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Employee accommodation, food and drink expenses

On 17 February 2021, the ATO issued a revised Draft Taxation Ruling TR 2021/D1 which outlines the income tax deductibility and FBT related issues of accommodation and travel-related food and drink expenditure ( replacing draft TR 2017/D6 now withdrawn). The ATO also issued an accompanying Draft Practical Compliance Guideline PCG 2021/D1 which identifies the types of arrangements that the ATO will generally not apply compliance resources to. This includes where an employee is staying away from their normal residence for work purposes for less than 21 days at a time continuously and less than 90 days in total at the same location in an FBT year.

While it appears the ATO is returning to the former three-week rule of thumb in the withdrawn Tax Ruling IT 112 for the distinction between travelling and living away from home, it has to be remembered the PCG is only a compliance guideline. Situations falling outside this compliance concession can be acceptable by considering the factors in draft TR 2021/D1.

Deductibility of accommodation, food and drink expenses

Draft TR 2021/D1 states that whether accommodation, food and drink are deductible, depends on the facts and circumstances of each case.

Generally, an employee can only deduct accommodation, food and drink expenses under section 8-1 to the extent that:

• they incur the expense in gaining or producing their assessable income
• the expense is not of a capital, private or domestic nature
• the expense is not incurred in gaining or producing exempt income or non-assessable non-exempt income, and
• a provision of the Act does not prevent it from being deducted.

'Travelling on work' vs living expenses

The draft ruling notes that accommodation, food and drink expenses are ordinarily private or domestic in nature. However, where an employee travels and stays away from their usual home overnight in the course of performing their income-producing activities (referred to as 'travelling on work') and incurs accommodation, food and drink expenses, these expenses will generally be deductible under section 8-1.

To be deductible, the accommodation and food and drink expenses must have a sufficiently close connection to the performance of the employment duties and activities through which income is earned.

However, where the accommodation, food and drink expenses are incurred because the employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income (e.g. where a person lives in one city as a matter of choice but travels to another city for work), the occasion of the outgoing will not be found in the employee’s income-producing activities. Accordingly, the accommodation, food and drink expenses incurred are living expenses and will not be deductible. This is also the case where an employee is living at a location away from their usual home, even if the employee is living at that location due to their employment.

Length of time living at a work location

Generally, the longer an employee spends away from their usual home for work, the more likely the employee is living at the location. This may still be the case even if the employee stayed away from their usual home for a reasonably short period of time. 

ATO’s PCG compliance concession  

The draft PCG 2021/D1 outlines the ATO's proposed compliance approach considered to be a concession to assist employers to work out whether an allowance or benefit provided to an employee relates to travelling on work or living at a location away from home.

'Travelling on work' or living at a location

Under the compliance concession, the ATO will accept that an employee is 'travelling on work' and will generally not apply compliance resources to determine whether expenses for an employee living at a location away from their usual place of residence are work travel costs when all the following circumstances are satisfied including where:

• provides an allowance to an employee or pays or reimburses accommodation, food and drink expenses;
• Doesn't provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration in lieu.
• Is away from their normal residence for work purposes;
• Does not work on a fly-in fly-out or drive-in drive-out basis (these arrangements are subject to special rules under the FBT Act);
• Is away for a short-term period being no more than 21 days at a time continuously and less than 90 days total in the same work location in an FBT year . 

This means the guidelines set an aggregate period of less than 90 days for travel to a single work location in an FBT year. Provided this requirement is met, the guidelines allow an employee to have numerous short stints of travel to that location of up to and including, 21 continuous days .   

For example: Source: Adapted from PCG 2021/D1 Example 2

Louise works in Brisbane and is employed by an engineering company. Her employer gives Louise a three-month assignment in a remote work location in Western Australia to perform duties for the company. As part of the agreement, Louise works during the three-month assignment for:

• three weeks in Western Australia, returning to Brisbane for two weeks to perform duties in the Brisbane office
• another three weeks in Western Australia in the same work location, returning to Brisbane to again perform duties in the Brisbane office, this time for a week, and
• another three weeks in Western Australia in the same work location.

In effect, during the three-month assignment, Louise works in the same work location in Western Australia for nine weeks and is home for three weeks in between. She is away for no more than 21 days at a time continuously and is away for a period of less than 90 days in the same work location in total. Louise does not return to work again in the same work location in Western Australia at the end of the three-month assignment.

