FAQ- Can I claim a tax deduction for taking clients out to lunch?

One area that causes a lot of confusion for small businesses is whether the cost of meals (and coffees) with both potential and existing clients can be claimed as a tax deduction. Expenses such as these are classified by the Tax Office as ‘Entertainment’ and are generally not tax deductible. ‘Entertainment’ expenses include for example business lunches and drinks, cocktail parties and sporting events.

To further assess if food and drink constitutes the provision of entertainment, the tax office points to the following questions that need to be considered:

– Why is the food and drink provided? – Where provided for the purposes of refreshment, it will generally not be entertainment. Where provided in a social situation, it will generally be entertainment.

– What food and drink is being provided? – The more elaborate the meal, the more likely it will be entertainment.

– When is the food and drink being provided? – If provided during work time, overtime or while travelling, it is less likely to be entertainment as it will usually be for a work-related purposes. However, a social function held during work time will still be entertainment.

– Where is the food and drink provided? – Where provided on the employer’s business premises or at the usual workplace of the employee, it is less likely to be entertainment. Where provided in a function room, hotel, restaurant or consumed with other forms of entertainment, it is likely to be entertainment.