You wine and dine some clients. Order up some coffee and sandwiches for a work meeting. Grab a cheese platter and drinks for Friday afternoon in the office to celebrate a win at work. While these may happen in the line of business, they may not all be claimable as a business expense.
These fall under the category of entertainment. And what is considered entertainment for deductibility purposes can be a minefield!
Providing food and drink as a business expense is deductable, while providing it as entertainment is not. These can be two different things. Unless of course it is a Fringe Benefit Tax (FBT), then it may be deductable. Confusing right!
There are four important questions to be considered when determining if food and drink constitute entertainment – why, what, when and where.
Small businesses may be able to provide food or drink without providing ‘entertainment’. The important part is considering if it fits within the ‘business expense’ box. When food or drink is provided during business hours at the business premises then it will be a business expense. Think sandwiches, cake and coffee and light refreshments provided for sustenance. You will be able to claim a tax deduction for it, claim the GST credits and there’s no FBT consequences.
If the food and drink is classified as entertainment, then it doesn’t count as a business expense, you can’t claim a tax deduction, or the GST and you may have an FBT problem. A lavish degustation outside of business hours with a client and plenty of alcohol weakens your case of business expense considerably. In the eyes of the Australian Tax Office, alcohol and business don’t mix. The more elaborate the meal, the more it will likely be entertainment.
This also applies to work functions. As an employer, that Christmas party you want to provide to your staff as a thank you for such a great year is unfortunately non-deductible entertainment. Stick to the coffee and cake and light refreshments in house and you’ll be fine!
If you are not sure if your expenses are deductable, it is best to speak with a tax professional, as this advice is general in nature.
Karen Peall is the Executive Manager of Lyons Judge Bundaberg and has more than 20 years’ experience in accounts and taxation.