We all love it but what does the Tax man think of it for tax purposes? This is an area too often confused and carried out incorrectly. Here are some facts you should be aware of if wishing to wine and dine, or entertain your clients.
As a general rule, you are not allowed an income tax deduction for expenses incurred in providing entertainment. This is the case even if the entertainment is provided specifically for business reasons, such as business lunches and entertaining clients, or in connection with the performance of employment-related duties.
But, as always, exceptions apply.
The cost of providing entertainment in the ordinary course of business where your business is providing entertainment to paying clients or customers ie restaurants, theatres or amusement parks. The cost of food and drink you provide to employees in an ‘in-house dining facility’ such as a canteen sort of scenario and one not open to the public at any time (ie not a boardroom or meeting room!)
The cost of food and drink that is reasonably incidental to a person’s attendance at an ‘eligible seminar’. The cost of providing an overtime meal to an employee under an industrial award or agreement.
Certain advertising or promotional expenses relating to your business, including the cost of:
- Supplying entertainment to a person as part of a contract for supplying goods or services, ie offering a free holiday as an incentive to customers to purchase goods
- Promoting your goods or services by providing free or discounted entertainment for example, wine tasting at a winery
- Exhibiting goods for public promotion ie a fashion parade.
The cost of entertaining clients and suppliers (that is, not employees) remains non-deductible except for the limited range of circumstances described above where the income tax law may allow a deduction.
You may wish to think twice before shouting that next client lunch!
Janna Fikh is the founder of Fletcher Tax one of Australia’s most socially active Tax Accounting Firms.