Meals and Entertainment Record Keeping

No expense category surprises business owners more than this one. The client lunch felt like the most business-y spend of the month — relationship built, deal moved forward, invoice kept. And it is generally not deductible anyway. Meals and entertainment is the category where the tax rules and commercial instinct part ways, which is exactly why the records matter so much.

The starting point: entertainment is generally not deductible

Entertainment — restaurant meals, drinks, functions, tickets, hospitality — is generally not deductible to the business, and GST credits generally cannot be claimed on it either. The business motive does not rescue it: entertaining a client to win work is still entertainment. This is the baseline everything else in this category is measured against.

Where the line usually sits

• Sustenance versus entertainment. Light meals, sandwiches, tea and coffee provided at a working meeting on business premises are usually at the sustenance end and generally deductible. A restaurant meal, anything built around alcohol, or an event is generally entertainment.
• The coffee meeting versus the restaurant lunch. In practice, a takeaway coffee during a client catch-up is usually treated as modest sustenance, while a seated restaurant lunch with a client is generally entertainment — the setting, the substance of the food and drink, and the occasion all feed the answer, which is why the words usually and generally do real work here.
• Travel meals are not entertainment. Your own meals while away overnight for business belong with travel, not here — but hosting a client at dinner while travelling is still entertainment.
• Employees versus clients. Feeding your team and hosting your clients are different questions. Staff events like a Christmas party sit in entertainment territory with fringe benefits tax in play, and there are exemptions that can apply depending on the facts. Where entertainment provided to employees does end up subject to FBT, the cost generally becomes deductible — a linkage worth one sentence here and a proper conversation with your adviser before relying on it.

Records that make this workable

• Note who attended and why — staff or clients, how many of each, and the occasion. A one-line note on the receipt or in the software memo is enough, and it is the detail nobody can reconstruct later.
• Separate account codes for entertainment, staff amenities and travel meals, so the non-deductible spend is not buried inside the deductible.
• Do not claim GST on entertainment lines as a default — set the tax rate on the entertainment account accordingly so the software stops the mistake for you.
• Keep the receipts like any other record — generally for 5 years.

What we commonly see go wrong

• One meals account holding coffee runs, staff lunches, client dinners and travel meals, all claimed with GST.
• GST credits claimed on client restaurant bills, unwound later with interest on the BAS position.
• The Christmas party coded as staff amenities or training, with the FBT question never asked.
• Genuine travel meals lumped into entertainment and lost, which gives money away in the other direction.

A worked example

As an illustration: a consultant codes every café and restaurant transaction to a single meals account and claims GST across the lot. At year end the account holds takeaway coffees from client catch-ups, the team's Friday lunches, two client dinners and a week of travel meals from an interstate project. Each of those has a different answer — some deductible, some not, some with a GST credit, some without, one with an FBT question attached. Splitting the account codes and adding a one-line note per receipt during the year turns an afternoon of guesswork into a non-event.

When to get help

If your file has one undivided meals account, if GST has been claimed on client hospitality, or if staff events are growing and nobody has looked at the FBT side, it is worth getting the categories set up properly once. This is a category where the fix is genuinely simple — the cost is only in leaving it unexamined.

Can I claim taking a client to lunch?

Generally no. Client hospitality is entertainment, which is generally not deductible and generally carries no GST credit — even though the lunch was clearly for business purposes. Keep the record anyway, so the spend is coded correctly rather than claimed by default.

Is coffee and food for the office deductible?

Light refreshments for staff on business premises — tea, coffee, biscuits, sandwiches at a working meeting — are usually at the sustenance end and generally deductible. The further the spend moves towards restaurants, alcohol and events, the more likely it is entertainment.

What about the staff Christmas party?

Staff functions sit in entertainment territory with fringe benefits tax in play, and there are exemptions that can apply depending on how the event is structured. The FBT outcome and the deduction are linked, so it is worth confirming the treatment with your adviser rather than coding it as a general staff expense.