Entertainment expenses are not deductible except in very limited circumstances.
This prohibition extends to entertainment in the form of food, drink or recreation.
Entertainment also covers accommodation or travel associated with any of these items, and incidental items such as “entertainment allowances”.
In general, the prohibition applies no matter who the recipients of the entertainment are and irrespective of whether there is a genuine connection with business activities.
There are a number of exceptions to the general prohibition on the deductibility of entertainment expenses that are explained below in short:
- The general prohibition does not prevent a deduction being claimed for the cost of providing food and drink on working days to the taxpayer’s employees (including directors) in an “in-house dining facility”.
- The general prohibition does not apply to the cost of food, drink, accommodation and travel that is reasonably incidental to a person’s attendance at a “seminar” lasting at least four hours.
- The prohibition on entertainment expense deductions does not apply where the expense is incurred to promote or advertise to the public the taxpayer’s business or its goods or services.
- The general prohibition does not apply to the cost of providing overtime food or drink to an employee under an “industrial instrument”, ie an industrial award, order, determination or agreement in force under Commonwealth, state or territory law or to the cost incurred by an employee in buying overtime food or drink where an overtime meal allowance under an industrial agreement has been received.
- The general prohibition does not prevent a deduction being claimed for the costs of operating certain recreational facilities. The recreational facility must be located on property occupied by the taxpayer and must be operated mainly for use by employees (including directors) of the taxpayer or of a related company.
- The general prohibition does not prevent a deduction being claimed for the cost of gratuitous entertainment provided to members of the public who are sick, disabled, poor or otherwise disadvantaged, eg where a company sponsors a Christmas party in a children’s hospital.
- An entertainment allowance provided to an employee of the taxpayer may be deductible, provided that the allowance is included in the employee’s assessable income and it satisfies the requirements of the general deduction provisions.