Her employer pays Louise’s accommodation, food and drink expenses while she is in Western Australia. The accommodation and food and drink expense amounts are not provided to Louise as part of a salary packaging arrangement.

Her employer is able to rely on this Guideline as the requirements in paragraph 10 of this Guideline are met. The Commissioner would accept that Louise is travelling on work. Louise’s employer is not liable for FBT on the accommodation, food and drink expense payment benefits it provides as the otherwise deductible rule applies.

Following PCG concession or draft ruling?

It should be noted, the ATO’s draft PCG is not a ruling and although it should be read in conjunction with the draft TR 2021/D1, it is not part of and does not have the status of the draft ruling. However, if the requirements of the PCG are met the ATO will generally not look into the arrangement and the employer can rely on the guidance to protect them from penalties.

Draft TR 2021/D1 states that there is no requirement to follow the guidance in PCG 2021/D1. However, it is suggested that employers in the first instance consider whether they and their employees satisfy the relevant requirements in PCG 2021/D1. If the employer does not satisfy the relevant requirements in the PCG, then they should consider whether their arrangement is covered by draft TR 2021/D1 instead. Then all the factors outlined in draft TR 2021/D1 must be considered and applied to the facts of the employer’s and an employee’s circumstances to determine whether the employee is travelling on work or living at a location.

The factors outlined in Draft TR 2021/D1 that would support an employee as living at a location away from their usual residence are:

• where there is a change in the employee’s regular place of work;
• the length of the overall period the employee will be away from their usual residence is a relatively long one;
• the nature of the accommodation is such that it becomes their usual residence;
• whether the employee is, or can be, accompanied by family or visited by family and friends.

Alternatively, an employer may wish to request a private ruling.

Differences between withdrawn TR 2017/D6 and 2021/D1

The current draft TR 2021/D1 replaces draft TR 2017/D6 (withdrawn from 17 Feb 2021) which previously dealt with accommodation and travel-related food and drink issues. The revised draft ruling is proposed to have a retrospective effect but penalties may be remitted if the taxpayer previously relied on the withdrawn TR 2017/D6.

TR 2021/D1 uses a different format, terminology and some of the concepts compared to withdrawn TR 2017/D6 and although there are some similarities in the examples there are many important differences some of which are outlined below.  

The fact position in example 9 of withdrawn TR 2017/D6 are not covered by any of the examples in TR 2021/D1 or in the draft PCG. Example 9 deals with an employee that is sent on a six-week training course that requires him to stay away from his usual place of residence for the whole six weeks. It concludes that the employee is travelling for work. This situation would not fit within the requirements of the draft PCG concession. Therefore this scenario would need to be reconsidered based on the factors covered in the draft ruling 2021/D1.

There is also a difference in treatment between Example 11 in withdrawn TR 2017/D6 compared to Example 3 in TR 2021/D1. In Example 11 in withdrawn TR 2017/D6 an employee lives in Sydney but her employer requires her to work in the Melbourne office 2-3 days per week and in the Sydney office 2-3 days per week. It concludes that the employee is travelling for work when staying in Melbourne. 

Example 3 in TR 2021/D1 has similar facts but it differs in that the employee’s role is based in Melbourne but the employer allows the employee to work out of the Sydney office up to two days a week at the employee’s discretion. The conclusion in this example is that, as the employee’s duties do not require her to work in the Sydney office, the employee is not travelling for work when staying in Melbourne.

As example 11 in withdrawn TR 2017/D6 does not meet the requirements of the PCG, whether it would now come to the same conclusion would need to be considered carefully based on the factors described in TR 2021/D1.

Tax Ruling 2021/1 – Employee transport expenses

In addition to the above, the ATO released Taxation Ruling TR 2021/1 on the deductibility of employee transport expenses on 17 February 2021 (the same day the above draft ruling and PCG were issued). The TR 2021/1 sets out the principles for determining when transport expenses satisfy the basic requirements of section 8-1 ITAA 1997, i.e. whether it is incurred in gaining or producing assessable income and whether it is non-private, non-domestic expenditure. The ruling has a retrospective effect.

19th July, 2021

Work travel expenses: What you can (and can’t) claim

Knowing exactly what deductions apply to travel expenses can save a heap of hassle at tax time.

The Australian Taxation Office (ATO) has released a new ruling that clarifies what expenses employees can deduct for work-related travel.

The new ruling, Income tax: When are deductions allowed for employees’ transport expenses? was released this week, bringing together and clarifying the rules for business advisors and their clients alike.

