The area of "meal entertainment" is an absolute minefield for accounting professionals like us. It can be very difficult to know when an expense incurred by a client relating to food or drink should be recorded with GST or not. Luckily there is a resource out there via the ATO that brings some clarity to the situation.
And here is the resource - it's Taxation Ruling TR 97/17, paragraph 25.
Basically, the table outlines various circumstances in which food and drink may be provided e.g. at the business premises, at a cafe or restaurant, whilst travelling, at a seminar, drinking alcohol, employees only, employees and their spouses etc. Within the table is a column indicating whether or not the situation or cost would be tax deductible. This is the important column for BAS Agents! If you use the Actual Method to value meal entertainment, and the expense is tax deductible, then it follows that GST is also claimable. Remember, if it's tax deductible, GST also applies!
When coding meal entertainment expenses, it's important to firstly approach the accountant and ask if he/she would like specific accounts set up for the purpose. He/she may just say that you should code all of these expenses to one account and he/she will deal with it all at year-end. He/she may inform you that FBT may apply, in this case you will need to code specifically to show if the expense is for the employer or employee. Your accountant may want to you to create sub-accounts to track different types of meal entertainment.
The following ARE NOT MEAL ENTERTAINMENT! These are all tax deductible and GST is to be claimed (where GST applies to the specific expense).
- Gifts to clients and staff members
- Meals taken whilst travelling for business purposes
- Meals/food provided at conferences and events
- Meals/food purchases connected to a business e.g. a pub or cafe
Non-tax deductible meal entertainment expenses must NOT be coded to director loan or drawings for a company director - it must always go to a profit and loss account. However, it is okay to code these types of expenses to drawings for a sole trader. So, refer to the above table and to the accountant and you will be fine.
Meal entertainment is the most difficult of areas in terms of bookkeeping for me, with so many scenarios and if, buts and maybes!