In the past, business owners in New Zealand could claim meal and light refreshment expenses while travelling for work. However, with IRD’s release of interpretation statement IS 21/06, this is no longer the case.
The determination has been made that, regardless of whether you're at work or not, you still need to eat and drink to survive. As a result, food and beverages are now considered personal expenses and are no longer deductible for business owners. Any expenses related to food or drink for you, as the business owner, should be coded to drawings.
We’ve outlined a few common scenarios below to help clarify what can and can’t be claimed. Food and drink expenses for employees, however, remain deductible. Some business owners may think about putting themselves on payroll to claim entertainment deductions, but we recommend you speak to us first – there are other considerations to take into account.
Scenario 1 – Self-Employed Meal Expenses
Mike is a self-employed technician based in Whangarei, specialising in machinery repairs. While his primary work is in the Whangarei region, he frequently travels to Dargaville, Kerikeri, and Kaikohe for more specialised repair work. On occasion, he travels further afield. Mike's small office in Whangarei doubles as a storage space for parts and consumables, with his wife, Rebecca, helping out with admin. There are basic tea and coffee-making facilities at the office.
Variation 1 – Local Travel
On a busy day, Mike travels between several clients in Ruakaka, Waipu and Mangawhai, a significant distance from his office. He buys takeaway coffee and lunch while out and wonders if these expenses are deductible, as they were incurred while earning income. Unfortunately, Mike cannot claim these expenses as they are considered personal and domestic in nature. The job didn’t impose any extra costs that he wouldn’t otherwise have had.
Variation 2 – Business Travel
The next day, Mike travels to Kaitaia for work. Due to the travel time and duration of the job, he doesn’t return home until 9pm. He buys coffee, lunch, and dinner while out. Can any of these meal expenses be claimed? Once again, Mike cannot deduct these expenses as they are still considered personal and domestic in nature.
Variation 3 – Overnight Travel
The following week, Mike travels to Auckland for two days, staying overnight. He incurs meal and drink expenses during his stay. Is any of this deductible? Since these expenses are of a personal nature, they are not deductible. Mike could argue that being away from home imposed extra costs, but since he chose to eat out rather than seek self-catering accommodation, he cannot claim these expenses.
Variation 4 – Remote Work Travel
A few weeks later, Mike heads to a rural area of Northland where self-catering options are unavailable, and the only accommodation option requires him to dine at the hotel restaurant. Could these meal expenses be deductible? In this case, because Mike had no other option and the unusual working conditions required him to spend more than usual on meals, the extra costs above his normal expenditure are deductible. For example, if Mike normally spends $20 on dinner, any amount spent beyond this could be claimed.
Variation 5 – Employee Expenses
Mike hires Pete to help with the growing workload. Pete travels to Kaikohe for two days and stays overnight. Per his employment contract, Mike reimburses him for meals and provides a daily allowance for refreshments. Can Mike claim this expense? Yes, since the reimbursement is an employee expense, it can be deducted as a business expense.
Variation 6 – Entertaining Clients
Mike notices increased competition in the market and decides to strengthen relationships with key clients by taking them out for dinner every Wednesday. Can he claim these expenses? Yes, Mike can claim 50% of the meal costs incurred while entertaining clients. However, if he were dining alone, no deduction would be available.
Variation 7 – Entertaining Friends
On Fridays, Mike regularly meets up with friends from a nearby business park for drinks and dinner. If Mike shouts them a round of drinks and dinner, can he claim any of these expenses? No, Mike cannot claim these costs, as they are private and personal expenses.
Variation 8 – Shareholder-Employee Expenses
Mike and his wife Rebecca are the sole shareholders of Mike’s business. Rebecca regularly attends conferences to represent the company, and her employment agreement entitles her to meal reimbursements and daily allowances. During one recent trip, Mike also attends the conference and the company pays for all his meals. Can these expenses be claimed? Rebecca’s expenses can be claimed as an employee expense, but Mike's cannot, as he is not employed by the company and his costs are considered personal.
If you have any questions about these scenarios or the new rules, please get in touch with the team at My Two Cents. We're here to help.
