Confused about what is and isn't a tax deductible business expense? We're clearing the air!
Here at Illumin8 we see a lot of confusion from our business clients around what they can and can’t claim when it comes to gifts, meals and entertainment. So let’s clear the air!
I’ll have one of everything thanks!
Ah yes, my absolute favourite thing to talk about… food. This is one of the most common areas we get asked about..
Navigating your way through all of the ATO jargon on what is and isn’t tax deductible when it comes to meals and drinks can be an absolute nightmare. Our approach is the four W’s - Why, What, When and Where. Answering these will generally weed out the non-deductibles!
Why is the food/drink being provided?
If your team worked back super late so being the great boss you are, you ordered in pizza at the office - yep, that’s tax deductible! However, taking everyone out for a nice dinner at Rockpool because it’s your dog’s birthday, not so much.
What food or drink is being provided?
This is a big one. Light meals / refreshments are always more likely to fall into this category. Providing some delicious donuts for that staff meeting? Boom you got yourself a tax deduction my friend! The business shouting a ten-course degustation meal? Don’t even try and swing that one guys… never going to happen!
When is the food/drink being provided?
Food/drink provided during work hours is less likely to fall under the dreaded ‘entertainment’ category. Caffeinating your team members by bringing a bunch of coffees in for that Monday morning meeting at the office - totally fine. Going out for after work drinks on a Friday night? Nope, sorry!
And finally, where is the food being provided?
Again, this is important. Providing refreshments for meetings, filling up the fruit bowl in the office, ordering in that pizza, all a-okay. Going over to the cafe across the road for lunch? Even if with a client? No dice! The ATO sees this as entertainment because of the setting you’re in. If you’re at the office, well you’re in a workplace environment. If you’re out at a restaurant/cafe, then it’s entertainment in nature.
There’s so much room for activities!
Anonymous - ‘I took a prospective client out on an eight hour brewery bender - that’s tax deductible right?’
Don’t laugh - we get this a lot. Clients can get frustrated when they see big companies spoiling prospective clients with tickets to the AFL Grand Final, because how can they get away with it and we can’t? Sure the business is definitely paying for it.. No doubt! But do they get a tax deduction? Heck no! Big companies like these guys know how much business they get from all of the winning and dining. In fact, they even budget for it.
Unfortunately there aren't a lot of ways around this one. In order to make your work event tax deductible it’s very simple - keep it at work!
Thinking of getting in early and organising that Christmas party? As soon as you take that out of the workplace, yep, you’re in ‘entertainment’ territory. And yes I can hear you yelling at your device right now ‘but even at work it’s still entertainment!’ - we agree! But we didn’t make the rules. If you’re throwing a BBQ in-house you’re good to go. If you hire a venue, take it to a restaurant or Crown Casino (lucky you!) - no more tax deduction.
Some other examples of when those cool activities will fall into the entertainment category include: mini golf, winery tour, harbour cruise, even that brewery bender - sorry anonymous!
Stop it, you’re too kind!
We’re going to make a pretty safe assumption - you’re all amazing humans. And part of being an amazing human is you love to give! So when is giving a gift - to an employee or maybe even a client/supplier - tax deductible?
This all comes down to the ‘nature’ (and cost) of the gift. Full disclosure - We don’t necessarily agree with the way the ATO classifies this stuff - we’re just here to inform you of the rules, don’t shoot the messenger!
Well that’s about it from me. Just keep in mind that sometimes even if we don’t get a tax deduction for it, it’s still worth doing!!
Food for thought…