So you & the team are flat out on the job and eating a ton. Food costs heaps these days & you might be thinking, ‘Can I claim all these food costs as business expenses?’ Good question, let me explain.
First the bad news
There’s a rule in the income tax law which says if you’re self-employed, you can’t deduct tax for ‘private’ expenses. Meals are classed as ‘private’ because you need food whether or not you’re running a business.
Now, the good news – there are two exceptions
1. Exceptional situations
You can claim meal expenses if you’re doing a business activity that requires extra meal costs beyond what’s normal.
Let’s say you’re self-employed & have a plumbing contract in a rural part of Central Otago. There is no supermarket near the work site but there is a flash winery down the road which does lunches, making it your only option for lunch. If the lunch costs you $30 compared to your normal lunch spend of $10, then the ‘extra’ expense of $20 is tax deductible.
2. Employee allowances
If you employ staff, payments for overtime meals, training courses or working away from the usual workplace are all generally deductible to the employer.
Take the example where Top Otago Plumbing Limited’s employee Tom has a day with four plumbing jobs lined up around Central Otago, all of them being a fair distance from Top Otago Plumbing’s base in Cromwell, so he’ll have no chance to call back to base for coffee. In this case a reasonable tax-free daily allowance (IRD uses $15 as a guide) to cover the cost of buying light refreshments while working away from base could be paid. The allowance would be tax free to Tom and tax deductible to the business.
Sweet, how do I get these savings?
First off, be careful when making these tax claims. IRD will be all over this like a cheap suit if you haven’t thought it through. It’ll pay to get a policy drawn up that links the tax rules to what you’re claiming before you charge ahead with this one. Do it right though and get some good advice beforehand and there could be some good tax savings in it for you.