Most of you small business owners love a coffee with a client, I know I do, the question should be answered for those of you who are wondering,  Is it a deduction for tax or not?

(Putting on my tax hat) There are two types of people in business – those registered for Fringe Benefits Tax and Those Who Aren’t.

  1. Those who are, can claim these expenses as a deduction – they must lodge an FBT Return each year and pay tax on those Fringe Benefits.
  2. For those who aren’t registered to lodge FBT Tax Return – that is, most of us – read on.

This scenario of having a coffee at a coffee shop with a client is NOT deductible.

You might say hang on a minute – I do this in anticipation of getting work, its work related. Maybe so BUT I would counter that expenses that are associated with the earning of assessable income are specifically excluded IF they are excluded by Specific Legislation.  This is one of those times.

This is the link http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html

S8-1ITAA1997 This is what’s known in our circles as Big Daddy. It provides the general layout of how deductions work in the Australian Taxation System,

Did you see it lurking in 2(d)?

Here is another link to help you when it comes to Entertainment

https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Entertainment-and-fringe-benefits/

Other scenarios covered by “its entertainment and therefore not deductible” includes afterwork beers at a pub, a social event such as a Christmas Party at a facility *Note Special rules around Christmas and outlays by employers for Christmas gifts.

Another scenario related to coffee shops is – taking your laptop to a café to do work. Is the cost of lunch and a coffee Tax Deductible– after all you are working!

Sorry, nope. It’s not deductible. Entertainment is defined in this scenario by the café itself – it is a social setting therefore it is Entertainment and not claimable.

For those of you who work from home – Can you buy a coffee at a coffee shop and bring it back to your home-office and claim it as a deduction?

To that I would say this – yes, with provisos. Maybe. Probably. You could claim it as Workplace Refreshments.  They may be deemed to be personal in nature because Refreshments are signified by them being consumed in the workplace. Is your home/office a ‘workplace’ within this Tax Office definition, is the question.

A lot of deductions are bound up in the concept of Substantiation. This means having a Tax Invoice for it. Or a diary entry in some instances but context matters and knowing how these deductions work may help you when you ask your accountant about them.

It’s not as easy as it sounds managing the necessary paperwork to substantiate your claims.  You can’t just say I want the deduction. You must be able to substantiate your claim to your Tax Accountant and the ATO if required.

There are other rules around travelling and paying for food whilst away from home. Some might seem like Entertainment (but are deductible). More about that in another post

I run an Accounting business called Rapid Entry Online Accounting and help Micro and small businesses figure out what can be claimed and what can’t.  Visit my website and book a Discovery Call!

Copyright Dianne Jewell 2019 All rights Reserved.