Claiming Entertainment expenses as a deduction

Karin Josefsson ATO, Blog, Productivity 1

Expenses are usually fully deductible provided that they are incurred in producing taxable income or that is required to carry on in business.  I thought this blog is quite important as I have quite a few clients that don’t understand that not only is entertainment not deductible, but it is subject to FBT if put through the business, so you are better off paying for entertainment personally.

Generally entertainment expenses are not deductible and the tax office defines these as expenses as food, drink or recreation.  These expenses may also be subject to Fringe Benefits Tax.  Entertainment expenses are usually in the form of business lunches, cocktail parties or sporting events and any travel or accommodation that relates to these events.

You can not claim a GST credit on entertainment expenses.

Some businesses choose the 50/50 split method where they can claim 50% as a deduction and the other not 50% deductible and also FBT payable.

How to identify whether the claim is entertainment, you need to use the purpose from the Australian Tax Office test below.

  1. Why is the food or drink being provided?  If the service is provided as a refreshment then generally it would not be considered entertainment.  If a client comes to your office for a meeting and you provide coffee and biscuits then this not entertainment and is deductible.  Food or drink provided for a social situation would generally be classed as entertainment.
  2. What is being provided? A light meal such as morning or afternoon tea is not generally considered entertainment.  The more elaborate the meal then the more likelihood it will be considered entertainment.
  3. When is the food or drink being provided? During working hours its less likely to be considered entertainment, but some parties held during the day can still be considered entertainment. It depends on the entertainment purpose.
  4. Where is it being provided? Its less likely to be considered entertainment if its in your office than if in a function room or restaurant.  The reason being is that food or drink provided in a cafe, restaurant or hotel is less likely to have a work-related purpose.

What is deductible.  If you provide food and drinks within your office as a dining facility then this is deductible.  The food, drink, travel and accommodation for seminars (minimum 4 hours)  is also deductible, although the recreation part of the seminar is not deductible.  Expenses relating to promoting your business is generally deductible but not things like food and drinks at a product launch that only allows selected guests.  Any overtime meals that are required by law are allowable.  If you provide recreation facilities at your business premises for your employees then these are deductible.

I am really interested to hear any comments or suggestions below.

One Response to Claiming Entertainment expenses as a deduction

  1. Nina Burns

    Thanks so much for taking the time to put this together. I do the bookkeeping for our family owned company and while I seek the advice of my accountant, some things I just don’t understand. This was one of them! Until now! Thanks again!

Add a Comment