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  • #973008
    Geronimo
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    Hi All,

    How do I account for coffee’s and lunches paid for on my work CC? I’m not talking about travel, but rather if I’m going away from my place of work to meet a client or associate, and purchase something while out?

    According to my reading of the ATO site, it’s not really entertainment as that’s not the purpose.

    On another but similar note, as I work from home, I prefer to hold meetings in coffee shops etc.

    I am confused how I account for this. I’m using Xero if there’s a built in account that I could be pointed to.

    I should make the point that, over a year, the total may come to a couple of hundred dollars, so certainly not looking for a loop hole.

    Many thanks.

    #1059092
    taxpert
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    Hi Elsee,

    Could you please clarify 2 things;

    Was it just you getting a coffee or lunch on the way to or from a client or were you and the client eating together at the meeting?

    What structure (sole trader, company, partnership, trust) are you using and if it is a company or trust do you pay yourself a wage?

    Thanks,

    #1059093
    RapidEntryBiz
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    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, like any Enterainment expense unless it is subject to FBT. So, what is Meal Entertainment? The FBT guide goes into this in detail and there is a good ATO ruling on it as well – Go to the ATO website, legal data base.

    S8-1 of the ITAA97 (the big daddy of deduction law) says that a deduction that is expended in the earning of assessable income or is necessarily incurred in carrying on a business is deductible but it must not be capital or personal in nature. Since drinking/eating is personal in nature, you have to rationalise your argument. Coffee tea etc that we consume on business premises is deductible in the form of staff amenities since it is assumed that we are working whilst we consume it. So its not the consumption that is the stumbling point. Along that line of thinking, we claim taxi fares to go from work to meetings and back to work so we can claim expenses that are incurred by us out of the office so its not the absence of being in the office either.
    Is it expressly prohibited by tax law? Under both headings mentioned above, no. What about it being Entertainment? Is it entertainment? No it is not as it doesnt have the nature of entertainment. If it is not Meal Entertainment, is it a Refreshment, and is refreshment whilst out of the office, on office business, deductible? Essentially it must not be a meal or a large outgoings since it must conform to the nature of a refreshment. So does coffee conform? If so how many coffees per day? Can you claim a muffin as well? 5 days per week/52 weeks per year x no of employees?

    Again, you have to rationalise your argument…popping down the road to the local coffee shop doesnt constitute a refreshment whilst out of the office on office business, now does it? Can you get away with it – well that’s up to your conscience and your accountant. That’s not the point but I wanted to mention it as its the next logical consideration.

    I’d like to hear other accountants viewpoints, feel free to totally destroy mine!

    #1059094
    RapidEntryBiz
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    Oh, one more thing…the ATO regards sitting in a cafe or restaurant or bar and consuming refreshment as having the flavour of Entertainment, so when refreshing yourself out of the office with coffee or the like, I submit your honour, that it be regarded as refreshment, and therefore deductible!

    #1059095
    RapidEntryBiz
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    I should have proof read that.
    I meant to say takeaway coffee, water and the like is refreshment, and therefore deductible (in my opinion).

    Geting back to your question Elsee, you account for the deductible items by expensing them in an account called Refreshments in the Expense section of your General Ledger
    Meals and entertainment are not deductible but can be expensed similarly as above – call the account NonDeductible Entertainment so your accountant knows what these expenses relate to.

    Your accountant may not agree with me and putting the expenses in these accounts will enable her to make her own decision based on her understanding of tax law and rulings.

    #1059096
    taxpert
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    Hi Elsee and Dianne,

    I believe that if the meal is eaten/coffee drunk at the café it is meal entertainment (and therefore subject to FBT). If you are just getting take-away then it probably isn’t.

    You need to distinguish between the part that was for you and the part that was for your clients. I suggest you make note on the receipt of who attended the meeting (just initials will do) and apportion on a per head basis. So if it was you and two clients than one third of the cost should be posted to entertainment – staff and two thirds of the cost should be posted to entertainment – clients.

    The part that was for your clients is a non-deductible expense. You should not claim GST credits on this part. The part that was for you is deductible but it is subject to FBT. However based on your comment that “over a year, the total may come to a couple of hundred dollars” I would say that the minor benefits exemption applies and therefore there is no need to lodge an FBT return or pay any FBT. However, if the cost and frequency of the meals increases this will likely change.

    Having said all of that, if you were to post everything to something called refreshments (or just sundry expenses) it is unlikely anybody (your accountant or the ATO) would ever bother to investigate.

    Cheers,
    Simon

    #1059097
    RapidEntryBiz
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    Maybe my approach to this question has been a bit scatter brained, I had a bad cough, maybe the cough mixture was to blame. I enjoyed putting that together but Simon’s reply has bought me back to earth. I’ll try to apply this reply a bit more to your situation.