Key takeaways:

• The ATO’s new ruling sheds light on what travel expenses employees can and cannot claim
• Travel between work locations (neither of which are your home), is typically tax deductible
• Incidental work-related travel, such as a receptionist who makes a stop to pick up office newspapers on their way to work, can’t be claimed on tax

Travel from home to a regular place of work generally isn’t deductible. The ruling states that even if you travel to work by plane, receive a travel allowance or make incidental business-related stops on the way to work, you still cannot claim your travel expenses.

But moving between two separate work locations – like driving from your office to a construction site, or from your business to a meeting at a client’s office – can be claimed.

Tax specialist and accountant, Leo Hollestelle said the ruling is well timed ahead of the busy End of Financial Year period.

“It’s timely that these views are brought together and codified into a single ruling,” said Hollestelle. “Tax advisors will be able to more easily familiarise themselves with the rules and in turn advise their clients on it.”

What are work-related expenses?

Work-related expenses are expenses that you incur in the course of gaining or producing your assessable income.

What work-related travel expenses can I claim?

Transport expenses you incur while travelling between work locations are usually deductible. The travel must occur while gaining or producing your assessable income. 

While you can’t usually deduct expenses for travelling between your home and work, you might also be able to deduct the cost of travel from your home to somewhere other than your regular place of work. This might be, for example, to attend a client’s premises or one of your employer’s other offices. 

To work out if travel expenses are work-related, things like these are taken into consideration: 

• Does the travel fit within your duties of employment? 
• Do the travel expenses arise out of your employment and not your personal circumstances?
• Is the travel relevant to the practical demands of carrying out your work duties? 
• Has your employer asked you to travel?
• Has the travel occurred during normal work time?

What work-related travel expenses can’t I claim?

Transport expenses that you incur for travel between your home and a regular place of work are not deductible.

If there is a close connection between travel and your private or domestic life, this will usually not be considered deductible. For example, if you travel to your regular place of work from another location in which you undertake private activities, for example a library or a holiday house, the cost of the travel is not deductible. 

If you happen to live a significant distance from your regular place of work, your travel expenses are usually considered private and not deductible. 

You may also not deduct expenses that are capital, private or domestic in nature. Transport  expenses that may be considered capital in nature include, for example, the cost of purchasing a car. Ask your advisor whether such expenses may be recognised under another tax provision. 

How much can you claim for work-related expenses?

You can only claim the actual cost of the expenses themselves. These will need to be proven with receipts and/or other written documentation. Your advisor will be able to help you with this.

READ: How to save tax in Australia – 15 tax minimisation strategies

How to calculate work-related travel expenses

You can claim deductions for work-related travel expenses in your tax return , but how you do this depends on the expenses themselves. (See also Claiming overseas-travel expenses , below.)

If your expenses relate to a car you own, lease or hire, you may be able to use the logbook method or the kilometres method . 

READ: How long does it take to get a tax return?

Working-away-from-home tax deductions

If your employment requires you to travel away from home overnight, because of your employment (and not because of private circumstances like where you choose to live, for example), the transport expenses incurred in travelling to your alternative work location will usually be considered deductible.

Claiming overseas-travel expenses

If you travel overseas for work, you might be able to deduct expenses relating to flights, accommodation, meals, transport or other minor things (like taxis or using hotel wifi). You’ll need to keep records such as receipts and you may also need to keep a travel diary.

Where’s your regular place of work?

Interestingly, there are several exceptions that – if claimed correctly – can give you an edge come tax time. This is especially true when it comes to defining what a “regular work location” actually is.

For example, imagine you currently work for a business with an office 15-minutes from your home.

But you’re asked to cover a long-service vacancy for six months at another of your business’s offices one hour away. Because this new office becomes your regular place of work for a sustained period of time, travel to and from it cannot be claimed on tax.

But, if your period of work was only for three months, then it could be argued that the second office never became a regular place of work.

Therefore, travel could potentially be claimed on tax.

This is a call to take care in making any assumptions about what you can actually claim. As the ATO ruling states, ‘the full facts and circumstances of the specific working arrangement in place must always be considered in determining the nature and deductibility of the transport expenses incurred’.

And that’s something to keep in mind when it comes to all travel-related tax claims this tax time, as it could be this ruling also indicates an increase in scrutiny for travel-related claims.

“While the ruling is very much in line with the Commissioner’s existing views on travel expenses, the timing is worth noting,” said Hollestelle.

