Tax Deductible On-Site Meals for Business Owners

WMIA Education

Posted on January 15th, 2018 at 9:42 AM by WMIA

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.

Some background

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’t claim a deduction for meals they eat at work. Those meals are private expenses and the law prohibits individuals from claiming private expenses.

But things are different for a company (including a trustee company). A company cannot have a ‘private expense.’ So, the “private nature” exclusion in the tax law does not apply.

One of the effects of using a company or trust to run your business is that this generally means an employer/employee relationship exists – 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.

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.

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’s premises; that the food is not related to a “social function;” and that no alcohol is served with the meal (booze makes things social, not functional).

So, if a company provides things like sandwiches, wraps, cups of soup and other “light lunch” type food to be consumed on site, GST is claimable, a tax deduction is allowed and there is no FBT liability.

And the meal does not need to be lunch. Brekky and dinner can be deducted as well. Just make sure that

  1. the relevant staff eat the relevant meal at work; and
  2. they don’t have a beer for breakfast.

What this means for you

Let’s say you usually eat your breakfast/lunch/dinner while at work and what you eat passes the “light meal/no alcohol” 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).

Let’s 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’s 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’s $5.88.

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

$6.12 for a sandwich and a drink. You probably could not make it yourself for that price.

If this happened five days a week for 48 weeks, the annual saving would be $1,700.

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’t start early or work late? This blog was written at 7pm at night.

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

An employer/employee relationship

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 (ie prove) that this is the case.

Substantiation can often be overlooked when employing related parties in a business. Normal indicators of an employment relationship include:

  • An employment agreement outlining the role to be performed;
  • Use of a software payroll system that issues periodic pay slips i.e. fortnightly or monthly;
  • Physical and regular payment of salary from the business account to a personal bank account;
  • Payment of super guarantee; and
  • Insurance through Workcover for employees of the trust/company.

As with everything to do with tax, the key is to document the employment relationship. Remember, the ATO is not there to be difficult. If the employment relationship is genuine (and most people use companies or trusts specifically so that their personal liability is limited, meaning that the employment relationship is the whole point of using the company), then the tax concession is available.

The two key things to remember

Please keep two key things in mind: the meal cannot include alcohol and the meal must be eaten on your business premises. The standard practice of business owners eating dinner at your desk while catching up on (digital) paper work meets the rules.

We really hope this tip helps you in your business. If you think it will, why not give us a call and we will show you exactly how to apply it in your workplace.

Please note: the post is obviously general in nature and you should check your own situation with a tax agent before claiming any sort of tax deduction.

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