Business-related entertainment expenses
Very specific rules apply to different categories of entertainment. Some entertainment expenses can be fully deducted, while others can only be 50% deducted. For example, the use of an “executive dining room” is one of the categories you can claim for, but the cost may or may not be fully deductible depending on how it’s used.
What are private entertainment expenses?
It should be clear when expenses are business-related or private. An entertainment expense is business-related if you spend the money to help your business earn income. Two common examples are:
• entertaining an existing or potential business contact
• holding an event for employees to improve engagement, eg, a party or team-building activity.
If the expense doesn’t help your business earn gross income, it’s private and you can’t claim it as a tax deduction, even if you paid for it out of your business account.
Example: Mary took her family for a meal out. She used her business credit card to pay for the meal. Mary can’t claim the cost of the meal as entertainment expenses because it’s a private expense.
100% deductible entertainment expenses
Food and drink while travelling on business
If you or one of your employees buys a meal while travelling on business, the cost is 100% deductible.
You can deduct 100% of the food and drink you provide at a conference, education course or similar event that lasts for four consecutive hours or more (not counting meal breaks).
If you supply entertainment to promote a business or the business’s products or services to the public, you can deduct 100% of the costs.
50% deductible entertainment expenses
Some business-related entertainment expenses are set as 50% deductible because they have a significant private element. Even if you think that the private element was more or less than 50% of the expense, you can only claim 50% of the expense as a deduction. In general, an entertainment away from work or out of usual work hours has a private element.
If you’re not sure, contact a tax advisor or accountant.