“After a year where many employees have been working from home, it may be the ATO is concerned there will be both workers and employers seeking to make dubious claims in the tax period ahead.”

What else do I need to know?

Find more guidance on transport and travel expenses on the ATO website. 

Always seek advice on your individual situation from an accredited business advisor or tax specialist to find out exactly how tax changes and updates might impact your business.

Need an advisor? Find one today with MYOB’s Find an Advisor directory .

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New ATO Guidance on travel, accommodation and meal expenses

The ATO have been busy with new guidance on travel, accommodation and meal expenses releasing the updated version of the Tax Rulling for employee transport costs, and a draft ruling and PCG (Practical Compliance Guideline) on accommodation and meal expenses.

Deductions for employee transport expenses

As a general comment, the principles outlined in the ATO ruling are also relevant in relation to the otherwise deductible rule for FBT purposes and may also have some relevance for individuals operating a business as a sole trader or through a partnership.

The general principle in this area is that travel between home and a regular work location is not deductible. On the other hand, travel to an alternative place of work or between workplaces can be deductible. There are several broad exceptions that should also be considered.

The finalised ruling provides that clients and practitioners need to focus on the reason for the travel in determining the deductibility of the expenses, indicating that there are two key considerations:

• The obligation to travel should arise in connection with the employment and not as a result of a personal choice of the employee; and

• The travel must be relevant to the demands of the work and a necessary consequence of those activities.

Other relevant factors indicating travel could be deductible include the employer requesting the travel to be undertaken, the travel occurs on work time and the travel occurs when the employee is under the direction and control of the employer.

The ATO appears particularly concerned with situations where taxpayers travel to distant work locations and where this is due mainly to a choice that they have made. For example, the employee might have chosen to accept a job that is a significant distance from their home and they have chosen not to relocate their home. Likewise, an employee might have chosen to perform most of their work from home, even though the employer would have provided them with an office or other place to perform their work. The ATO indicates that travel in these circumstances is not generally deductible. However, if it can be shown that the primary reason for the travel is due to the employee’s work duties rather than a choice made by the employee then deductions might be available.

Other general positions confirmed by the ATO in the ruling include:

• FIFO workers are not generally able to claim deductions in respect of travel from their home to a point of departure for their worksite (e.g., between home and the location at which they fly out to a mine etc);

• There is only limited scope to claim deductions in respect of travel undertaken while an employee is ‘on-call’ although this is possible in some situations.

Deductions for accommodation and meal expenses

The ATO confirms that accommodation and meal expenses are normally private in nature, however where employees travel overnight in the course of their employment it can be possible to claim deductions for those costs.

However, where the employee is considered to be living away from home or relocating the costs should not be deductible.

The ruling states that the following factors would suggest that the employee is living away from home rather than merely travelling in the course of their work:

• There is a change in the employee’s regular place of work;

• The length of the overall period the employee will be away from their usual residence is a relatively long one;

• The nature of the accommodation is such that it becomes their usual residence;

• The employee is, or can be, accompanied by family or visited by family and friends.

The ruling indicates that the reason for the expenses being incurred needs to be the employee’s work activities rather than any choice made by the employee in order to be deductible. That is, the treatment of expenses on accommodation and meals will often match the treatment of transport costs associated that trip.

In addition to the updated draft ruling the ATO has issued a practical compliance guideline which sets out the ATO’s approach to determining whether employees are travelling for work or living away from home. Very broadly, the guideline provides that the ATO will accept that an employee is travelling for work when all of the following are satisfied by the employee (there are also requirements for the employer that must be met):

• They are away from their normal residence for work purposes;

• They do not work on a fly-in fly-out or drivein drive-out basis;

• They are away for no more than 21 days at a time continuously, and an overall total period of fewer than 90 in the same work location in an FBT year; and

• They must return to their normal residence when their period away ends.

If you have any questions in regards to your own circumstances and any deductions for travel, meals or accommodation please give us a call and we will be delighted to asssit you through this complex area.

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Travel Expenses Fact Sheet

In order to claim travel expenses as a tax deduction, you need to ensure that the correct substantiation is maintained.  The type and length of the business / work-related travel will affect the documentation you require.

The main issues to consider are:

Principal Reason – Business vs Private Travel

Travel expenses are deductible when they are incurred for business or work-related purposes.

Free Initial Contact Meetings

See us before traveling for ultimate peace of mind about deductibility and achieving the best tax outcome. Book your complimentary initial meeting today, hear back from us within 24 hours.

