I am often asked about the deductibility of meals when eaten at a cafe. The ATO views lunches as Meal Entertainment (unless they are Business Meetings which conform to a list of requirements – see Fringe Benefits for Small Business on the ATO website) as not deductible unless it is subject to FBT. So the question really is what is “Meal Entertainment”? The FBT guide goes into this in detail and there is a good ATO ruling.

To determine whether an item is tax-deductible we need to go to section 8 of the ITAA97.  This section states the following

• that a deduction that is expended in the gaining or producing your assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, it cannot be
• Domestic or private in nature or capital and no provision of this Act prevents you from deducting it.

There if you are at a coffee shop, it needs to be considered a light meal/refreshment in nature.  You have to be able to rationalize your argument as to its business connection as drinking/eating is personal in nature. Coffee, tea and light refreshments that we consume on business premises is deductible, under what we call staff amenities since it is assumed that we are working whilst we consume it.

The question when consuming outside the office is whether it is a refreshment or entertainment. Generally, it must not be a meal or anything substantial if you want to conform to the nature of a refreshment. So does having a coffee at a cafe conform? If so how many coffees per day? Can you claim a muffin as well? How many days per week?

Again I stress, you have to rationalize your argument… in terms that you could argue your position in front of the judge.  Will your argument stand up in court!  Do you have a justifiable position on why a business took place at a cafe rather than on business premises? You must always keep in the back of your mind the ATO position on viewing lunches as meal entertainment so you have to be able to justify that it was refreshment in nature.

Also, remember entertainment doesn’t apply to when you are traveling overnight on business. And good news for business if you hold an eligible seminar that is more than 4 hours in duration then the meal associated is not considered entertainment. Whilst I probably haven’t fully answered the question, I hope it has helped you understand what the ATO is looking at.