Work-Related Meal Deductions
Previously, business owners in New Zealand could claim meal and refreshment expenses when travelling for work. However, with the release of IRD’s interpretation statement IS 21/06, that has changed. Now, food and beverages are considered personal expenses and cannot be claimed as business deductions. This applies even if you’re out working.
So, what does this mean for you?
Any food or drink expenses for yourself as a business owner should be coded to drawings, not as business expenses. However, there are still situations where you can claim meals for employees or clients. Let’s walk through some common scenarios.
Scenario 1 – Self-Employed Meal Expenses
John is a self-employed builder based in Hamilton, often travelling to nearby towns for work. His office has basic tea and coffee facilities, but he frequently buys takeaway coffee or meals while out. Let’s see how these expenses are treated.
Variation 1 – Local Travel:
John spends a busy day travelling between several clients, buying takeaway coffee and lunch along the way. Since this is just regular work travel, these expenses are not deductible. They are seen as personal costs, as the job didn’t impose any extra expenses he wouldn’t have had otherwise.
Variation 2 – Business Travel:
John heads to Auckland for work, staying until late in the evening. He buys coffee, lunch, and dinner during his trip. Again, these meal expenses can’t be claimed because they are still considered personal.
Variation 3 – Overnight Travel:
John travels to Taupo for two days, staying overnight. He incurs meal expenses during his stay. These costs are still personal, as John had the option to stay in self-catering accommodation but chose to eat out instead. Therefore, the meals are not deductible.
Variation 4 – Remote Work Travel:
John travels to a rural area where there are no self-catering options, and the only place to eat is the hotel restaurant. In this case, John had no choice but to eat out, and his meal expenses are partially deductible. The extra cost, beyond his usual food budget, can be claimed. For example, if he normally spends $20 on dinner, any amount over this could be deducted.
Scenario 2 – Employee Meal Expenses
John employs Harry to help with growing demand, and Harry travels to Tauranga for two days, staying overnight. John reimburses him for meals per his employment contract.
Since Harry is an employee, John can claim this reimbursement as a legitimate business expense. Employee meal expenses are deductible, provided they are part of the employment agreement.
Scenario 3 – Entertaining Clients
John decides to improve client relationships by taking them out for dinner every Wednesday. Can he claim these meals?
Yes, 50% of the costs of meals and drinks while entertaining clients can be claimed as a business expense. But if John dines alone, no deduction would be allowed.
Scenario 4 – Entertaining Friends
On Fridays, John meets friends for drinks and dinner. He covers the cost, but can he claim any of these expenses?
No, these costs are considered personal and cannot be deducted. Social meals with friends are not work-related.
Scenario 5 – Shareholder-Employee Meal Expenses
John’s wife, Georgina, works as an employee in the business and attends conferences for the company. Her employment contract includes meal reimbursements. On one trip, John also attends and has his meals paid for by the business. Can these expenses be claimed?
• Georgina’s expenses are deductible because she is an employee.
• John’s expenses are not deductible, as he is not technically employed by the business and these costs are considered personal.
Final Thoughts
The rules around meal deductions have changed, and now food and beverage expenses are only deductible in limited circumstances. If you’re unsure whether you can claim meal expenses for your business, or if you’re considering putting yourself on payroll to claim entertainment deductions, contact Cambridge Accountants for expert advice. We’re here to help you navigate these rules and make sure your tax deductions are in order.