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Allowable Deductions

If the other conditions of claiming a deduction for travel are met, examples of tax deductible travel expenses include:

• Accommodation

Deductions cannot be claimed for the following travel-related expenses in any circumstances:

• Travel insurance

Substantiation Requirements

In order to claim the allowable deductions outlined above, you must keep written evidence (receipts) in certain circumstances.  This will depend on the amount of the deduction that is being claimed and you receive a travel allowance.

Each year the ATO sets a reasonable travel allowance that covers accommodation, meals and incidentals incurred while travelling for work purposes.

• For domestic travel where a travel allowance is received – no written evidence is required for deductions claimed up to the ATO reasonable travel allowance amount (otherwise written evidence is required for all expenses).
• For domestic travel where no allowance is received – written evidence is required to claim any deduction.
• For overseas travel where a travel allowance is received – No written evidence is required for a deduction claimed up to the ATO reasonable travel allowance amount for meals and incidentals (otherwise written evidence is required for all expenses).  Written evidence is required for accommodation expenses as it is not included in the allowance.
• For overseas travel where no allowance is received – written evidence is required to claim any deduction.

Travel Diary Requirements

As well as the substantiation requirements outlined above, when you are away from home for 6 or more consecutive nights (whether domestic or overseas), a travel diary must be maintained in order to claim a deduction for travel expenses.  At the very least, the diary should include details for each business activity performed including:

• The nature of the activity
• The date, time and duration of the activity
• The location of the activity

Download this fact sheet as a PDF.

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97 | Tax Treatment of Food and Drink

The tax treatment of food and drink you incur in your business will affect your tax position. If you can tax deduct food and drink as a business expense without incurring FBT, you will save a lot of tax. The problem is that the rules around entertainment are confusing.

Tax Treatment of Food and Drink

The tax treatment of food and drink depends on whether those expenses count as a business expense or as entertainment. 

Business Expense v Entertainment

Food or drink is not necessarily entertainment. You can provide food or drink without providing entertainment. It can be a business expense.

s32-10 ITAA97 defines entertainment as ‘entertainment in the way of food or drink’ and s136-1 of the FBT Assessment Act (FBTAA) adopts that definition, but nobody says anywhere that the consumption of food and drink is always and every time without fail entertainment. It all depends.

If something is indeed entertainment, then it is a fringe benefit when provided to employees.

Business Expense

Business expenses are good. When your costs for food and drink count as a business expense, you get a tax deduction per s8-1 ITAA97. You get an input tax credit (“GST credit”) per Div 11 GST Act. And there is no FBT, even when you wine and dine employees.

Entertainment

When the food and drink doesn’t count as a business expense, then it is entertainment. You can’t claim a tax deduction for any entertainment per Div 32 ITAA97.

Fringe Benefit

Any benefit you provide to employees or their associates directly or through an arrangement in relation to their employment is a fringe benefit. And so entertainment provided to employees is a fringe benefit. 

A fringe benefit might be subject to fringe benefit tax (FBT).  But not always.  There are quite a few exemptions in the FBT Act. So if an exemption applies, you don’t pay FBT on that value. 

When you pay FBT on an expense, you can claim a tax deduction. Div 32 ITAA97 doesn’t apply to any expenses you pay FBT on. And you also get the GST credit since GST just follows income tax.

If a benefit is exempt from FBT, then you don’t have to pay FBT. But then you also don’t get the tax deduction and GST credit.

How you pay and for whom matters. When you think about it, there are six scenarios where you might pay for food and drinks.

# 1   You might buy the food or drink and give it as a gift. Anything you give to keep or consume later is a gift. The wine bottles employees took home. The little lolly bags you handed out at a client event. The restaurant vouchers clients took back to their office.

# 2   Then there are events. You might invite your clients or team to a cafe or restaurant and pay the bill. Think of staff lunches, business dinners, Christmas parties. Think of restaurants, cafes and social venues and the taxi ride to get there.

# 3   Then there is travel. Your employees or others might pay for restaurant bills and room service using the business’ credit card while travelling overnight.

# 4   You might reimburse your employees or others later after they present you with the restaurant bills and hotel invoices.

# 5   You might pay your employees a travel allowance to spend on food and drinks as they see fit.

# 6   And you might pay a Living-From-Home-Allowance (LAFA) that covers meals but usually also accommodation when you send an employee on a secondment.

These are the six ways you might pay for food and drinks. And you now need to work out what counts as a business expense and what counts as entertainment. That is the hard part.

