A common question we are often asked is, is entertainment tax deductible?

The short answer is no except if provided to staff and Fringe Benefits Tax is paid on the entertainment.  Entertainment provided to clients is never tax deductible.

The next question is, what is entertainment?

Entertainment is food, drink, recreation and travel and accommodation associated with the entertainment.

It has an element of amusement or enjoyment.

The questions to ask to determine if entertainment is being provided are:

WHY the food or drink is being provided

WHAT type of food or drink is being provided

WHEN the food or drink is being provided and

WHERE the food or drink is being provided.

 

WHY– the purpose test – refreshment v social situation.

For example, pizza provided during a lunch time meeting is not entertainment versus pizza provided on Friday afternoon with drinks is entertainment.

WHAT – morning tea or light lunch v high tea or three course meal.

Sandwiches provided during a meeting in the board room is not entertainment versus a 3 course meal in the board room is likely to be entertainment.  It is generally also held where alcohol is included then it is entertainment.

WHEN– during work time, overtime, or whilst travelling for work, provided for work related purposes vs staff social function.

After work hours is more likely to be entertainment unless travelling for work.

WHERE – employer’s business premises or at the usual place of work of the employee v hotel, restaurant, café, or consumed with other form of entertainment.

Food consumed in a restaurant or cafe is more likely to be entertainment than food provided at the work premises.

You may consider some business lunches hard work with some clients and a necessary part of doing business and therefore tax deductible however the ATO does not share a similar view.  Each situation needs to be evaluated using the questions above to determine if entertainment is present.