Do you meet with clients
As a business owner, you may find yourself meeting with clients at cafes, restaurants, or other external venues. You may be wondering whether the costs of these meetings are tax deductible or subject to Fringe Benefits Tax (FBT). In this blog post, we will answer these questions and provide some tips on how to navigate these expenses.
Firstly, it’s important to understand that not all expenses related to client meetings are deductible. The purpose of the expense matters, and if it is primarily for entertainment, it will likely not be deductible. For example, if you take a client to a basketball game, and you spend most of the time watching the game instead of discussing business, it will be considered entertainment and not a deductible expense.
However, if the primary purpose of the expense is for business, such as discussing a project or negotiating a deal, it will likely be deductible. This applies even if the meeting takes place at a cafe or restaurant, as long as the food and drink are not excessive and reasonable for the circumstances.
Is the provision of food and drink (or a cup of coffee) a business deduction?
- What is the purpose of the expense? Is it just refreshment– then it isn’t entertainment and it is likely to be deductible without FBT.
- Morning and afternoon teas and light meals are generally NOT entertainment.
- Food or drink provided during work time (maybe as part of a business meeting at a cafe) is less likely to be entertainment and therefore is likely to be a business deduction.
- Where and when and in conjunction with what else is the expense incurred? If consumed at the place of business then less likely to be entertainment. However if consumed at a cafe or coffee shop it becomes more likely to be entertainment. However, what else were you doing at the time?
Generally there is NO tax deduction for the provision of entertainment! Call it marketing, call it a business meeting or whatever but really if it smells and feels like entertainment of a client then it is unlikely to be a business deduction.
Generally a cup of coffee, morning tea at a cafe that really is just where you decided/needed to have your meeting with the client is more likely to be OK.
Especially if you are a home office based provider or you really don’t have your own office at all.
The key aspect will be around are you catching up for a chat and coffee or is actual business being done. Going out for dinner or lunch with a client can sound like a great tax write off. But if the business is not the main course and it’s just a side chat, it’s entertainment. If you take a client to a basketball game, and you talk about business for 5 minutes because you’re actually there to watch the basketball, it’s entertainment.
Gifts and Clients or employees go together
If you give a gift to a client and expect the gift will either generate future business from the client or make them more inclined to refer others to her business, it’s deductible. However if the gift was made for personal reasons or is private or domestic character, it’s less likely to be deductible.
If the gifts are for employees, you need to keep the cost of the gift below $300 per person – sorry, no Mercedes this year team. The gifts also need to be ad-hoc so splitting a $2,000 gift voucher into 10 x $200 vouchers and giving them to an employee at the end of each month won’t fool the ATO. If the gift is ad-hoc and below $300, the Tax Office considers it to be a minor benefit and as such, exempt from FBT. Gifts above this level are deductible to the business but FBT will apply.
It’s important to understand the purpose of an expense and whether it is primarily for entertainment or business. If it is for business, it is likely to be deductible, even if it takes place at a cafe or restaurant. Gifts to clients and employees are subject to different rules, so make sure to keep these in mind when giving gifts. If you have any questions or need further guidance, consult with a tax expert.