# 1    Gifts 

Anything you give to keep is a gift. Examples are wine bottles, spirits, boxes of chocolates and restaurant vouchers.

Any gifts of food and drink to former or current clients are a tax-deductible business expense thanks to TD 2016/4.  There are just four caveats. 1) You must carry on a business. 2) The gift must be to produce future assessable income and and not exempt income or NANE. 3) It must not be a personal gift to family or friends. And 4) it must not be of a capital nature. 

For gifts to others – think of suppliers, advisers, competitors – you need to go back to s8-1 ITAA97. If you necessarily incurred the expense in carrying on your business to produce assessable income, you can claim a tax deduction as long as there is no other provision that prevents this deduction.

Any gifts of food and drinks to employees are a property fringe benefit and as such are either an in-house or external fringe benefit. In-house means you manufacture, produce or sell the goods you gave them. 

Calculate for each employee how many fringe benefits (not just food and drinks) they received from you in that year. If the total is less than $300 for an employee, their gifts are exempt from FBT (minor benefit rule). And the first $1,000 taxable value of in-house fringe benefits provided to an employee during the year is also exempt from FBT.

For the rest you will probably pay FBT on the gross-up value. 

Non-Deductible Expense

Any gifts to non-employees that were not necessarily incurred in carrying on your business to produce assessable income are not tax-deductible. There is no FBT but there is no tax deduction or GST credit either.

Gifts of a capital nature – think of a house or car – are not eligible for a tax deduction per s8-1 (2) (a) ITAA97. When you make a gift for personal reasons – think of gifts to family and friends – the expense is not deductible per s8-1 (2) (b) ITAA97. Any gifts to produce exempt income or NANE are not deductible per s8-1 (2) (c) ITAA97. And any gifts specifically barred from a tax deduction by another provision are not tax deductible either per s8-1 (2) d). The most relevant example are gifts to foreign and domestic public officials, that are banned from a tax deduction per s26-52 and s26-53 ITAA97.

# 2   Events

Now you look at food and drinks consumed during an event. And with event we mean any get-together where you consume food and / or drink. So an event might be just two of you having a cup of coffee at a cafe. Or it might be a large office Christmas party at a function. 

In theory, all food and drink is entertainment and hence never a business expense per Div 32 ITAA97. You have to thank the lavish all-afternoon lunches of the 90’s for that. 

But there is a backdoor thanks to TR 1997/17. It is the 4W-Rule. If the WHY, the WHAT, the WHERE and the WHEN support a business purpose, it is a business expense and not entertainment.

The WHY and the WHAT are mandatory. If the WHY and the WHAT don’t support a business purpose, the expense is entertainment. In addition you need at least one more – either the WHERE or the WHEN or ideally both.

The more social the setting, the weaker the WHY. The more elaborate the meal, the weaker the WHAT. The later in the day, the weaker the WHEN. And the further away from the office, the weaker the WHERE.

So for each event you assess the WHY, the WHAT, the WHERE and the WHEN and if the combination of all four factors support a business purpose, the food and drink bill is a business expense and not entertainment.

Travel and accommodation linked to the event – think of the taxi ride to the restaurant –  just follow food and drink. They are treated the same way.

Any alcohol kills the WHAT. The moment alcohol is served, you are looking at entertainment. With alcohol on the table the ATO no longer sees any justified work purpose – no matter how much business you might discuss – and calls it entertainment. Have a look at 14.9 in this ATO guide for employers. The only exception where the ATO is lenient about alcohol is when you travel overnight, but we will cover that later.

If the WHY, WHAT, WHERE and WHEN support a business purpose, the full bill is a tax-deductible business expense.

Sustenance served on business premises – think of morning and afternoon tea, finger food and light meals – qualifies as a business expense as well, no matter whether it is employees, clients or others consuming the food and drink.

Most meals you pay include at least one employee. Clients tend not to go out on their own when you pay. So most events carry a potential fringe benefit.

If the meal doesn’t pass the 4W rule and doesn’t count as sustenance, the portion of the bill relating to employees is a fringe benefit. Staff lunches and Christmas parties fall into this category.

If the meal isn’t sustenance served on business premises and doesn’t pass the 4W rule – for example because alcohol was served – the portion for non-employees is a non-deductible expense, but what portion exactly is not deductible depends on the method you use.

# 3  Travel 

Now you look at all the meals you or your employees or others have while travelling overnight for your business. The rules are a lot more relaxed the moment you travel overnight, especially around alcohol. 

