , 58L , 58LA or 58M of the Fringe Benefits Tax Assessment Act 1986 , constitute a fringe benefit within the meaning of that Act;

(e) the provision of a fringe benefit, within the meaning of the Fringe Benefits Tax Assessment Act 1986 , where section 61D or 65A of that Act applies in relation to the fringe benefit;

(f) the provision of a remote area holiday fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 ; or

(g) the provision of a fringe benefit, within the meaning of the Fringe Benefits Tax Assessment Act 1986 , where the fringe benefit is in respect of overseas employment holiday transport within the meaning of that Act.

51AE(5B)   [``fringe benefit'']  

A reference in subsection (5A) to a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 includes a reference to a benefit that would be a fringe benefit within the meaning of that Act if the period after 19 September 1985 and before 1 July 1986 were a period in a year of tax within the meaning of that Act.

51AE(5C)   [Limits on deductions - provision of food or drink exempt benefit]  

Section 58P of the Fringe Benefits Tax Assessment Act 1986 shall be disregarded in applying paragraphs (5A)(a), (b), (c) and (d).

51AE(6)   [Limits on deductions - entertainment under contract or for payment]  

Paragraph (5)(a) or (b) does not apply in relation to a loss or outgoing incurred by a taxpayer in respect of the provision of entertainment to another person for payment or under a contract, as the case may be, if the Commissioner is satisfied that the entertainment was provided instead of entertainment that the taxpayer could reasonably be expected to have provided to that other person, otherwise than for payment or otherwise than under a contract, as the case may be, if this section had not been enacted.

51AE(7)   [Entertainment allowance provided to relative]  

Where -

(a) a relative of an employee of an employer provides or facilitates the provision of, or is expected by the employer to provide or facilitate the provision of, entertainment in connection with the employee's employment;

(b) the employer provides an allowance to the relative in respect of the provision or facilitation of the provision of that entertainment; and

(c) the allowance is provided by the employer to the relative in the capacity of an employee of the employer,

the allowance shall not be taken, for the purposes of paragraph (5)(e), to be an allowance provided to an employee of the employer.

51AE(8)   [Application to partnerships]  

For the purposes of calculating, in accordance with section 90 , the net income, or partnership loss, of a partnership, subsection (7) and the definition of exempt training seminar in subsection (1) apply as if each partner in the partnership were an employee of the partnership.

51AE(9)   [Election re in-house dining facility]  

An election for the purposes of subparagraph (5)(f)(ii) in respect of an in-house dining facility in relation to a year of income must be made on or before the date of lodgment of the return of income of the taxpayer for the year of income, or before such later date as the Commissioner allows.

51AE(10)   [Further limits on deductions]  

Paragraphs (5)(g) and (h) do not apply in relation to -

(a) a loss or outgoing incurred by the taxpayer to the extent to which the loss or outgoing is -

(i) in respect of the provision of entertainment to a person (including the taxpayer) that is in respect of, or incidental to, the person's attendance, while undertaking deductible travel, at a seminar other than -

(A) an exempt training seminar; or

(B) a seminar to which paragraph (a) of the definition of eligible seminar in subsection (1) applies (whether or not the seminar has a continuous duration of not less than 4 hours),

not being the provision of entertainment consisting of -

(C) accommodation or travel; or

(D) entertainment by way of food or drink otherwise than at a meal during which, or during part of which, the whole or a part of the seminar occurs; or

(ii) in respect of the provision of entertainment to a person (including the taxpayer) that is in respect of, or incidental to, the person's attendance, otherwise than while undertaking deductible travel, at a seminar; or

(b) a loss or outgoing incurred by the taxpayer to the extent to which the loss or outgoing is in respect of the purchase of food or drink in connection with overtime worked by the taxpayer as an employee.

51AE(11)   [``deductible travel'']  

A reference in subsection (10) to deductible travel is a reference to travel undertaken by a person in circumstances where, if the person incurred expenditure in taking meals by himself or herself in the course of undertaking that travel, a deduction would, but for this section, be allowable to the person under section 51 in respect of that expenditure.

51AE(12)   [Deductible losses or outgoings]  

Nothing in subsection (5) shall be taken, by implication, to extend the class of losses or outgoings that are deductible under section 51 .

51AE(13)   [Commissioner's discretion re outgoings]  

Where, under an agreement -

(a) a taxpayer incurs a loss or outgoing; and

(b) non-deductible entertainment is provided to the taxpayer or another person,

the Commissioner may, for the purposes of this section, treat the loss or outgoing as having been incurred by the taxpayer in respect of the provision of that entertainment to such extent as the Commissioner considers reasonable.

51AE(14)   [Use of property for provision of non-deductible entertainment]  

Where property is used by the taxpayer after 19 September 1985 for the purpose of providing, or in connection with the provision of, non-deductible entertainment (whether or not the property is also used for another purpose), that use of the property by the taxpayer shall be taken, for the purposes of this Act, not to be for the purpose of producing assessable income or in carrying on a business for that purpose.

51AE(15)   [``Non-deductible entertainment'']  

For the purposes of subsections (13) and (14), the provision of entertainment shall be taken to be the provision of non-deductible entertainment if, by virtue of subsection (4), had a loss or outgoing been incurred by the taxpayer after 19 September 1985 in respect of the provision of the entertainment, the loss or outgoing would not be deductible.

51AE(16)   [Related companies]  

For the purposes of this section, a company shall be taken to be related to another company if -

(a) one of the companies is a subsidiary of the other company; or

(b) each of the companies is a subsidiary of the same company.

51AE(17)   [``subsidiary companies'']  

For the purposes of this section, a company (in this subsection referred to as the ``subsidiary company'' ) shall be taken to be the subsidiary of another company (in this subsection referred to as the ``holding company'' ) if -

(a) all the shares in the subsidiary company are beneficially owned by -

(i) the holding company;

(ii) a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; or

(iii) the holding company and a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; and

(b) there is no agreement in force by virtue of which any person is in a position to affect rights of the holding company or of a subsidiary of the holding company in relation to the subsidiary company.

51AE(18)   [Subsidiary of a subsidiary]  

For the purposes of this section, where a company is a subsidiary of another company (including a company that is such a subsidiary by virtue of another application or other applications of this subsection), every company that is a subsidiary of the first-mentioned company shall be taken to be a subsidiary of that other company.

51AE(19)   [Person affecting rights of company]  

For the purposes of subsection (17), a person shall be taken to be in a position to affect any rights of a company in relation to another company if that person has a right, power or option (whether by virtue of any provision in the constituent document of either of those companies or by virtue of any agreement or instrument or otherwise) to acquire those rights or do an act or thing that would prevent the first-mentioned company from exercising those rights for its own benefit or receiving any benefits accruing by reason of those rights.