top of page

Identifying Which Line Items Are Entertainment Expenses

As an entrepreneur, you must ensure your financial statements meet the requirements set out in IFRS. However, managers do not have the time or expertise to do this. It is where an accountant can help.


An accountant can assure you that your financial statements meet all the requirements of IFRS. They will have a detailed knowledge of the standards and how to apply them to your circumstances. It means you can have confidence that your statements are compliant and will be accepted by regulators.


An accountant can help ensure that your income tax returns are filed correctly and on time. They can also help you take advantage of deductions and credits that you may be eligible for. A tax accountant can accurately determine if an expense can be classified as a deduction.


As a business owner or manager, you may often find yourself paying for your clients' food, drink, or recreation when meeting for business or social purposes. While you can deduct some of these expenses as business expenses, the ATO considers most of them entertainment expenses, which are not tax deductible. There are some exceptions, however, where you may be able to deduct entertainment expenses as business expenses, so let us learn more.


The Basic Rule


Generally, the expenses associated with your business operations can be used as tax deductions. It includes things like office supplies, employee salaries, and business travel. Your tax accountant will carefully record your income and expenses to deduct these expenses.


Even if you see clients discuss business matters, the tax office will disallow anything it classifies as entertainment expenses. It includes meals, tickets to shows or sporting events, and hotel accommodations. The only exception is if you can prove that the cost was directly related to business, such as entertaining a client to secure a business deal.


Factors


As a business owner, you are likely always looking for ways to cut costs. When it comes to entertaining clients, you may wonder if their meal cost is an entertainment expense. There are some aspects to consider when making this decision.


Is It for Entertainment or Refreshment?


Business expenses can add up quickly. Many potential expenses can affect your bottom line between travel, office supplies, and client entertainment. One typical expense that businesses often incur is entertainment expenses. Entertainment expenses can be significant for companies, whether taking clients out to lunch or tickets to a ball game.


The cost of refreshments can be considered a deduction if it is incurred during the business and is to provide comfort or convenience to your staff or clients. It can include coffee, tea, soft drinks, snacks, and meals.


To be eligible for this deduction, you must keep receipts for all the refreshments you purchase. You will also need to show that the refreshments were provided for business purposes.


How Elaborate Is the Meal?


As long as the meal does not involve alcohol, it can be classified as a work expense and therefore is not considered entertainment. However, if alcohol is served as part of the meal, it would be considered an entertainment expense.


Conclusion


It is essential to work with a tax accountant to determine which line items are considered deductible and which are considered entertainment expenses. It will help you maximise your deductions and minimise your tax liability.


You can legally minimise your tax obligations with the help of a tax accountant. There is no better tax accountant in Australia than The Ecommerce Accountant. We will help you maximise your government incentives, so call us now for more information!

5 views0 comments

Comments


bottom of page