Are Friday afternoon beersies tax deductible?

There is an assumption out there that farmers do not wine & dine like other businesspeople might - this is simply not the case.  Farmers can provide entertainment to their team, clients, or suppliers just like any other sector.

What if you are a sole trader or a farming couple with no employees? A drink enjoyed after a day’s hard work could be simply part of dinner, or it could be time set aside to plan the business’ future or to recharge and reset before heading out again tomorrow.

It is best to add a narration like ‘Friday staff shout,’ ‘health & safety morning tea’ or ‘gifts for suppliers’ to any purchase of food and alcohol.  This not only makes it clear what was bought and why but makes your life easier months down the track when your accountant might question several purchases at once.

Food and alcohol are purchases that could be classified as personal or business – it is not immediately obvious as too which. However, all genuine business-related purchases should be claimed - so let us take a deeper look.

An expense is business related if you have spent the money to help the business earn revenue. If the expense does not help your business earn income, then it is private and cannot be claimed. Food and drink have an element of personal enjoyment, which makes things a little trickier. In general, if there is an element of personal enjoyment, then the purchase is 50% deductible. Examples which would count as 50% deductible include: a BBQ lunch during the workday, beers enjoyed on premises after work, shouting a drink at the pub, a bottle of wine gifted at Christmas.

What would not count? Putting a family dinner on the business credit card to thank them for their patience after you put in some long hours does not help the business to earn income so this would be a private expense.

What about fringe benefit tax? According to FBT legislation, food & drink consumed on the premises is classified as an ‘other’ benefit and therefore is exempt.  If the alcohol or food is part of a larger event or one held offsite, then entertainment rules overrule fringe benefit tax rules so there are no FBT implications.

And GST? If the drinks qualify as deductible, GST can be claimed. Take care that if the purchase is 50% deductible, then the GST claim is also limited to 50%.

You can check the rules on Inland Revenue’s website for more details here.

Clear as mud? We are only an email or phone call away to clarify any entertainment claim questions you might have!