The objective of this Public Ruling (PR) is to explain the tax treatment of entertainment expense as a deduction against gross income of a business and steps to determine the amount of entertainment expense allowable as a deduction.
The process of determining the deductibility of entertainment expenses can be very tedious and often bewildering. Therefore, to ensure that the expenses are appropriately categorised, it is in the interest of taxpayers to educate their staff to provide details such as who they entertained and the purpose of the entertainment. Proper records such as invoices, receipts, payment vouchers, etc must be kept to support the claim in case of tax audit.
Entertaining customers is part of the sales function of many businesses. And paired with meal expenses, entertainment expenses are often considered a package. After all, we have to eat while we are being entertained. Meals and entertainment are a legitimate business expense. But because these expenses can be misused and mixed up with personal expenses.
Writing off meals and entertainment for your business can be pretty confusing. Some things are 100% deductible, some are 50%, and a few are nondeductible. It all depends on the purpose of the meal or event, and who benefits from it.
Here are the 3 steps in determining whether an entertainment expense can be allowed as a deduction.
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