The rule is very simple. If you travel for business, all is deductible – be it employees or clients travelling on your expense account – be it a frugal sandwich or a lavish meal with or without alcohol. The 4W rule doesn’t apply here. And the strict NO to alcohol doesn’t apply either. You need to keep a travel diary, but that is it.

Any private travel paid for employees and their associates is an expense fringe benefit and subject to FBT.

Any private travel paid for non-employees is a non-deductible expense.

If you or your employees combine business and leisure in one trip, you apportion the costs. You look at the costs which would have been incurred anyway if there hadn’t been a few extra days added onto the trip for leisure. Those are deductible as a business expense. Anything else is either a fringe benefit or a non-deductible expense, depending who you pay for.

# 4  Travel Allowance

When your employees travel overnight for business, you might pay them a travel allowance to cover meals – among other things like accommodation.

An allowance is a deductible business expense. And the reason is that the allowance is treated like a wage. It is assessable income in the hands of the employee.

So you get a tax deduction as if you paid a wage, you withhold tax from the payment as if it was a wage and you include it on the employee’s payment summary as if it was a wage.

Your employee includes the allowance in their assessable income as if it had been a wage and they then claim their actual business travel expenses against this income.

(*) Even though the allowance is treated like a wage, it is disclosed on the payment summary and the employee’s tax return separately as an allowance, not a wage – just a different field on the form.

But all this is a huge hassle, for you but especially for your employee. And so to make things easier, there is an exception to this rule. If the allowance is:

# 1   Only for business travel and not private travel # 2  Not exceeding the costs you expect the employee to incur # 3   Not exceeding the reasonable travel allowance the ATO sets every year. # 4   Not for overseas accommodation # 5   Separately tracked in your accounting records,

then you don’t have to withhold PAYG W and you don’t have to include the allowance in your employees’ payment summary, and the employee doesn’t include the allowance in their assessable income but then also doesn’t claim any costs incurred against it either.

# 5   Living-Away-From-Home

You might pay an employee a living-away-from-home allowance (LAFA) to live away from home for business and this LAFA will probably include a component for food and drinks.

A LAFA is always a fringe benefit, but there are significant exemptions, so you only pay FBT on a small portion of the actual costs, but get a tax deduction for the full amount paid.

So this is a short overview of the tax treatment of food and drink. Please call us if you have a question.

Minor Benefit Rule

How To Tax Deduct Business Lunches

Gifts and Contributions

Disclaimer: Tax Talks does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

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Last Updated on 13 November 2019

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Keeping travel expense records

Keeping receipts of your travel expenses, and a travel diary of your work-related travel activities.

Last updated 25 April 2023

Records you need for travel expenses

Unless an exception applies, you must keep records to support your claims for travel expenses. This may be a combination of:

• Written evidence of your expenses , such as receipts
• Travel diary or similar record of your travel activities.

You need to keep your travel expense records for 5 years from the date you lodge your tax return.

If you don't keep written records of your travel expenses, you can't claim your travel expenses as a deduction.

If you receive a travel allowance from your employer, you may be eligible for the record keeping exception .

Written evidence of your expenses

Written evidence of your expenses is a receipt or other document (paper, digital or electronic) that you get from the supplier of the goods or services. It must include all of the following:

• name of the supplier
• amount of the expense (in the currency in which you incur the expense)
• if this is not shown on the document, you can write the missing details on the document yourself. You must do this before you lodge your tax return
• if this is not shown on the document, you can use your bank statement, credit card statement or some other reasonable, independent evidence to show when you paid the expense
• date the receipt or document is created.

If you incur the expense in Australia the document must be in English. If you incur the expense in another country the document can be in a language of that country.

Travel diary or record of your activity

A travel diary is a document in which you record your travel activities.

The purpose of a travel diary is to help work out the work-related and private elements of your trip. You can only claim deductions for the work-related part of your expenses.

Do you need to keep a travel diary?

You don't need to keep a travel diary if you are away for fewer than 6 nights in a row.

If you are away for 6 or more nights in a row, you generally need to keep a travel diary.

If you receive a travel allowance from your employer, there are some circumstances where you may not need to keep a travel diary , even if you are away for 6 or more nights in a row.

Although you don’t need to keep a travel diary if your trip is for less than 6 nights in a row, you may still find it helpful to keep details of your travel.

How to keep a travel diary

For each activity on your trip, record:

• where you were
• what you were doing
• when you stopped for meals
• the date, and start and end times, of the activity.

