We’ve been asked this question a few times in the last week; so here goes:
The short answer: If beers are consumed away from home, or outside of normal working hours and have a connection to continuing on the business (to earn income) they may be 50% deductible for both GST and income tax purposes.
The more technical answer: For a business to claim an expense, that expenditure must be used to earn income, or to carry on a business for the purpose to earn income.
Unless you are a beer taster it is unlikely you will be buying beers to earn income. Therefore, is your beer expenditure incurred in the course of carrying on your business for the purpose to earn income?
At the same time, a person is denied a deduction for expenditure that is of a private or domestic nature. One may argue that drinking a beer is of personal nature.
Let’s review some of the situations we’ve looked at this week, “Can I claim my beers?”
1. I get a lot of new business and catch up with my current clients by having a beer at the pub with them.
This has a nexus to continuing on the business to earn income, by providing entertainment to new and existing clients. Under the entertainment rules this is 50% deductible because it has a private element.
2. I have a few beers at work on Friday afternoon with the team (staff)
This has nexus to continuing on the business to earn income, by providing entertainment to staff. Under the entertainment rules this is only 50% deductible because it has a private element. It doesn’t matter if it is in the office, or out of the office nor inside or outside normal working hours – it is still only 50% deductible.
3. I gave a client some beers as a gift
Gifts that provide a private benefit to the recipient and a business benefit to the gifter are only 50% deductible.
4. I give my employees some beers to take home and enjoy after a long day.
Because the employee can choose when and where to enjoy the benefit and the benefit is not provided in the course of the employee's employment duties it is captured under Fringe Benefit Tax. We’ll touch on this another day. Drink your beers with your employees to be on the safe side, or give us a call to find out more.
5. I brought some beers to drink at home after a stressful day.
In this situation, the nexus to carry on a business to earn income is weak and the private element (consuming the beers in a personal setting) is high. This type of expenditure would be 100% private.
How to get a 100% deduction
If you are travelling on business, the cost is 100% deductible. This overrides the ruling that food and drink away from the business premises is only 50% deductible.
However, you can only claim 50% of the cost if:
- The travel is for the purpose of enjoying entertainment or
- a meal of function involving an existing or potential business contact as a guest or
- a celebration meal, party, reception while travelling.
Morning & Afternoon Tea
Morning & Afternoon Tea’s consumed in the office, are 100% deductible
You can also view our recent articles on The Myth Of Tax Deduction and The Difference Between Income Tax and GST or contact the team at AgBiz Accountants.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.