EXPENSES • 13 AUGUST 2021 • 10 MIN READ

Claiming food as a business expense

A business owner in red shirt and brown cap is holding a cup of coffee in a cafe

SECTIONS

Sole traders and partnerships

Shareholder employees

Other travelling costs

GST implications

FBT implications

Conclusion

Who are Beany?

Chances are that your business won’t be paying for your food, and you’re not going to like it.

IRD recently issued an Interpretation Statement (IS 21/06) on the deductibility of meals during the day and while travelling for business purposes. They believe this part of the legislation hasn’t been correctly followed in the past. It’s therefore not a new law, but explicit instructions on how existing law must be applied.

In short, IRD consider meals to be a necessity for living rather than for earning income based on business structures. 

Sole traders and partnerships

No food or drink can be claimed as a business expense. Not even if you’re away on business, staying at a hotel overnight or many nights, or attending a conference.
The only situation where meals and/or drinks can be claimed as a business expense is when you are ‘entertaining’ suppliers, wining and dining (potential) clients, holding staff functions, etc. These fall under the entertainment guidelines, where only 50% of the cost is deductible.
There are no exceptions to the above* – it’s black and white. You’re expected to pay for meals yourself and/or take a paper-bag lunch and a thermos to work.

* Well…perhaps one. The only way a sole trader or a partner can claim meals with accommodation is if there are no self-catering motels available, and no supermarkets in the area. Even then, the amount claimed can only be the difference between the actual cost and what it would cost for you to have a meal at home. Good luck working that one out!

Shareholder employees

You’re in exactly the same position as sole traders and partnerships above, with one exception – your signed employment agreement requires that your employer (the company) reimburse you for meals and drinks, or provide you with an allowance. Of course, what is an exception without strings attached?

The cost needs to be incurred when you’re away from your normal place of work for business purposes;
The reimbursement must be reasonable and in line with the company’s agreements with other employees. For example – you can’t have an elaborate meal with expensive wine, while other employees are limited to a Subway sandwich;
Entertainment and FBT rules may apply depending on the situation.

Read more: What is Fringe Benefit Tax (FBT)?

Other travelling costs

The costs of accommodation and travel to the location for business purposes continue to be deductible. When you travel for business purposes, you can claim the following expenses:

Flights
Taxis, or mileage or motor vehicle expenses if you use your own car for the business trip
Accommodation
Meals and snack

If you’re travelling overseas, you can claim 100% of work-related expenses, including flights, taxis, accommodations and meals.

GST implications

You can only claim GST on the business portion of the meal expenses. If you need to make a 50% non-deductible adjustment on any meal expenses, then the same adjustment is needed for GST.

FBT implications

FBT tax is payable on meals directly provided by the employer to the employees as it's considered a type of benefit provided.

When your employee is far away from their normal work location for business reasons, tax exemption may be available for the full amount of the meal payments. However, there is a 3-month time limit on this.

A tax exemption also applies to payments for light refreshments (such as biscuits and coffee) when the employee is working away from their workplace most of the day, and the employer would normally provide the employee with similar refreshments.

Conclusion

You’re likely to be thinking to yourself “But…”, “What if…?”, “What about…?” The answer is “no”. Here are some related resources you might be interested in:

What expenses can I claim for my business?
Inland Revenue’s Interpretation Standard IS 21/06

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