Claiming Meal and Entertainment Expenses in Your Business

Food and drink expenses are, in most cases, classed as entertainment by the ATO, and entertainment covers things like client lunches, sporting events, and social functions. Entertainment expenses generally aren’t deductible. Even when a benefit provided to staff can be claimed, it usually triggers Fringe Benefits Tax (FBT), which can wipe out the benefit of claiming it in the first place. So is any staff catering ever deductible?

In most cases, no. The ATO applies this area strictly, and entertainment-related meals can attract FBT at close to half their value. But there are genuine exceptions, largely set out in ATO ruling TR 97/17: where food and drink is provided for a purpose that isn’t “entertainment,” the cost is generally deductible.

Situations that are usually deductible

  • Seminars for staff or clients, where a meal is provided during the session, can be deductible if the seminar runs at least four hours (not counting the meal), the catering is modest and doesn’t interrupt proceedings, the content isn’t promotional, and any non-training component (a golf day, for instance) is kept separate, since that part may still attract FBT.
  • Meals provided in an on-site staff dining room aren’t treated as a fringe benefit and are deductible, provided the dining room is for staff only (not open to the public) and only staff, not family members or clients, eat there.
  • Overtime meal allowances paid to staff working overtime are deductible for the business. For the employee, the allowance is assessable income, but the amount actually spent on the meal can be claimed as a deduction against it.
  • Meals during work travel are deductible and don’t attract FBT.
  • Light refreshments for staff, such as tea, coffee, milk, biscuits, or a modest cake, are deductible. Alcohol doesn’t qualify, and if the spread becomes lavish, the ATO may reclassify it as entertainment.

How the ATO decides

Three factors matter most:

  1. Why the food or drink is being provided. Coffee and a biscuit at the desk to keep people working generally isn’t entertainment. The same food provided at a social function, so people can relax and socialise, generally is.
  2. What’s actually provided. Simple morning tea items are unlikely to be treated as entertainment. Elaborate catering or premium tea and coffee is more likely to tip into entertainment territory.
  3. Where it’s provided. Food provided in the workplace carries less of an entertainment character than the same food provided at a restaurant, hotel, or venue clearly set up for socialising.

Put together: sandwiches in the office fridge or the tea and coffee at reception are safely deductible. Taking the team out to a restaurant, or ordering elaborate catering, generally isn’t.

If you’re unsure whether a specific expense in your business qualifies, give us a call and we’ll help you get it right.