Is meeting clients for coffee tax deductible?
If you buy your client coffee, is it tax deductible? What about petrol? Can you claim your AirBNB costs when visiting a client? Let’s examine some of these tricky questions, so you can be better prepared for tax time.
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We designed Rounded to make it easier for sole traders to manage the financial side of our business. But even with a tool like Rounded, some tricky tax-related questions can cause confusion—especially for sole traders paying taxes for the first time.
In this article, we address some of the most common questions sole traders have about tax deductions and provide the resources to help you lodge everything properly.
If you’re looking for more guidance on how to claim expenses and lodge taxes as a sole trader, check out our full guide:
We’ve teamed up with Holly Shoebridge, from Oceans Accounting, to make sure all of this info is up to date for this tax year and beyond.
Note: While we do our best to provide you with accurate information about paying taxes, remember that everyone’s financial situation is unique. We highly recommend hiring a tax accountant to make sure everything is in good order when the time comes to lodge your tax return.
Is coffee tax deductible? And what about meals?
It’s not uncommon to meet your clients in public for coffee, a meal, or even drinks—especially if you don’t have a formal office. But can you claim this as a tax deduction, or count the GST you paid as a GST credit on your activity statement?
The reality is, the ATO is somewhat ambiguous about what constitutes a business meeting, which is tax deductible, and what constitutes “entertainment,” which is not tax deductible.
According to Holly, the best way to determine whether a meal is tax deductible is to apply the “Where, What, When, Why” method. When organising your expenses, ask yourself these questions:
Where did the meal or coffee take place?
Coffee and meals are typically only tax deductible if they are enjoyed on business premises. For example, meeting a client at a cafe or restaurant would probably not be deductible; getting some light catering for the office, or purchasing refreshments or coffee and bringing it back to your client’s office, would be a tax-deductible expense.
What did the meal entail?
The ATO’s general rule is that light meals and coffee are tax deductible. Extravagant meals, however, are not. And if you add alcohol into the equation, it’s pretty much guaranteed the ATO will see that as entertainment and not tax deductible.
When did the meal take place?
The ATO expects business-related meals to take place when you’re actually working. This typically means traditional work hours, or when you’re traveling for business or working overtime. Of course, as a freelancer, you may hold different hours than a typical office worker—but you still should only claim meals that took place when you would otherwise be working.
Why did the meal or coffee take place?
Was it purely for business reasons, such as during a meeting or staff training? If not, it will most likely not be counted as tax deductible, even if you briefly discussed business during the event.
These are general rules, but there is still quite a bit of grey area. That’s why Holly recommends talking to a tax accountant before you make any claims—they can look at each instance individually and help you decide if it passes the test.
You can read more about the ATO’s ruling on this matter here, though fair warning, it’s a pretty dry read.
What travel expenses are tax deductible?
Travel expenses are another vague area of tax regulation, especially for freelancers who move around a lot for work.
Check out our guide to digital nomad taxes if you’re a freelancer who lives life on the road. Here are some of the common questions sole traders have about travel expenses:
How do you know when travel expenses are deductible?
Here’s the good news: Some of your travel expenses for work likely can be claimed as tax deductions. This includes airline fares, taxis or ride-sharing fees, public transportation costs, hotels or AirBNBs, meals if you are staying overnight, and car hire fees (including petrol and insurance).
But there’s an important caveat: In order to claim any travel expenses as deductions, they must be directly related to income-earning activities. This can get a little complicated if you plan to mix work travel with travel for pleasure.
Let’s say for example you are flying to the Gold Coast with mates for a week, but at the end of the trip you’ll spend one day visiting a client nearby. In this case, the vast majority of the trip is for pleasure and therefore not tax deductible. However, the meals and accommodation and travel expenses related to the day you spent with a client could be deducted as expenses.
For this reason, it’s a very good idea to keep a travel diary of your trip, so you can easily show exactly what portions of your trip were work-related. The ATO has a great poster that shows you exactly how you can keep an accurate diary. It’s definitely worth reading if you plan on travelling a lot for work.
Once again, because it’s such a grey area, it’s highly recommended that you speak with a tax accountant to look at each instance on a case by case basis. They’ll help you decide what portions of your travel can be claimed.
What about vehicle expenses?
If you spend money on a vehicle for work purposes, it’s likely tax-deductible. The ATO mentions these different vehicle-related, tax-deductible expenses:
Fuel and oil
Repairs and servicing
Interest on a vehicle loan
Payments on a lease
Premiums for insurance
Vehicle registration fees
Depreciation (the decline in value of your vehicle)
Things get more complicated if you use your car for both personal and work-related purposes. In this case, you will need to keep a logbook and records to show what portion of your expenses relate to the business use of the vehicle.
For more detailed information, check out the ATO’s resource on deductions for motor vehicle expenses.
Other operational expenses you can claim
Before you lodge your tax return, we highly recommend you take a look at this list from the ATO of “Deductions for operating expenses.” This list includes some things you may not have thought of, like:
Subscriptions to work-related journals or magazines
Business software fees
Low-cost mobile phone accessories (like phone cases and charging cords)
Protective gear (including sunglasses and hats if you work outside)
Look over this list, and if you think some of your expenses from the last year or quarter fit the bill, speak to your tax accountant to verify you can claim them.
Ready to start filing?
Hopefully this article answered some of those burning tax-related questions sole traders often have. But the work isn’t done yet—you still need to lodge all of these claims appropriately, provide your receipts, and get everything sent off to the right place before the deadline.
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