Introduction
So, you’ve wined and dined a client, treated the team to a classy lunch, or even hosted a stylish company event. Now, you’re probably wondering: can you claim it all back on your tax return?
Well, before you pop the champagne and start listing every coffee meeting and corporate concert as a deduction, let’s take a quick look at what you can deduct when it comes to the not-so-exciting world of the ATO’s entertainment rules!
What is an Entertainment Deduction?
The ATO has strict rules about what counts as “entertainment”, and spoiler alert: it’s not exactly party friendly. Any food, drink, recreation, or hospitality you provide for clients or employees usually falls under “entertainment”—and here’s the kicker: it’s typically non-deductible. So, that five-course dinner might impress your client, but it won’t impress the ATO.
Our Tip: Just because you talked business over a fancy meal doesn’t mean the ATO is picking up the tab!
Client Entertainment Rules (The ATO’s No-Fun Zone)
Taking a client out for lunch or a drink to discuss business? Bad news—it’s not deductible. In Australia, any entertainment you provide for clients, even if it’s for business purposes, is generally not allowed as a tax deduction.
Our Tip: No matter how good the business conversation, the ATO says no to client entertainment write-offs!
Employee Entertainment – Watch Out for the FBT Trap
Planning on showing your employees a good time? Beware of FBT (Fringe Benefits Tax) on these kinds of expenses. If you provide entertainment to your employees, like tickets to a game or a fun night out, you could be hit with FBT, our not-so-favourite tax on non-cash benefits. But businesses can avoid FBT for minor benefits like that if the total expense is under $300 per person.
Our Tip: If your event or perk is just under $300 per head, you may avoid FBT—but don’t expect a tax deduction!
Can you still claim it?
Don’t worry, if you’re paying Fringe Benefits Tax (FBT) on fun things like work parties or meals, you can still get some money back at tax time. This means you won’t miss out on claiming a deduction just because it’s for entertainment. The FBT covers both the tax and the deduction, so you’re not paying twice. Just make sure the ‘entertainment’ follows the FBT rules (keep it simple, infrequent and under $300 a head) so you can enjoy the benefit!
Our Tip: It’s not the 80’s anymore, tax loopholes are far and few between, so be sure to bookmark this one if you like your golf trips!
Our Guide to Claimable Entertainment Expenses: The Ones You Can Write Off
Entertainment expenses are tricky, but there are a few instances where the ATO might just let you claim them. Here’s a quick guide to the expenses that could make it to your tax return:
- Meals on Business Premises
The ATO have graciously allowed us to claim sustenance, or by definition, the maintenance of life. Sustenance or basic snacks and drinks isn’t classified as “entertainment”, so those muffins, sandwiches, tea and let’s not forget – coffee, offered at a staff meeting or training session (held on business premises of course) are seen as regular business expenses, making them fully deductible.
Example: A couple of croissants and coffees at the morning meeting won’t raise any ATO eyebrows or FBT issues. They’re just there to keep everyone awake, not entertained. Claimable!
- Meals During Business Travel
Food expenses incurred while you or an employee is traveling for work are generally claimable. Keep it business-focused, and you’re usually in the clear.
Example: You’re at a conference in Sydney and grab lunch in between sessions. Claimable!
- Conferences, Seminars, and Training
If the main purpose of an event is work-related (like a conference or seminar), the ATO lets you claim entertainment costs like meals and refreshments. Just remember: the business purpose should be the main attraction – not the food.
Example: You host a client seminar with snacks provided during breaks. The cost of those snacks? Claimable!
- Christmas Parties on Business Premises
A Christmas party at your office or business premises can be claimable, but here’s the catch—it might trigger FBT if it costs more than $300 per head. If it stays under that threshold, it will be FBT-free.
Example: You throw a holiday party for employees in the office and keep it simple – claimable!
The ATO’s Entertainment Cheat Sheet for Business Owners
Fancy coffee beans for the office? Deductible. End of year pub crawl? Sorry, that’s on you! We’ve included a table below from the ATO to help you determine what is and isn’t an entertainment expense. Remember, these are just guides, your accountant will be able to give you advice specific to your situation.
Source: ATO “When is Food, Drink and Recreation Considered Entertainment”
The Bottom Line?
When it comes to entertainment expenses, the ATO isn’t the life of the party. But by knowing what’s deductible (and what’s not), you can still have a little fun and stay on the right side of tax law.
Have a question or comment?
If you have any questions or comments relating to this article (or any other accounting matter) please get in touch with us at [email protected] and we’ll be happy to assist you.