Determining whether or not your meals can be claimed as a tax deduction can be very confusing for startups and small businesses. While its not a black and white area, there are some simple tips that you can follow to determine whether or not you can claim a tax deduction.
What are the questions you should ask yourself?
- Why is the food or drink being provided? That is, what is its purpose, if it is a social setting than the chances are its entertainment.
- What food or drink is being provided? As the meal becomes more elaborate i.e, a menu with matching wines, it starts to take the form of entertainment.
- When is the food or drink being provided? If the meal is provided during work hours, this is less likely to be entertainment, however it is important to consider at this point whether or not it its social.
- Where is the food or drink being provided? If the meal is consumed on your premises then it’s not likely to be entertainment. However at a restaurant it is difficult to say it isn’t.
These initial steps are what will help you work out whether your business lunch is tax deductible.
In summary, when it comes to chatting to start-ups which we work with at Nudge, we use the following as rules of thumb:
- Meal Entertainment is subject to Fringe Benefits Tax
- Food or drink consumed at a social function is treated as meal entertainment
- Generally, all meals will be treated as meal entertainment except in certain circumstances
- A light meal is provided on your business premises as part of a working lunch/ breakfast/ dinner
- Your meal (as a form of replenishment, as opposed to being substantial/ excessive) is consumed whilst travelling for a business-related purpose, e.g. to attend a conference.
- In these circumstances, where meals are not considered entertainment, they are tax deductible and not subject to Fringe Benefits Tax.
- Morning and afternoon tea consumed on business premises (A biscuit tin and coffee machine) is not treated as a meal, but a refreshment and is tax deductible.
It’s important to note that even if you have limited facilities in which to have a business meeting (i.e. no office), so you hold your meeting at a café, it unfortunately doesn’t change the above factors in any way.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting. You can read other Tax Tips here.