{"id":2078,"date":"2017-03-29T16:07:02","date_gmt":"2017-03-29T05:07:02","guid":{"rendered":"https:\/\/www.martinco.com.au\/?p=2078"},"modified":"2017-11-28T17:10:37","modified_gmt":"2017-11-28T06:10:37","slug":"tax-deductible-on-site-meals-for-business-owners","status":"publish","type":"post","link":"https:\/\/www.martinco.com.au\/tax-deductible-on-site-meals-for-business-owners\/","title":{"rendered":"Tax Deductible On-Site Meals for Business Owners"},"content":{"rendered":"

Most business owners eat at least one meal a day in the office or factory. So here is some good news: if you run your business through a company or trust, then the food you eat at work is probably tax deductible.<\/h2>\n

Some background<\/b><\/h3>\n

Usually, meals are a private expense. And usually, there is no tax deduction for private expenses. The tax laws relating to deductions specifically exclude private expenditure. This is why an employee or sole trader can\u2019t claim a deduction for meals they eat at work. Those meals are private expenses and the law prohibits individuals from claiming private expenses.<\/p>\n

But things are different for a company (including a trustee company). A company cannot have a \u2018private expense.\u2019 So, the \u201cprivate nature\u201d exclusion in the tax law does not apply.<\/p>\n

One of the effects of using a company or trust to run your business is that this generally means an employer\/employee relationship exists \u2013 with the person running the business actually being classed as an employee of the company. So, if the company buys lunch, it is buying a meal for one or more of its employees.<\/p>\n

As we say, companies cannot have private expenses and so the rules prohibiting deductions for private expenses do not apply to companies. This is usually addressed (from the point of view of the tax office) by the rules for fringe benefits. Where a company provides a non-cash benefit, this is typically referred to as a fringe benefit and taxed accordingly. This usually stops companies from paying the private expenses of its employees.<\/p>\n

However, as with most rules, there are exceptions. When it comes to fringe benefits tax, one of the exceptions is meals. Food and\/or drink provided by an employer (the company or trust) to employees is often FBT exempt. This means that the company can claim a deduction for it in certain circumstances. These circumstances are: that the food is consumed on the employer\u2019s premises; that the food is not related to a \u201csocial function;\u201d and that no alcohol is served with the meal (booze makes things social, not functional).<\/p>\n

So, if a company provides things like sandwiches, wraps, cups of soup and other \u201clight lunch\u201d type food to be consumed on site, GST is claimable, a tax deduction is allowed and there is no FBT liability.<\/p>\n

And the meal does not need to be lunch. Brekky and dinner can be deducted as well. Just make sure that<\/p>\n

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  1. The relevant staff eat the relevant meal at work; and<\/li>\n
  2. They don\u2019t have a beer for breakfast.<\/li>\n<\/ol>\n

    What <\/b>this mean<\/b>s<\/b> for you<\/b><\/h3>\n

    Let\u2019s say you usually eat your breakfast\/lunch\/dinner while at work and what you eat passes the \u201clight meal\/no alcohol\u201d test. You simply pay for the meal using your dedicated business credit card (that is, the credit card that you only use to pay business expenses).<\/p>\n

    Let\u2019s say you buy yourself a sandwich and a soft drink each day. The light meal costs $13.20, with $1.20 being GST. The company can claim back the GST immediately. Depending on the ultimate tax rate of the person who receives the company\u2019s profits, the company can also claim an effective deduction for up to 49% of the remaining $12 (if the profit recipient is in the top tax bracket). That\u2019s $5.88.<\/p>\n

    This means that the after-tax cost of the lunch falls from $13.20 to $6.12, a saving of $7.08 or 54%.<\/p>\n

    $6.12 for a sandwich and a drink. You probably could not make it yourself for that price.<\/p>\n

    If this happened five days a week for 48 weeks, the annual saving would be $1,700.<\/p>\n

    And, of course, if you start early and\/or work late you will probably need more than one meal while at work. The savings would be greater. Do you know any business owners who don\u2019t start early or work late? This blog was written at 7pm at night.<\/p>\n

    If you would like to know more, you can find further reading on the ATO website at FBT exempt meal allowance<\/a> and Tax Ruling TR 97\/17<\/a>.<\/p>\n

    An employer\/employee relationship<\/b><\/h3>\n

    For a company to claim deductions for meals, the people eating the meals need to be employees. And the company needs to be able to substantiate (i.e. prove) that this is the case.<\/p>\n

    Substantiation can often be overlooked when employing related parties in a business. Normal indicators of an employment relationship include:<\/p>\n