Institute of Certified Bookkeepers

Are external meetings and client consultancy expenses claimable?

We often get queries about claimable expenses for people who meet with clients at external venues, e.g. cafes – meals, travel, etc. Can you and your clients claim for these meetings?

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 it is less likely to be entertainment. However if it is consumed at a cafe or coffee shop, it becomes more likely to be entertainment. This depends on what else you were doing at the time.

There is generally 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 or 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 okay, especially if you are a home office-based provider, or you don’t really have your own office at all.

What the ATO Has to Say

Expenditure on meals and refreshments for clients may be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) where they are necessarily incurred in the running of the business and do not represent ‘entertainment’.

TD 93/69 illustrated for non-employee recipients, the ATO view of what constitutes (food and drink) entertainment by noting that IT 2675 excluded ‘light meals’ from the scope of being ‘entertainment’:

“…We do not consider the purchase of a light meal to be the provision of entertainment under subsection 51AE(4) of the Income Tax Assessment Act 1936 (Taxation Ruling IT 2675). Therefore, if a police officer buys a light meal for an informant in exchange for information a deduction will be allowable provided the expense can be substantiated. TD/D231 sets out the substantiation requirement for this type of expense. IT 2675 (paragraph 7) describes a ‘light meal’ as being ‘sandwiches and other hand food, salads, orange juice etc’. More elaborate meals than these take on the characteristics of entertainment…”

It is reasonable to suggest that coffee and cake could not go beyond the concept of a ‘light meal’ in this context.

TR 97/17 is also consistent with this proposition:

“…What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal…”

In the situation described, when a business taxpayer provides coffee and cake to a client at a meeting in a coffee shop, that could not be described in this context as anything more than a light meal at most. In contrast, a three course meal provided to a client at a business lunch will have the characteristics of entertainment.

How to Make a Determination

So how do we determine whether it is entertainment or a meeting expense? There are 4 simple questions to answer. It is important that you take into consideration all of the questions – in particular the “why” and “what” – as these are crucial to the determination of business vs entertainment, however all 4 answers should be considered, and should be reflected in the decision you make.

  • Why?
    • What it the reason for the meeting? Is it social or business?
    • Taking a client out to lunch is a business reason and could be deductible.
      If it is a friend, or a friendly catch-up with a work colleague, then probably not.
  • What was included?
    • A simple meal of sandwich, cake and coffee would probably be a business meeting.
    • A big meal with a few courses (alcohol included) would be deemed entertainment.
  • Where did you go?
    • If food and drink (non-alcoholic) is provided at businesses, it will back up the claim for a business meeting.
    • Restaurants and cafés are okay providing you meet the other criteria, and it doesn’t move into the realms of entertainment.
  • When did you hold the meeting?
    • If it is held during your business hours, then it will support your claim.
      Being held in the evening for dinner doesn’t generally support your claim.

If, at the end of this, you are still uncertain as to whether a meeting is claimable, then seek written advice from your accountant.

Resources

  • Updated: 3rd March, 2020
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