Tax Deductions for Business Food & Drink

Did you know that certain food and drink expenses can be considered business expenses and hence tax deductible?

Generally, food and drink expenses are treated as entertainment expenses if they are incurred for entertainment or recreation purposes.   Where it is paid for employee consumption, it may be subject to FBT unless an exemption applies.

When food and drink are consumed in the course of business activities for the purpose of generating of profits, they can be attributed as business expenses. It is a business expense if:

1. The reason for providing the food or drink is to facilitate business activities, such as a client pitch or a promotional /PR campaign rather than a social event.

2. The type of food or drink provided is light refreshments or an average meal, rather than an elaborate or lavish function.

3. The timing is during normal business hours.

4. The location of the provision – whether it is on business premises or off-site.

On the above bases, food and drink expenses that are tax deductible fall into 4 categories:

1. Gifts

Gifts given to clients or customers are tax deductible if they meet the four key factors below:

– Given with the expectation of generating future business or enhancing a business relationship and must be related to your business.

– Not excessive or overly lavish in value.

– Not in form of cash or a cash equivalent.

– Accurately recorded.

Gifts given to employees may be subject to Fringe Benefits Tax (FBT), unless they fall under the minor benefit rule (value at $300 or less per employee) or under $1,000 taxable value. Gifts given to non-employees, such as suppliers or contractors, are generally not eligible for tax-deductions or GST credits.

2. Business Events

Meals incurred for a business purpose may be tax deductible if it passes the 4W rule. The rule assesses the following:

– Why: The meal must have a clear business purpose such as for a new contract.

– What: The meal must be of a type and standard that is reasonable in the circumstances.

– Where: The meal must be held in a location that is conducive to conducting business, such as a restaurant or office.

– When: The meal must be held at a time that is reasonable for conducting business, such as during normal business hours.

If the meal does not pass the 4W rule, the portion of the bill relating to employees may be subject to FBT. However, if the meal is considered sustenance, it may be exempt from FBT.

It is important to keep accurate records of the meal including the purpose of the meal, who attended, and the cost breakdown to demonstrate the genuine business purpose.

3. Travel

Travel expenses such as transport, accommodation, meals, and other expenses can be claimed as a tax deduction as long as they have a clear business purpose. It is also important to note that any private travel paid for by employees and their associates may be subject to Fringe Benefits Tax (FBT).

To claim a deduction for travel expenses, you will need to keep a travel diary or similar record of the trip, including the dates and locations of the travel, the purpose of the travel, and the expenses incurred. A travel allowance paid by an employer may also be a deductible business expense, but there are rules around what can be included, and evidence may be required to claim a deduction.

4. Living-Away-From-Home (LAFA)

A living-away-from-home allowance (LAFA) is an allowance paid to an employee who is required to live away from their usual place of residence for work-related purposes. A LAFA is considered a fringe benefit and is subject to Fringe Benefits Tax (FBT), unless it qualifies for exemptions as follows:

– When the employee is required to live away from home for work for no more than 12 months (the 12-month exemption rule)

– When the employee has a spouse or dependents living with them while they are away from home (the family exemption rule)

– When the employer provides accommodation for the employee (employer-provided accommodation exemption)

Employers can claim a tax deduction for the full amount of an allowance paid to an employee if it is exempt, but if it is not exempt, the taxable value is calculated by subtracting exempt amounts and the employer will need to pay FBT on the remaining taxable value.

How Wilson & Assoc can help?

Our team at Wilson & Assoc will help you identify and separate your business and entertainment expenses. We can assist you complete not only you company tax return but your Fringe Benefit Tax(FBT) return if required. Feel free to contact our team for more information.

Source: ATO4