Record the activity before it ends or as soon as possible afterwards. The diary must be in English.

Example: travel diary

Noel is a manager of a tool manufacturing company that has plants in Australia and New Zealand. He travels to New Zealand for 9 days to attend a conference in Auckland and visit the factory in Christchurch.

Before returning to Australia, Noel spends a few days visiting friends and sightseeing near Christchurch.

As Noel will be staying away from his home for more than 6 nights, he keeps the following diary of his travel.

Noel's diary entries show he was travelling for 12 days, 3 of these days are for a private purposes. He can only claim deductions for the work-related part of his travel. He can claim 75% of the cost of his flights (the part of the trip that was work-related).

Noel keeps his travel records for a period of 5 years from when he lodges his tax return.

Travel, meals, gifts and entertainment

• You can generally claim a tax deduction for travel expenses you incur for business purposes if you are away from home overnight.
• Travel expenses you may be able to claim include air fares, accommodation, meals and incidental expenses.
• Make sure you keep your receipts or other written evidence.
• If you are away from home for more than 6 nights you will also need to keep travel records such as a diary.
• You need to apportion your expenses if they are partly private in nature.

Travel expenses ATO

Sole traders and partnerships

Food and drink provided to employees.

• If you provide food and drink to your employees or contractors that is not entertainment, then generally the expenses will be tax deductible, not subject to fringe benefits tax (FBT) and you can claim GST credits if present.
• Refreshments such as tea, coffee and biscuits are generally considered to be non-entertainment where they are provided for the purposes of refreshment and consumed on employer's premises during meetings, training or overtime.
• For FBT purposes, an employee may include: - current, future or past employee - director of a company - beneficiary of a trust who works in the business - cannot include a sole trader or partner in a partnership

Business tax deductions ATO

• Gifts can be classified as entertainment or non-entertainment. The tax treatment of the expense depends on how the gift is classified.
• Gifts that do not constitute entertainment may include: - Christmas hampers - bottles of alcohol - gift vouchers - perfume - flowers - pen sets

Gifts to clients, suppliers and contractors

• Occasional gifts given to clients, suppliers and contractors may be claimed as a tax deduction if they are considered non-entertainment and offered with the intention of generating future business income or winning new clients.
• If the gift is entertainment or given for personal reasons there is generally no entitlement to a tax deduction.

Gifts to employees or associates

• Occasional gifts given to employees or associates may be tax deductible and exempt from fringe benefits tax if they meet the following conditions: - it is considered non-entertainment - the value of the gift is less than $300 inc GST - similar gifts are not provided regularly
• Gifts for sole proprietors and partners in a partnership cannot be claimed as you cannot be an employee of yourself.
• Associates of an employee may include: - spouse/de facto spouse of employee - relatives of employee

Client gifts SBDC blog

Giving tax deductible and fbt free gifts myob, minor benefits exemption ato.

Entertainment

• Entertainment expenses are not tax deductible.
• If you provide entertainment expenses to your employees you will be required to pay fringe benefits tax.

Examples of entertainment

• meetings with employees, contractors or clients at a cafe/restaurant.
• social functions eg parties.
• meals at a restaurant including alcohol.
• sporting days or memberships.
• reward and recognition functions.
• accommodation and travel in connection with entertaining clients or employees.

Examples of non-entertainment

• refreshments provided to employees, clients or contractors on business pemises in connection with meetings, overtime, training etc.
• food and drink consumed by employees travelling overnight including conferences.
• occasional gifts to employees and clients eg alcohol, Christmas hamper, flowers etc.

Wining and dining clients QuickBooks

Entertainment and fringe benefits tax ato, christmas parties and gifts to staff accountants daily, are you looking for some help with your record keeping.

• Save time on your record keeping so you have more time to focus on other aspects of your business?
• Reduce the stress around meeting your GST and payroll reporting obligations?
• Have reliable data and reports to help you to understand how your business is performing, manage your cash flow, make more informed decisions and improve your business?

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Is alcohol that is bought and served to clients in a hair salon a tax deductble expense?

Just wanted to know if alcohol would be allowed as a business tax deduction in the following scenario. A hair salon that sells cocktails and alcohol to its clients, would the purchasing of the alcohol be allowed as a deductible business expense or not?

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Most helpful reply

An expense that directly relates to a business producing income is usually a deductible expense. However, with alcohol there might be excise obligations you may need to be aware of. You can email our excise team at alcohol @ato.gov.au to check.