    If you want to claim meals (eaten out of the office,typically at restaurants or cafes) as a deductible expense, they must be subject to FBT and to do this you’ll have to register as an FBT employer with the ATO. To avoid this, and for or a simple or small business (I imagine you are) why wouldn’t you want to avoid it! – simply put the whole expense into the NonDeductible Entertainment Acc (no GST credits). For takeaway coffees and water etc as discussed below, use the Refreshments acc. I think the important thing is that your accountant takes notice of what’s not deductible. We don’t care if they take notice specifically of deductible accounts as they dont have to exclude them, they will the non-deductibles.

    Simon refers to the situation where you are entertaining a client. He describes the Actual method and there are other methods that give better results according to how many clients you entertain, but this is for those registered for FBT.

    cheers
    Dianne

    #1059098
    taxpert
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    Hi again,

    My understanding is that under this scenario, because the minor benefits exemption would apply to reduce the taxable value of the fringe benefits to nil, there is no need to register for FBT or lodge an FBT return. Dianne (or anybody else) please correct me if I am wrong.

    Regarding the actual method (the method i described) vs the 50-50 split method, one factor in determining which method is best is obviously the ratio of employees to clients at the meeting. However don’t forget another important factor – the minor benefits exemption is not available when you choose the 50-50split method, only when you choose the actual method.

    Cheers,
    Simon

    BTW Please follow me on twitter @talktoataxpert

    #1059099
    Anonymous
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    Hi Simon and Dianne,

    Just for my own education, how about if you’re on your own (i.e. not entertaining clients), and are working (e.g. on your laptop) while in the coffee shop or restaurant. Does that change the answer?

    Cheers,
    Jayne

    #1059100
    RapidEntryBiz
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    The Minor benefits exemption can apply but only if the benefit is minor AND infrequent. What would a reasonable man consider infrequent, well not 30 at $10 a pop but certainly 2 or 3 times a year to add up to the $300 limit.

    Jane, drinking coffee in a coffee shop is Meal Entertainment as far as the ATO is concerned. Its a fringe benefit if you want to deduct it in your accounts, alternatively it is deductible if you have paid FBT on it. It doesnt matter if you are working or not as the coffee shop gives it the flavour of entertainment.

    The ATO have released a comprehensive guide ‘FBT a guide for employers’. Its a complex issue because some benefits still require the subjective Who What When Where and Why analysis. Its detailed in this guide.

    Applying this analysis to a scenario such as the coffee shop Jane, you’d ask Why…refreshment time (not a business meeting under the ATO definition)
    Who…just me
    When…during office hours
    What…small expense, just coffee
    Where…coffee shop
    and in the absence of a definitive ruling on the issue, come to a conclusion about whether or not it is indeed Entertainment – it would require a weighting of the answers. The larger more elaborate the expense such as, out of office hours in the company of your partner and including alcohol – the more likely it is a fringe benefit. Not to say small $ amounts are excluded by definition rather that this analysis is accepted by the ATO and the dollar amount spent is certainly a factor in this analysis.

    Because there is a subjective aspect, you can reason your argument as I said in my first post in this thread but if you want the quick answer, its no. Its not deductible as its Meal Entertainment.

    Cheers
    Dianne

    #1059101
    MyGreatIdea
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    It seems that the question “How do I handle meal/coffee expenses?” is as simple to answer as “Will I pay more or less for a birthday cake under GST?” :D

    Wendy

    #1059102
    taxpert
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    The minor benefits exemption applies if it is under $300 and having regard to various other factors it would not be unreasonable to treat it as exempt.

    The frequency and regularity is one of the factors but not the only one. The list of factors can be seen here http://www.ato.gov.au/businesses/content.aspx?doc=/content/00108258.htm&page=7&H7.

    It is my opinion that when all those factors are considered the minor benefit exemption still does apply to these facts. However it is an area of tax law that hasn’t been tested much in the courts so i could be wrong

    Cheers,

    #1059103
    Anonymous
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    Thanks Dianne, thanks Simon.

    I understand why I’m confused now!

    Lucky we’ve got folk like you around here to sort us out :)

    Jayne

    #1059104
    Geronimo
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    Thanks everyone for your responses. Since I posted the question I had to go away, so feel a bit guilty for not responding sooner.

    I already have an Entertainment (non deductable) account, so have created a Refreshment one. Thanks for the help.

    #1059105
    RapidEntryBiz
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    Elsee, hopefully this discussion has given all you and all the other FS soloists some idea of the minefield that is Fringe Benefits Tax and how the legislation works to prevent businesses (big and small) from claiming tax deductions that are deemed to be an employee fringe benefit when not registered (and paying) FBT.

    It may be hard to guage from our back and forth argument (not really) but Simon and I are trying to give all of you the best possible advice, albeit coming from different points of view, me subjective, Simon objective.We are both accountants so our discussion is on that level but it wasnt meant to alienate you guys, on the contrary, it was my objective to enjoin you in the conversation your accountant would have with his associates. I hope you got something out of it.

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