06 Jan 2010

Deductibility of Entertainment Expenses - Australia

by Darren

Let's compare the basic rules on eligibility to deduct entertainment expenses across the region, starting with Australia. Generally entertainment expenses are not deductible. The term entertainment expenses has been defined as entertainment in the form of food, drink or recreation. Recreation includes amusement, sport and other types of leisure activities. This is known to include recreation and amusement in vehicles, vessels or aircraft such as joyflights and sightseeing tours.

Examples of entertainment are business lunches, cocktail parties, sporting or theatrical events, and also covers accommodation or travel associated with any of these items.

The Australian Tax Commissioner has issued a ruling which determines whether food and drink constitutes the provision of entertainment.

In summary when identifying whether food and drink is deductible for your business ask yourself the following questions:

  • Why is the food and drink provided? — Where it has been provided for the purposes of refreshment, it will generally not be entertainment. Where provided in a social situation, it will generally be entertainment. For example a client comes to your office and you offer a coffee or tea this is not entertainment.
  • What food and drink is being provided? — The more elaborate the meal, the more likely it will be entertainment.
  • When is the food and drink being provided? — If provided during work time or while traveling, it is less likely to be entertainment. However, a social function such as year end parties held during work time will still be treated as entertainment and not deductible.
  • Where is the food and drink being provided? — Where provided your business premises, it is less likely to be entertainment. If provided in a function room, hotel, restaurant or consumed with other forms of entertainment, it is likely to be treated as entertainment.

The following items are deductible:

  • Food and beverages offered as part of your businesses in house dining facility
  • If your business is to provide entertainment to paying clients or customers such as theaters and restaurants, the cost of entertainment is in the ordinary course of your business and is deductible.
  • Seminars -  the cost of food, drink, accommodation and travel that is reasonably incidental to a person''s attendance at a seminar lasting at least four hours.However, if recreation activities are attached it the seminar that component of the cost is non-deductible.
  • Entertainment expenses incurred to promote your business and goods or services. For example, A deduction could be allowed for promotional shows at a shopping mall, but not for food and drink provided at a product launch restricted to selected guests.
  • Overtime meals and allowances paid to your employees as required by law or under a contract
  • Recreational facilities offered to your employees which are located on your business premises

Next we will look at how Singapore deals with entertainment expenses.

Next entry: Singapore Entertainment Expenses
Previous entry: 2010 and the Global Tax System


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